Next 24 hours: Subdued Markets on Somber Day
Today’s report: Manchester Attack Underscores Radical Threat
Market immunity to geopolitical risk is something we have spent a lot of time talking about in recent months and this theme is back in the spotlight early Tuesday, with many waking up to the awful news of a terror attack at an Ariana Grande concert in Manchester. Plenty of economic data on tap for Tuesday.
Wake-up call
Chart talk: Major markets technical overview video
- heavy batch
- terror attack
- Fed Brainard
- market immunity
- Offers reported
- IL movement
- Healthy run
- exclusively focused
- Shifting dynamics
- USDSGDÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- The Quants Run Wall Street Now, G. Zuckerman, Wall Street Journal (May 19, 2017)
- A Sovereign Fund Without the Wealth, M. Ashworth, Bloomberg (May 19, 2017)
Chart talk: Technical & fundamental highlights
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EURUSD – technical overview
The surge continues with the market extending its run in 2017 to fresh highs. The latest break above the previous 2017 high at 1.1020 confirms a fresh higher low in place at 1.0840, opening this latest measured move extension into the 1.1200s. Overall, the market is showing signs of the formation of a meaningful base, with the recovery off the multi-year low from January pointing to additional upside from here towards more significant longer-term resistance in the 1.1500-1.1700 area. At this point, only back below 1.0840 will take the immediate pressure off the topside.
EURUSD – fundamental overview
The market has been feeling a lot better about the Euro’s prospects with Eurozone structural risk out of the way and economic data suggesting the ECB could soon look to start reversing policy. Meanwhile, it’s been a different kind of story of late in the US, with the combination of US administration protectionist policy and an overall soft run of US economic data and some dovish comments all weighing on the Buck. This latest Trump turmoil is having less of an impact than many suspected though it certainly hasn’t hurt the Euro’s efforts. There have been some offers ahead of 1.1300, perhaps on the back of the terror attack in Manchester, though with the single currency also enjoying a nice run, the offers aren’t unexpected either. As far as today’s calendar goes, the market is digesting this latest wave of data that includes German GDP, German manufacturing PMIs, German IFO expectations and Eurozone manufacturing PMIs. Later today we get the Trump budget along with US manufacturing PMIs and US new home sales.
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 is contending with the terrible news of the terror attack in Manchester, though setbacks have been rather mild considering. Still, despite the Pound’s recent impressive recovery to a fresh 2017 high above the 1.3000 barrier, it’s has already been one of the weaker currencies in the developed currency basket over the past 5 days. While the Pound has managed to trade higher against the Buck on the wave of negative developments out of the US, there appears to be solid offers capping the UK currency’s run. Of course, it’s somewhat understandable with an important UK election coming up and with tough Brexit negotiations still a major concern and only expected to intensify in light of this latest attack which will heat up the conversation on border control. Meanwhile, the subdued wage growth component in last week’s UK employment data release is yet another factor that should keep the market from getting too aggressive on the bid, with the BOE unlikely to make any moves with wages so soft. Looking ahead, the market will take in UK public sector borrowing and the UK inflation report hearings. Later today, we get the Trump budget along with US manufacturing PMIs and US new home sales.
USDJPY – technical overview
The run off the 2017 low has stalled out, with the market sharply reversing course to the downside. This latest daily close back below 112.00 now exposes a possible retest of the yearly low at 108.13. In the interim, look for any rallies to be well capped ahead of 113.00, with only a break back above the recent high at 114.37 to negate and take the pressure off the downside.
USDJPY – fundamental overview
The Yen has received a mild prop early Tuesday on account of risk liquidation flow in response to the Manchester terror attack. The combination of risk off flow and ongoing broad based US Dollar weakness on the back of scaled back Fed hike odds in June have opened a more pronounced Yen rally in recent days. On Monday, Fed Brainard offered dovish comments, acknowledging a stalling out in core inflation that suggested slack still present in the US labour market. The Yen has however stalled out, perhaps weighed back down on an ongoing impressive stock market immunity to geopolitical risk. Looking ahead, the key focus will be on the White House turmoil, response to the this latest terror attack and US data that includes manufacturing PMIs and new home sales.
EURCHF – technical overview
A recent 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 combination of artificially supported, record high US equities and rising geopolitical tension should be a worry for the SNB as any capitulation on the equity front is likely to invite massive safe haven Franc demand the central bank will be unable to offset, irrespective of negative rate policy. For now, the SNB is hoping global sentiment will remain artificially elevated and the ECB will take on a more hawkish policy approach as per reports the central bank is preparing for a taper. But the key focus for this market going forward will unquestionably be on the performance in US equities. Any renewed intensification to the downside will likely invite a pickup in Franc demand and unwanted downside pressure on EURCHF.
