Next 24 hours: Euro Demand Turning Heads
Today’s report: Never Too Far from Politics
It seems the market never can get away from politics for too long in 2017, with the US President back in the headlines on reports of leaked intel to Russia. These reports have since been denied but the ongoing string of controversy out of the White House continues to distract.
Wake-up call
Chart talk: Major markets technical overview video
- Eurozone data
- UK CPI
- leak reports
- macro flows
- Fitch AAA
- OIL run
- GDT auction
- keep pushing
- USD weakness
- USDSGDÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- Unusually Low Volatility Can Be Dangerous, M. El-Erian, Bloomberg (May 15, 2017)
- Pound’s Pre-Election Punch-Up, K. Martin, Financial Times (May 12, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The market has recently cleared major resistance at 1.0906, breaking to a fresh 2017 high, while confirming a higher low at 1.0570. The break strengthens the case for a major bottom and opens the next upside extension towards the 1.1400 area. However, additional corrective setbacks should not be ruled out, with the market possibly wanting to fill a gap down to the 1.0730 area in search of its next higher low. Ultimately, only below a previous higher low at 1.0570 negates the newly adopted constructive outlook.
EURUSD – fundamental overview
Reports of the ECB getting set to prepare the market for a taper have been helping this latest run in the Euro, with the single currency trying to extend its impressive run in 2017. Meanwhile, the US Dollar has been helping things along on another data miss, this time from Empire manufacturing and more controversy out of the White House on the latest story the US administration leaked intel to Russia. Looking ahead, the market will take in a healthy chunk of Eurozone economic data including German and Eurozone ZEW surveys, Eurozone trade and Eurozone GDP, while also digesting ECB speak from Coeure and Nowotny. Then into the US, it will be about US housing starts, building permits and industrial production.
GBPUSD – technical overview
This latest push through 1.2775, the December 2016 peak, is a significant development as it potentially ends a period of bearish consolidation, warning of the formation of a more meaningful longer-term base. The break ends a multi week consolidation mostly ranging between 1.2000-1.2700 with the bullish move paving the way for a measured moved upside extension equal in size back into the 1.3500 area in the days ahead. Still, there is rise for a short-term pullback, though any declines are now classified as corrective and should be well supported ahead of 1.2500 in favour of a higher low and bullish resumption.
GBPUSD – fundamental overview
The Pound continues to hold up well since breaking out in April on the news of the UK snap election next month. Even setbacks following last Thursday’s discouraging industrial and manufacturing production readings and more dovish than expected Bank of England decision were mild considering, with the UK currency seemingly intent on pushing back above that psychological barrier at 1.3000 as the worst case Brexit scenarios are priced out. Certainly this latest run of soft US data in the form of retail sales, CPI and Empire manufacturing have also helped to keep the Pound supported. However, it is interesting to note that despite the ability for the UK currency to hold up, if we look at performance over the past 5 days, the Pound is actually the weakest in the developed currency basket. Setbacks have been mild, but most currencies are up against the Buck over this period, which could warn of weakness ahead. Today’s UK CPI data will be an important one to watch and could mean the difference between a surge through 1.3000 or bearish reversal and onset of a correction. Then into the US, it will be about US housing starts, building permits and industrial production.
USDJPY – technical overview
The recent break and daily close back above 112.20 takes the immediate pressure off the downside, with the market also pushing through falling trend-line resistance from January. This opens the door for additional upside in the sessions ahead, though ultimately, a push through 115.60 will be required for a more constructive outlook. In the interim, the market is confined to neutral territory. Back below 112.09 would put the pressure back on the downside.
USDJPY – fundamental overview
The Yen has been trying to make a bit of a comeback over the past few sessions, with most of the gains attributed to renewed selling in the US Dollar after the Buck had made a nice run out from 2017 lows. Last Friday’s softer run of US data and dovish Fed Evans speak were initial contributors of Yen demand, while Monday’s soft US Empire manufacturing and controversy out of the White House relating to Russia leaks have only added to the Yen demand. At the same time, the market continues to monitor broader risk sentiment and while US equities keep pushing to record highs, the Yen will keep running into offers (USDJPY higher). If however, risk appetite wanes and US equities falter, this could intensify Yen demand and invite a USDJPY retest of the yearly low just ahead of 108.00. Tuesday’s pullback in China stocks could be something that eats at risk sentiment as the day goes on. Looking ahead, we get US housing starts, building permits and industrial production.
EURCHF – technical overview
The latest break back above 1.0900 takes pressure off the downside and could be warning of a more significant structural shift. Next key resistance comes in at 1.1000, with the psychological barrier coinciding with a high from August 2016. The establishment above 1.1000 would strengthen the bullish outlook and open the door for fresh upside. Back below 1.0780 would now be required to put the pressure on the downside.
EURCHF – fundamental overview
The SNB has been getting a lot of help from reduced risk in the Eurozone following the France election and has likely been taking advantage of this development through additional efforts to weaken the Franc in the aftermath. But with global risk sentiment highly elevated, as reflected through stock markets, and geopolitical tension on the rise, there should be worry that any capitulation on that front could invite massive safe haven Franc demand the central bank will be unable to offset. For now, the SNB is hoping the ECB will take on a more hawkish policy approach as per reports the central bank is preparing for a taper, though Draghi offered no such confirmation in his appearance last week.
