Today’s report: Room for Volatility Despite Holiday Trade
Most markets are closed today for the Easter holiday weekend, which should make for an interesting day of trade given the thinner conditions, still strong potential for volatility in light of all of this geopolitical tension and flight to safety flow, and a US calendar that features important first tier economic data.
Wake-up call
Chart talk: Major markets technical overview video
- French election
- corporate lending
- Suga comments
- Intervention efforts
- China trade
- Poloz
- Aussie spillover
- Investor confidence
- Hard asset
- USDSGDÂ
Peformance chart: This week’s performance v. US dollar
Suggested reading
- Six Impossible Things Before Breakfast, J. Montier, GMO (March 1, 2017)
- Euro to Parity Regardless of French Election, W. Martin, Business Insider (April 13, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
Inability to establish above resistance at 1.0875 several days back 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.
EURUSD – fundamental overview
It didn’t take long for the Euro to reverse course after an impressive Wednesday rally on Trump’s soft US Dollar talk. On Thursday, gains in the single currency stalled out with the market back to focusing on French election risk which still has Marine Le Pen as a possible victor. Thursday was also about position squaring and profit taking into the Easter holiday weekend, inspiring additional US Dollar demand. Of course, it’s also worth noting the solid US data on Thursday, with initial jobless claims and Michigan sentiment further supporting the Euro slide. Looking ahead, most markets are closed though we do get important US releases in the form of CPI, retail sales and business inventories.
GBPUSD – technical overview
Despite a 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. At the same time, a break back below 1.2361 will be required to strengthen the outlook and open the door for renewed downside pressure.
GBPUSD – fundamental overview
The Pound had put in some nice gains this week, with the big highlight coming from Wednesday’s Trump soft US Dollar talk. But the UK currency continues to find heavy offers into rallies against the Buck, with this latest round of setbacks coming from the BOE’s view that weaker business investment had exerted a significant drag on demand for corporate lending in Q1 2017. The market has also seen some Easter holiday weekend position squaring which has benefited the Buck. Looking ahead, many markets are closed on Friday, though there is an important round of US data featuring CPI, retail sales and business inventories.
USDJPY – technical overview
The recent break of a multi-week range low at 111.60 marked an end to a 400 point bearish consolidation that has now opened this next major downside extension towards a 400 point measured move that targets 107.60 in the sessions ahead. Look for any rallies to be well capped ahead of  112.20, while ultimately, only a daily close back above 112.20 would take the immediate pressure off the downside.
USDJPY – fundamental overview
The Yen has been the strongest currency over the past week, with the Japanese currency extending its impressive run on the back of elevated geopolitical tension. The traditional correlation with flight to safety has not been lost on the Yen, with USDJPY breaking down below the major psychological barrier at 110.00. North Korea warnings of a nuclear attack and a standoff between the US and Russia on Syria are not sitting well with investors, fueling the risk liquidation flow. Meanwhile, President Trump’s latest comments that he favoured low interest rate policy and that the US Dollar was getting too strong have opened another round of Yen gains, with USDJPY taking out stops below 109.00. On Thursday, we also heard comments from Japan’s Suga that FX stability was important and Yen levels were being watched with a sense of urgency, though there wasn’t much impact from the official speak. Looking ahead, key standouts on a light holiday Friday come in the US session, with CPI, retail sales and business inventories due.
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 risk markets 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 see a daily close below previous support at 0.7492 to strengthen the bearish outlook. In the interim, any rallies should be well capped below 0.7700.
AUDUSD – fundamental overview
The Australian Dollar was pretty much immune to the broad based recovery in the US Dollar on Thursday. The combination of strong Aussie employment and a well received China trade data showing were enough to keep Aussie bid up on the day. The commodity currency has performed well on the week into Friday despite risk off flow, up about 1% against the Buck. At the same time, this wave of risk off flow should not be ignored as a negative driver going forward, while falling iron ore prices and a cautious RBA could also factor into renewed Aussie declines in the days ahead. As far as today goes, the holiday light trade leaves the calendar focused on headlines pertaining to geopolitical risk and economic data out of the US featuring CPI, retail sales and business inventories.
USDCAD – technical overview
The market remains very well supported on dips, with this year’s bounce out from the 1.3000 area 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. Ultimately, only back below the 2017 low at 1.2969 would force a meaningful shift in the structure.
USDCAD – fundamental overview
Although the Canadian Dollar is up on the week into Friday, benefiting from a more upbeat Bank of Canada and soft US Dollar talk from Trump, gains in the Loonie have been a lot milder than one would have expected after the commodity currency sharply reversed course in Thursday trade. While broad based demand for the US Dollar into the holiday weekend was definitely a factor, we also got some Canada specific headline that drove relative weakness in the Canadian Dollar. On Thursday, Governor Poloz was out with comments warning the Bank of Canada could not just follow the US on rates, something that clearly had a more pronounced impact on Canada-US yield differentials. As far as today goes, the holiday light trade leaves the calendar focused on headlines pertaining to geopolitical risk and economic data out of the US featuring CPI, retail sales and business inventories.
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 is up moderately this week into Friday mostly on the back of Wednesday’s Trump US Dollar bearish Trump comments and spillover demand from Aussie bids following the solid Aussie employment data and impressive China trade. At the same time, a concurrent wave of risk off flow on rising geopolitical tension has been helping to offset interest, with medium-term players more concerned with the possibility for a more intensified liquidation of risk assets and its impact on correlated currencies like Kiwi. As far as today goes, the holiday light trade leaves the calendar focused on headlines pertaining to geopolitical risk and economic data out of the US featuring CPI, retail sales and business inventories.
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 a possible acceleration of declines towards 2270 in the sessions ahead, with a daily close below 2320 to strengthen the outlook for a more significant structural shift. In the interim, rallies should be well capped below 2380.
US SPX 500 – fundamental overview
Bulls remain in control overall despite recent setbacks, though there have been legitimate cracks at the surface in recent days. Last week’s Fed Minutes citing equity overvaluation and possible balance sheet shrinkage later this year haven’t been stock market positive, while the rise in geopolitical tension is only adding to the strain. The market is waking up to the fact that the new US administration’s alternative take on diplomacy could make for a less predictable path for equity markets. Stocks will continue to monitor these developments going forward.
GOLD (SPOT) – technical overview
The market has been very well supported since basing out ahead of 1100 in 2016. This latest break to another yearly high through 1265 strengthens the outlook, confirming the next higher low at 1195, while opening the door for the next major upside extension towards a measured move into the 1335 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, with these players more concerned about the limitations of exhausted monetary policy, extended global equities, political uncertainty, 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. Meanwhile, a bout of US Dollar selling has also kicked in following protectionist Trump comments relating to concern over a strong US Dollar and his support for lower rates, which has opened additional upside in the metal.
Feature – technical overview
USDSGD 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
On Thursday, the MAS left policy on hold as was widely expected, maintaining a neutral policy stance. But the Singapore was softer in the aftermath on expressed concern over the global outlook and GDP that grew less than expected year over year. Meanwhile, the rise in geopolitical tension has only further contributed to the strain on global risk appetite, which could keep emerging market FX well capped going forward. Dealers continue to cite plenty of USDSGD demand in the 1.3900 area.