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. The drop below 0.7500 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 broad based decline in the US Dollar has been the bigger story here right now helping to prop Aussie off recent lows. Monday’s dovish Fed Brainard comments are perhaps fueling some of the Tuesday bid, with even the terror attack in Manchester failing to weigh on the traditionally risk sensitive Aussie. Of course, equity market immunity to such risk and a concurrent rebound in commodities is helping to offset. But on the data front, last week’s Aussie employment data wasn’t as great as it may have appeared to be on initial glance, with most of the jobs coming from the part time sector. Meanwhile, Aussie consumer inflation expectations ticked down from the previous print. So we are seeing the emergence of fresh offers into rallies, with some medium-term accounts still playing the bet the Fed will stick to its timeline this time round and other macro players expecting risk off flow to weigh on the correlated Aussie. Looking ahead, the key focus will be on the White House turmoil, Trump budget, response to the this latest terror attack and US data that includes manufacturing PMIs and new home sales.
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 ahead of 1.3400Â 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 is finally recovering off 2017 lows after getting hit hard on the combination of US tariffs, rating agency downgrades, troubles at a mortgage lending giant and a drop in the price of OIL. But, an impressive recovery in the price of OIL, overall soft patch of US data, comments from BOE Governor Poloz that risk associated with mortgage lending giant Home Capital Group had been contained and more controversy out of the White House have definitely helped to inspire profit taking on Canadian Dollar shorts. Looking ahead, the Canadian market returns from the Victory Day holiday and will take in Canada wholesale sales, US manufacturing PMIs and US new home sales. The focus will also be on the price of OIL, Trump turmoil headlines and the Trump budget.
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
New Zealand Dollar demand off recent 2017 lows has picked up, helped along by a wave of negative US Dollar sentiment, rallying commodities prices and upbeat batch of recent Kiwi data including consumer confidence, the GDT auction and firmer producer prices. Still, with elevated risk sentiment looking particularly suspicious on the back of this latest terror in England and with many out there still looking for the Fed to follow through with its policy guidance of two more hikes in 2017, these players are happy to sell Kiwi into rallies. Looking ahead, the key focus will be on the White House turmoil, Trump budget, response to the this latest terror attack and US data that includes manufacturing PMIs and new home sales.
US SPX 500 – technical overview
The market has been unable to break down below major support at 2320 thus far, leaving the pressure on the topside and the door open for that next big record push towards a measured move extension at 2480. However, if setbacks intensify and the market breaks down and closes below 2320, this will signal a shift in the structure and suggest a meaningful top is finally in place ahead of a more significant corrective decline.
US SPX 500 – fundamental overview
There has been a lot of talk about a potential top in the US equity market, with the rally pushing to record highs at an unnerving pace in the face of some disturbing fundamentals including the reversal of Fed policy and rising geopolitical risk. And certainly this latest turmoil surrounding the US President has exposed these more pressing fundamentals a little more. But overall, the US equity market has done a good job proving it can easily buy back into the shallow dips as it focuses on rates staying lower for longer and the Fed continuing to underdeliver on its forward guidance. The fact that the Fed has begun the reversal of policy has been of no consequence to this point, with negligible rate increases to date, doing nothing to dissuade the market, with valuations remaining attractive. 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 any additional upside limited before a major capitulation.
GOLD (SPOT) – technical overview
The market has been very well supported since basing out ahead of 1100 in 2016, putting in a series of higher lows and higher highs. This latest round of setbacks have been well supported above the previous higher low at 1195, with the 1215 area now sought out as the next higher low ahead of a fresh upside extension beyond the 2017 high at 1295 and towards the 2016 peak at 1375 further up. At this point, only a break back below 1215 would 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 has just been confirmed at 1.4130 following last week’s break to a fresh 2017 low, with the drop now opening the door for the next measured move downside extension into the 1.3600-1.3700 area. At this point, rallies should be well capped ahead of 1.4000, with only a break back above 1.4130 to compromise the bearish outlook.
Feature – fundamental overview
The Singapore Dollar did a great job overlooking last week’s non-oil domestic export data which came in quite weak, with the emerging market currency rallying to a fresh 2017 high an intense wave of US Dollar selling, from the combination of US protectionism and scaled back Fed rate hike odds. But into this week, we are seeing some profit taking on Singapore Dollar longs, perhaps helped along by this latest Singapore CPI showing that has come in softer than expected. Looking ahead, the market will continue to digest the inflation data while monitoring broader flows. Later this week, we get Singapore Q1 GDP.