Next 24 hours: Canadian Dollar Weakness Stands Out
Today’s report: US Dollar Beaten Up in Q1 2017
So we've wrapped up Q1 2017 and are now into the second quarter. Looking back, it wasn't a good first quarter for the US Dollar, with the Buck down across the board. The Australian Dollar was the strongest of the developed currencies up about 6%, while the Canadian Dollar was the weakest, up only about 1% against the US Dollar.
Wake-up call
Chart talk: Major markets technical overview video
- up 1.50%
- EU Tusk
- BOJ Tankan
- global forces
- retail sales
- Canada GDP
- equity rally
- Red flags
- Portfolio diversification
- USDSGDÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- Even Best Stock Pickers Can’t Beat Bots, N. Kaissar, Bloomberg (March 30, 2017)
- Britain Needs to Put Banks at Heart of Talks, L. Brinded, Business Insider (March 31, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
Inability to establish above resistance at 1.0875 has kept the pressure on the downside, with the market stalling out into medium-term range resistance and rolling back over. While this could be a minor setback ahead of the next upside extension, it could also be the start to a resumption of the broader downtrend. At this point, a break back above 1.0900 or below 1.0500 will be required for clearer directional insight. It’s worth noting a strong confluence of Fibonacci, Ichimoku support in the 1.0580-1.0650 area.
EURUSD – fundamental overview
Despite the latest round of sharp setbacks since stalling out above 1.0900, the Euro comes into the second quarter of 2017 up about 1.50% against the US Dollar. Most of these gains come from the less hawkish FOMC decision and a lack of confidence in President Trump’s ability to deliver on US Dollar bullish tax cut and fiscal spending policies. The Euro has however given back some gains on its own merits, with the ECB’s miscommunication of its March message and stress related to Brexit weighing on the single currency. Looking ahead, key standouts on Monday come in the form of Eurozone and German manufacturing data, Eurozone producer prices, Eurozone unemployment, US ISM manufacturing, US construction spending and Fed speak from Dudley, Harker and Lacker.
GBPUSD – technical overview
Despite the recent bounce, the market remains confined to a well defined downtrend while it holds below the December 2016 peak at 1.2775. Ultimately, rallies should continue to be very well capped ahead of 1.2775, with only a break above 1.2775 to compromise the bearish structure. Look for a daily close back below 1.2324 to strengthen the outlook, opening the door for a retest of the 2017 low just under 1.2000, which guards against the +30 year low from October 2016 at 1.1840.
GBPUSD – fundamental overview
The Pound has done an exemplary job representing sell the rumour, buy the fact price action, with the UK currency outperforming since the trigger of Article 50 this past week. The market has been feeling good about buying with all of the downside risk seemingly priced in and the possibility for the greater longer-term risk now to the upside. The Pound was up about 1.65% against the Buck in the first quarter of 2017 and is also benefiting from stronger UK data and a more upbeat Bank of England. Still, with plenty of sell orders capping gains ahead of 1.2775 and with the EU’s Tusk warning of difficult, complex and confrontational talks ahead, additional upside in the Pound could prove hard to come by. Looking at today’s docket, we get UK manufacturing data, US ISM manufacturing, US construction spending and Fed speak from Dudley, Harker and Lacker.
USDJPY – technical overview
The market has broken down below critical range support at 111.60 which could signal the end of a 400 point bearish consolidation that now opens the next major downside extension towards a 400 point measured move that targets 107.60 in the days ahead. Look for any rallies to be well capped ahead of  114.00, while ultimately, only back above 115.60 would force a bullish structural shift.
USDJPY – fundamental overview
The BOJ Tankan survey has come out rather upbeat, with sentiment improving all around. Still, the data hasn’t factored much into price action, with the BOJ not in any hurry to make any policy changes. Overall, it’s risk sentiment flow that should ultimately dictate direction here. If equities continue to surge, USDJPY should trade higher, while setbacks will likely inspire renewed Yen demand that could result in a breakdown below USDJPY 110.00. Looking ahead, key standouts on the calendar come in the form of US ISM manufacturing and construction spending, along with Fed speeches from Dudley, Harker and Lacker.
EURCHF – technical overview
Rallies continue to be very well capped, with the market adhering to a broader downtrend of lower tops and lower lows. The most recent rally has stalled at 1.0826 where a fresh lower top is now sought ahead of the next major downside extension below the 2016 base at 1.0624 and towards 1.0400 further down. Only back above 1.0826 delays the bearish outlook.
EURCHF – fundamental overview
The SNB is in a quiet battle with the market, forced to contend with an ongoing wave of demand for the Swiss Franc in a less certain global environment, especially with the weapon of monetary policy worn down. The central bank has been committed to its mandate of ensuring the Franc does not appreciate further. But despite all efforts, the Franc continues to want to appreciate. It seems the central bank’s strategy has been to sell Francs when risk comes off and to do nothing when risk is back on and natural flows should be CHF bearish. But the trouble is, even with global equities elevated, arguably reflecting appetite for risk, the Franc hasn’t been able to weaken all that much. There have been some signs of the SNB perhaps making a little headway on reports of a boost in SNB reserves, but a meaningful pullback in equities could easily offset that advantage.
AUDUSD – technical overview
The impressive rally in 2017 has stalled out into significant medium-term resistance ahead of 0.7800. A recent break back below 0.7600 strengthens the prospect for some form of a top and could open the door for a deeper drop back towards the 0.7000 area in the days ahead. However, the market will need to hold below 0.7750 to keep the prospect of the bearish shift alive, with a subsequent break back below 0.7492 to confirm.