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 0.7500 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. Last week’s drop below 0.7475 strengthens the bearish outlook and any rallies should be very well capped ahead of that previous support now turned resistance at 0.7600.
AUDUSD – fundamental overview
The Australian Dollar is looking to extend its recent recovery run, hoping to get some help from Fitch’s affirming the Australia’s AAA rating. Meanwhile, an ongoing bid for US equities, bounce in commodities, soft run of US economic data and this latest controversy surrounding the White House on claims of leaks to Russia, are all adding to the underlying supportive tone for the Australian Dollar at the moment. Looking ahead, the calendar is rather mild, with the key standouts coming in the form of US housing starts, building permits and industrial production.
USDCAD – technical overview
The uptrend in this market remains firmly intact, getting added confirmation following this latest break to a fresh 2017 high and through a key peak from December 2016 at 1.3600. But the market is looking super stretched at the moment which has invited this short-term correction. Still, any setbacks should now be very well supported in the 1.3500 area in favour of an eventual push towards the next measured move upside extension objective in the 1.4000 area. Ultimately, only back below 1.3224 would give reason for pause and delay the constructive outlook.
USDCAD – fundamental overview
The Canadian Dollar has been doing its best to avoid another drop to fresh 2017 lows, though it hasn’t been easy. Last week’s news of Moody’s downgrades at the Canadian Banks only added to stress relating to the Loonie’s outlook, with the Canadian Dollar already contending with US administration protectionism in the form of announced tariffs on Canada. But, a recovery in the price of OIL, soft batch of US data since last Friday, comments from BOE Governor Poloz that risk associated with mortgage lending giant Home Capital Group has been contained and more controversy out of the White House relating to leaks have definitely helped to inspire some profit taking on Canadian Dollar shorts. Looking ahead, absence of first tier Canada data will leave the focus on US releases including housing starts, building permits and industrial production.
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, with outlook strengthened on this week’s breakdown to a fresh 2017 low. 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 0.7100 compromises the outlook.
NZDUSD – fundamental overview
The New Zealand Dollar has been finding some support off recent 2017 lows, with the risk correlated commodity currency benefiting from ongoing demand for US equities, a recovery in commodities, softer US data, impressive New Zealand retail sales and more controversy out of the White House relating to leaks. Still, overall, the commodities recovery remains in question, the Fed is on course with its forward guidance and the rotation from the commodity bloc into the Euro and Pound as risk is reduced in Europe could all continue to weigh on Kiwi into rallies. But for now, the currency is bid, even after China equities slid earlier on Tuesday. Looking ahead, the key focus for this pair will be on the GDT auction result later in the day, but we also get US data ahead of the GDT including housing starts, building permits and industrial production.
US SPX 500 – technical overview
The market was unable to break down below major support at 2320, leaving the pressure on the topside and opening the door for this latest run to a fresh record high. The push back above 2400 opens a measured move extension to 2480. At this point, a break back below 2368 would be required at a minimum to alleviate immediate topside pressure.
US SPX 500 – fundamental overview
The US equity market has done a good job proving it doesn’t care about anything accept interest rates. There have been many risks thrown at the market in recent years and each time, investors are able to easily shrug off these risks, content to build long exposure with rates exceptionally low and nowhere else to put capital to work. The fact that the Fed has begun the reversal of policy is of no consequence at this point, with negligible rate increases to date, doing nothing to dissuade the market, with valuations remaining attractive. Of course, the market has also grown accustomed to relying on Fed misguidance that has only emboldened the bullish case. Still, with asset prices where they are right now and with the Fed showing it may actually follow through with guidance in 2017, there is risk it could all come crashing down, with upside possibly limited to 2500 before a major capitulation. It’s worth highlighting the rise in geopolitical risk, something that should be another red flag, particularly when one considers the new US administration’s alternative take on diplomacy.
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. As such, look for the latest round of setbacks to be well supported above the previous higher low at 1195, with only a break back below 1195 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, 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. Certainly the US Dollar back under pressure in recent days is adding to the metal’s bid tone as well.
Feature – technical overview
USDSGD has been trending lower in 2017, making a series of lower highs and lower lows. The most recent lower top comes in at 1.4220 and a fresh lower top is now sought out ahead of this level, possibly around 1.4130 in favor of the next major measured move downside extension into the 1.3700 area. At this point, only back above 1.4220 negates the bearish outlook.
Feature – fundamental overview
The Singapore Dollar will be looking to extend its run in 2017, with the currency easily absorbing a period of US Dollar strength. Last week’s solid Singapore retail sales combined with a softer run of US data since Friday and dovish Fed Evans comments have inspired this latest run in the emerging market currency. Meanwhile, Singapore real estate transactions have been surprisingly robust, more than doubling on a year over year basis, reflecting stability in the housing market and consumer health. Looking ahead, the latest NODX data and trade are due tomorrow and are the standout releases in Singapore this week.