US Data, the Fed’s Caveat, and the US Dollar

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Today’s report: US Data, the Fed’s Caveat, and the US Dollar

Most of the focus right now is on this latest recovery in the US Dollar, inspired by a combination of profit taking and the latest Fed guidance the central bank is still on course to raise rates two more times this year, provided the recent data slowdown has been transitory.

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Chart talk: Technical & fundamental highlights

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.

  • R2 1.1269 – 23May/2017 high – Strong
  • R1 1.1200 – Figure – Medium
  • S1 1.1110 – 30May low – Medium
  • S2 1.1076 – 18May low – Strong

EURUSD – fundamental overview

The latest CFTC positioning data shows longs at the highest level since 2013 which could be some of the reason we’ve been seeing a pullback over the past few sessions as the market considers the possibility the Euro has run a little too far. The ECB President did nothing to help the Euro on Monday after once again stating there was no reason to be considering policy reversal at this time. Meanwhile, last Friday’s batch of US data and somewhat hawkish comments from Fed Williams on Monday are also weighing on the Euro, strengthening the case a recent slowdown in US data may in fact have been transitory in nature which pushes the Fed back towards following through with its guidance for two more rate hikes this year. Looking ahead, Eurozone confidence readings and German CPI are due in the European session but the big focus will be on the US docket with personal income, personal spending, core PCE, the Case Shiller and consumer confidence standing out. If today's readings out of the US come in better on the whole, look out for the Buck to extend this run.

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 risk 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.

  • R2 1.2947 – 26May high– Strong
  • R1 1.2900 – Figure – Medium
  • S1 1.2776 – 26May low – Medium
  • S2 1.2757 – 21Apr low – Strong

GBPUSD – fundamental overview

The Pound has come under pressure over the past few sessions with most of the weakness coming from the election polls showing a much tighter race than anyone had thought. Most recently, a Survation poll shows the Tories’ lead shrinking to 6 points from 9 points last week. Overall, the uncertainty around the upcoming election could start to weigh more heavily in the days ahead given the possible impact on the Brexit process. Meanwhile, US economic data could be looking to turn a corner with a disappointing run coming to an end last Friday, which will keep the Fed sticking with its timeline for two more rate hikes this year. The Fed had added a caveat in last week’s Minutes that it would be on track for two more hikes provided the recent data slowdown was in fact transitory and so if US data picks back up, it could serve as another drag on the Pound. Looking ahead, there is no first tier data out of the UK and the big focus will be on the US docket with personal income, personal spending, core PCE, the Case Shiller and consumer confidence standing out.

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.

  • R2 113.13 – 17May high – Strong
  • R1 112.13 – 24May high – Medium
  • S1 110.78– 30May low – Medium
  • S2 110.24 – 18May low – Strong

USDJPY – fundamental overview

There has been very little driving the Yen on the domestic front, with the currency continuing to take its cues from external drivers and broader macro themes. As is traditionally the case with this funding currency, most of the flow is predicated on risk sentiment, with any deterioration in fueling Yen demand and any increased risk appetite inspiring Yen declines. For the most part, the market isn’t too sure which way it wants to lean right now, though overall, there has been some sensitivity in risk markets, which has kept the Yen in demand. Geopolitical tension and worry over inflated equity prices are some of those things factoring while signs the Fed could follow through with two more rate hikes this year is also supporting the Yen as the implication is more risk off for this currency than it is US Dollar supportive. Monday’s ECB Draghi dovishness was also disappointing to the market which could be inviting additional Yen demand into Tuesday. Looking ahead, the big focus will be on the US docket with personal income, personal spending, core PCE, the Case Shiller and consumer confidence standing out.

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.

  • R2 1.1000 – Psychological – Strong
  • R1 1.0989 – 12May/2017 high – Medium
  • S1 1.0868 – 18May low – Medium
  • S2 1.0782 – 24Apr low – Strong

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 (Draghi has not confirmed). 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.

  • R2 0.7557 – 2May high – Strong
  • R1 0.7518 – 23May high – Medium
  • S1 0.7407 – 19May low – Medium
  • S2 0.7389 – 17May low – Strong

AUDUSD – fundamental overview

Despite Tuesday’s better than expected Aussie building approvals, overall, economic data out of Australia has been less impressive of late, while ongoing fear of a slowdown in China and slumping iron ore prices are only adding to the currency’s stress. Even record high US equities haven’t done much to inspire bids in the normally risk correlated commodity currency. We’ve also been seeing a lightening up of Aussie long exposure in the aftermath of last Friday’s batch of US data, suggesting a recent slowdown in US data may in fact have been transitory in nature which pushes the Fed back towards following through with its guidance for two more rate hikes this year. Fed Williams added to the USD bid tone on Monday with somewhat hawkish comments substantiating this view of two more hikes this year. Looking ahead, the big focus will be on the US docket with personal income, personal spending, core PCE, the Case Shiller and consumer confidence standing out.