AUDUSD – fundamental overview
The Australian Dollar was a star performer in the first quarter of 2017, with the currency up about 6% against the US Dollar on the back of rising equities, faltering US Dollar bullish themes and solid performance in commodities. But in recent days, the commodity currency has been finding offers in a familiar area up towards 0.7800, with the market weighed down on Monday following the softer Aussie manufacturing and retail sales prints earlier in the day. Plenty of focus will now be on the early Tuesday RBA policy decision, where the central bank is expected to leave rates on hold. The market will be curious to see what kind of tone it gets from the RBA. But looking at today’s calendar, key standouts come in the form of US ISM manufacturing and construction spending, along with Fed speeches from Dudley, Harker and Lacker.
USDCAD – technical overview
The market remains very well supported on dips, with the latest bounce out from 1.3000 warning of a more significant bullish resumption. Any setbacks should now be very well supported above 1.3200 on a daily close basis in favour of an eventual push back through the multi-day peak at 1.3599 and towards 1.4000 further up.
USDCAD – fundamental overview
The Canadian Dollar got a nice boost on Friday following the much better than expected Canada GDP print, which doubled expectations, and an ongoing bid in the price of OIL, continuing to extend its recovery off 2017 lows. Still, with US data remaining strong, this has been offsetting some of the Loonie gains, while signs of a pickup in US inflation is also helping to support the US Dollar on dips, with the implication that this will force the Fed into a more aggressive monetary policy normalisation path, which in turn will make US Dollar yield diffferentials increasingly attractive. Looking ahead, key standouts on the calendar come in the form of Canada manufacturing, US ISM manufacturing and construction spending, and Fed speeches from Dudley, Harker and Lacker.
NZDUSD – technical overview
The overall pressure remains on the downside with the market expected to be very well capped on rallies. The weekly chart is reflective of this fact as it looks like we’re seeing the formation of a major top off the 2016 high. As such, expect the market to continue to roll over in the days ahead, with setbacks projected towards medium-term support in the 0.6600s. Only back above 0.7400 compromises the outlook.
NZDUSD – fundamental overview
The New Zealand Dollar wasn’t able to benefit from the run up in stocks last week, with all of these flows absorbed by the Australian Dollar, preferred as the proxy for risk in the FX market right now. This in conjunction with a recovery in the US Dollar on the back of solid US data and more hawkish Fed speak have kept the Kiwi rate focused on the downside. Meanwhile, New Zealand business confidence readings came in a good deal softer than previous on Friday, which could be adding to selling pressure. Looking at today’s calendar, key standouts come in the form of US ISM manufacturing and construction spending, along with Fed speeches from Dudley, Harker and Lacker.
US SPX 500 – technical overview
An extended run to record highs is finally showing signs of exhaustion in 2017, with the market rolling over, taking out critical short-term support at 2350. This now opens the door for an acceleration of declines towards 2300 in the sessions ahead, with a daily close below this psychological barrier to suggest the possibility of a more significant structural shift. In the interim, rallies should now be well capped below 2380.
US SPX 500 – fundamental overview
Investors were shaken early last week after President Trump’s healthcare bill failed to pass, casting doubts on his ability to deliver market supportive policies investors have been counting on. But there has been a renewed confidence since on talk Trump will be looking to push through tax cut and fiscal spending reform all at once, which has helped to inspire a fresh round of bids. Still, there is plenty of doubt that Trump will actually be able to follow through and the market also shouldn’t forget about the influence of Fed policy in the process of normalisation on the back of solid US data and rising inflation. Higher US rates means less attractive valuations and considering where this market is trading, there is a strong possibility that a mass exodus could inspire an intensified liquidation.
GOLD (SPOT) – technical overview
The market has been very well supported since basing out around 1120 in 2016. A recent bounce out from the 1200 area strengthens the outlook, opening the door for the next major upside extension towards a measured move into the 1330 area. Look for any setbacks to be well supported ahead of 1200, with only a break back below 1180 to compromise the constructive outlook.
GOLD (SPOT) – fundamental overview
Solid demand from medium and longer-term players continues to emerge on dips, with these players more concerned about the limitations of exhausted monetary policy, extended global equities, political uncertainty and systemic risk. All of this should continue to keep the commodity in demand, with many market participants fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax. Of course, declines in the US Dollar post a dovishly perceived FOMC decision and worry over Trump policies have fueled additional gains in the metal.
Feature – technical overview
USDSGD has been in the process of correcting out from the critical high 1.4545 from earlier this year, putting in a series of lower highs and lower lows. However, the market has finally traded down into a strong previous resistance turned support area in the 1.3900s that could warn of the resumption of the more prominent uptrend. Look for a daily close back above 1.4100 to strengthen prospects for a bullish reversal. Ultimately, while the market holds above 1.3800, risk is tilted to the topside.
Feature – fundamental overview
The Singapore Dollar was bolstered on US Dollar negative themes in Q1 2017. At the top of the list were the more dovishly perceived FOMC (despite higher rates), a diminished confidence in President Trump’s ability to deliver US Dollar supportive policies and concurrent conflicting, soft US Dollar protectionist Trump messages. Meanwhile, local Singapore data has been mixed and less relevant. But going forward, it will be very difficult for the Singapore Dollar to ignore the combination of still favourable US Dollar yield differentials, solid US economic data and risk for a deterioration in global sentiment, all weighing themes that could easily put the emerging market currency back under pressure. Dealers have also been talking of healthy US Dollar demand ahead of 1.3900.