Special report: Stocks and Geopolitical Risk
Next 24 hours: FX Chops, Same Old Story for Stocks
Today’s report: Sentiment Wanes, Fed Minutes Ahead
Volatility from today's calendar is weighted in the US session, with currency traders unlikely to react too much to EU and UK services PMIs. Instead, the market will spend more time focusing on broader risk sentiment, which has been showing signs of deterioration, and the upcoming release of the Fed Minutes.
Wake-up call
Chart talk: Major markets technical overview video
- services PMIs
- tough talks
- North Korea
- SNB activity
- Trump-Xi meeting
- Ugly trade
- GDT auction
- Geopolitics
- Global outlook
- USDSGDÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- Article 50 and the Next Phase of Brexit, H. Pill, Goldman Sachs (March, 2017)
- Growing Out of Populism?, K. Rogoff, Project Syndicate (April 4, 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
Economic data out of the EMU and US hasn’t factored into trade, with the market more interested in broader themes and risk sentiment at the moment. An upcoming meeting between President Trump and China’s Xi will also be watched closely. In the interim, we get EMU services PMIs, US ADP employment and US ISM non-manufacturing today, all ahead of a highly anticipated Fed Minutes, with the market wanting to see what the Fed has to say about its policy normalisation timeline in the official release.
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 latest run of UK data hasn’t been pretty, with UK construction PMIs missing and BRC shop prices less than impressive. Still, this market isn’t really focused on economic data at the moment, taking its cues from broader themes including the start to what could be a tough Brexit negotiation process with the EU. This alone could limit any additional upside, with dealers continuing to report strong offers into rallies in the 1.2500-1.2700 area. Looking ahead, we get UK services PMIs, US ADP employment, US ISM non-manufacturing and the highly anticipated Fed Minutes late in the day. Â
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. Below 110.00 strengthens the outlook and should accelerate declines.
USDJPY – fundamental overview
Price action in the Yen has been all about broader themes and risk sentiment flow over the past several days. There has been a mild wave of risk reduction that has inspired Yen upside on the traditional correlation, with the USDJPY rate weighed down and looking like it may want to establish below what has been an elusive 110.00 barrier. News of missile launches out from North Korea hasn’t done anything to make investors feel any better into Wednesday, while tensions are also running higher as President Trump gets set to meet China’s Xi. As far as today’s economic calendar goes, US ADP employment, US ISM non-manufacturing and the Fed Minutes stand out.
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 is in the process of consolidating its latest round of declines on the back of Tuesday’s more dovish RBA rate hold. The central bank voiced plenty of concern about the outlook for the economy, citing subdued inflation, soft employment and worry over China. Risk sentiment has also deteriorated, adding to the downside pressure on the correlated currency, which now needs to contend with the very sensitive President Trump meeting with China’s Xi tomorrow. Missile launches out of North Korea are only making the market more unsettled right now, and all of this should keep Aussie well capped. Looking ahead, the US calendar is quite active with ADP employment, ISM non-manufacturing and the Fed Minutes all due.
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 has been doing its best to find some bids on this latest run up in the price of OIL, but is having a hard time. Tuesday’s big Canada trade data miss has offset the gains from the OIL run, while a broader reduction in global risk appetite is also fueling plenty of healthy Loonie offers into any rally. Looking ahead, absence of first tier Canada data will leave the market focused on am important US calendar that features ADP employment, ISM non-manufacturing and the Fed Minutes.
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
Tuesday’s GDT auction result did come in on the positive side, though the mild +1.6% print was hardly anything to get excited about. The data was still softer than previous and still quite depressed, reflecting a long period of struggle with this important series for the New Zealand economy. Meanwhile, risk sentiment has been showing signs of deteriorating, something that only adds to Kiwi downside pressure. Missile launches out of North Korea are further contributing to the sentiment strain on Wednesday, with the market already on tenterhooks ahead of tomorrow’s Trump meeting with China’s Xi. As far as today’s calendar goes, we get some important US releases that include ADP employment, ISM non-manufacturing and the Fed Minutes.
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
Bulls remain in control, though there have been some cracks at the surface in recent days, with uncertainty around President Trump policies worrying the market. Meanwhile, geopolitical risk is back on the rise as North Korea fires off more rockets, something perhaps far more unnerving with a US government more inclined to take action. The stock market will also be thinking about tomorrow’s Trump-Xi meeting, which could result in another crack, if it further highlights the President’s protectionist stance. Of course, 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. And so, today’s Fed Minutes will be watched closely for any additional clarity on this front.
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 and geopolitical threats. All of this should continue to keep the commodity in demand, with many market participants also fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax.
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. Looking ahead, the Fed Minutes and tomorrow’s meeting between President Trump and China’s Xi will be the key events to watch.