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.

  • R2 1.3541 – 22May high – Strong
  • R1 1.3500 – Psychological – Medium
  • S1 1.3388 – 25May low – Medium
  • S2 1.3312 – 18Apr low– Strong

USDCAD – fundamental overview

Last week’s cautiously optimistic Bank of Canada policy decision and a dovish reading of the Fed Minutes helped to fuel additional upside in a Canadian Dollar that had already been enjoying a healthy recovery from 2017 lows against the Buck on more stable oil and softer US data. But overall, the Loonie remains a sell on rallies for most players out there, with these participants getting some more help from last Friday’s impressive round of US readings that should keep the Fed thinking about two more hikes this year. Certainly Fed Williams further contributed to the US Dollar’s cause on Monday after his comments that two more hikes were in fact still on the table. Looking ahead, we get Canada industrial materials and industrial products prices and the Canada current account. But the big focus will be on the US docket with personal income, personal spending, core PCE, the Case Shiller and consumer confidence standing out. Of course, any big swings in OIL will also factor into price action here.

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.

  • R2 0.7151 – 2Mar high– Medium
  • R1 0.7090 – 21Mar high – Strong
  • S1 0.6989 – 24May low – Medium
  • S2 0.6878 – 17May low– Strong

NZDUSD – fundamental overview

New Zealand Dollar demand off recent 2017 lows has picked up, helped along by negative US Dollar sentiment in 2017, more stable commodities prices and an upbeat batch of recent Kiwi data including consumer confidence, the GDT auction, firmer producer prices and trade data. Meanwhile, local dairy giant Fonterra came out last week 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. Last Friday’s solid round of US data and early Monday hawkish comments from Fed Williams strengthen the bearish Kiwi case, while today’s disappointing Kiwi building permits could be a source of Kiwi selling from shorter term accounts. Looking ahead, the big focus will be on the US docket with personal income, personal spending, core PCE, the Case Shiller and consumer confidence standing out.

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.

  • R2 2480.00 – Measured Move – Strong
  • R1 2419.00 – 25May/Record high – Medium
  • S1 2346.00 – 18May low – Medium
  • S2 2321.00 – 27Mar low – Strong

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 exhausted (and reversing) Fed policy and rising geopolitical risk. And certainly this latest turmoil surrounding the US President has made things even more tense. But overall, the US equity market has done a good job proving it can easily buy back into any dip and keep pushing to record highs as it focuses on rates staying lower for longer and the Fed continuing to underdeliver on its forward guidance promises. Still, with asset prices where they are right now and with the Fed still very capable of following through with guidance in 2017, there is risk it could all come crashing down, with any additional upside limited before a major capitulation. Certainly last Friday’s solid round of US data and early Monday hawkish comments from Fed Williams strengthen the bearish case. Looking ahead, the big focus will be on the US docket with personal income, personal spending, core PCE, the Case Shiller and consumer confidence standing out.

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.

  • R2 1295.60 – 17Apr/2017 high – Strong
  • R1 1271.20 – 1May high – Medium
  • S1 1241.30 – 4May high – Medium
  • S2 1214.30 – 9May low  – Strong

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, but there is a growing sense that even in a scenario where the US Dollar is bid, gold may continue to find bids on risk off macro implications.

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.

  • R2 1.4130 – 11May high – Strong
  • R1 1.3960 – 17May high – Medium
  • S1 1.3800 – 29May/2017 low – Medium
  • S2 1.3700 – Figure – Strong

Feature – fundamental overview

The Singapore Dollar has done a great job overlooking a soft run of data including non-oil domestic exports and disappointing GDP, with the emerging market currency rallying to a fresh 2017 highs on the momentum from a wave of US Dollar selling in 2017. Meanwhile, China’s revamped fix methodology has been another source of additional Singapore Dollar demand.  But we have seen some profit taking on Singapore Dollar longs, with the emerging market currency not wanting to get ahead of itself after this latest run, especially with US data picking back up last Friday and Fed Williams still leaving the door open for two more Fed hikes this year. Another round of strong US data later today could open the door for more profit taking on Singapore DOllar longs.

Peformance chart: Five day performance v. US dollar

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