Special report: Fed Minutes Preview
Next 24 hours: Canadian Dollar Gets Busy
Today’s report: US Dollar Comeback?
The US Dollar is finally showing some signs of fight after a period of extended weakness, with the price action assigned to profit taking, dovish speak from ECB Coeure and hawkish comments from Fed Harker who still sees the Fed staying the course, raising rates two more times this year. Fed Minutes ahead.
Wake-up call
Chart talk: Major markets technical overview video
- ECB Coeure
- Terror attack
- Bernanke
- Franc appreciation
- China ratings
- BoC decision
- Fonterra raises
- Fed Minutes
- Global uncertainty
- USDSGDÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- Japan’s Night-Time Futures Traders, L. Lewis, Financial Times (May 22, 2017)
- China Deleveraging Puts Yuan Closer to Free Float, B. Emons, Bloomberg (May 23, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The market is showing signs of short-term exhaustion after extending its 2017 run on Tuesday. But with the medium-term structure still quite bullish, any setbacks that we do see in the sessions ahead should ideally be well supported above 1.1000 on a close basis in favour of the next higher low and bullish continuation towards the next key resistance point at 1.1367, which represents the August 2016 peak. Ultimately, only back below a confirmed higher low at 1.0840 would negate the outlook.
EURUSD – fundamental overview
Into the mid week, a round of profit taking has kicked in, with the Euro reversing course after posting a fresh 2017 high early Tuesday. Profit taking ahead of today’s highly anticipated Fed Minutes, dovish speak from ECB Coeure and hawkish comments from Fed Harker have all factored into the Euro’s minor retreat. But overall. 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. As far as today’s calendar goes, we get ECB speak from Praet and Draghi, German Gfk consumer and US existing home sales, all ahead of the Fed Minutes.
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 has been showing signs of reversal after stalling out above 1.3000 though the setbacks are 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, a 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 right now, with the BOE unlikely to make any moves with wages so soft. Looking ahead, absence of first tier UK data will leave the focus on the US. Initially, we get US existing home sales, though the market will be quick to look past this data set as it focuses on the highlight of the day in the form of the Fed Minutes. We have seen another round of doubt creep in with respect to market confidence in the Fed’s ability to actually follow through with rate hike guidance and more colour will be offered later today in the Minutes. On Tuesday, Fed Harker suggested the Fed would stay the course, which has served as another minor prop for the Buck into the Minutes.
USDJPY – technical overview
A recent recovery 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 early Wednesday news that Moody's had unexpectedly downgraded China's long-term local and foreign currency issuer ratings failed to have any impact on the Yen, with the Japanese currency shrugging it off. For now, it seems a wave of profit taking on shorts against the US Dollar is what is driving most of the recent trade, with hawkish Fed Harker comments and positioning ahead of today’s Fed Minutes fueling the move. The former Fed Chair also was in the Japanese news after Bernanke said scope for additional easing was limited, with the government needing to push for more help on the fiscal side fiscal if additional stimulus were required. Looking ahead, we get US existing home sales and that anticipated Fed Minutes release.
EURCHF – technical overview
A recent break above 1.0900 has taken the short-term 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 force a meaningful shift in the structure and open the door for longer-term upside. At the same time, while the market holds below 1.1000 the overall trend is still bearish and a break back below 1.0865 would renew downside pressure.
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 given the influence on broader sentiment. Any renewed intensification to the downside will likely invite a pickup in Franc demand and unwanted downside pressure on EURCHF.
AUDUSD – technical overview
An 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. Ultimately, any moves to the topside are classified as corrective with a fresh lower top sought out, with only a break back above 0.7611 to negate the outlook.
AUDUSD – fundamental overview
The Australian Dollar is experiencing renewed downside pressure on Wednesday, with the commodity currency taking hits from many different places. On the US Dollar side, profit taking on USD shorts ahead of the Fed Minutes has been one weighing factor, while hawkish Fed Harker comments on Tuesday have also been playing their part. Meanwhile, Moody’s has come out with an unexpected downgrade of China’s sovereign ratings, while in Australia, the market has been dealing with a dip in the Westpac leading index and slumping iron ore prices. 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 and other macro players expecting risk off flow to weigh on the correlated Aussie. Looking ahead, US existing home sales are out but most of the attention will be on the tone of the Fed Minutes.
USDCAD – technical overview
The uptrend in this market remains firmly intact, getting added confirmation following this latest break to a fresh 2017 high, beyond a previous peak from December 2016 at 1.3600. A period of healthy correction has now ensued and the market will be trying to carve the next higher low, with any additional weakness likely to be limited in favour of a 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 enjoyed a nice recovery 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 this latest round of profit taking on Canadian Dollar shorts. Looking ahead, it’s going to be an action packed day for the Loonie, with the market taking in the Bank of Canada policy decision and Fed Minutes. No change is expected to BoC policy, with the central bank to likely stick with its more cautious outlook given risks associated with the local economy, volatility in the price of OIL and US protectionist policy measures.
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 an upbeat batch of recent Kiwi data including consumer confidence, the GDT auction, firmer producer prices and this latest trade data. Meanwhile, local dairy giant Fonterra has just come out raising its milk price forecasts to give the currency another prop. But at the same time, with global equities continuing to look like they have run too far and with many out there keeping with bets the Fed will 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 Fed Minutes as they give more colour into whether or not the Fed is going to stick to its guns. Ahead of the Minutes, US existing home sales are due but shouldn’t factor much.
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 have made things even more tense. 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. Today’s Fed Minutes could shed some more light on this outlook and will likely get the market moving one way or another.
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 2017 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 on 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 a softer Singapore CPI showing and profit taking ahead of today’s Fed Minutes. Tomorrow we get Singapore Q1 GDP.