Next 24 hours: Positioning Ahead of Friday NFPs
Today’s report: Fed Outlook Still in Question
The market is trying to figure out if the Fed will go ahead with its policy guidance of two more rate hikes in 2017 and with the Fed hinging this outlook on whether or not a recent deterioration in economic data has been transitory, any data releases between now and this month's meeting will be a major focus.
Wake-up call
Chart talk: Major markets technical overview video
- CPI data
- Election polls
- diverging flow
- intervention efforts
- retail sales
- lower OIL
- Macro players
- data recovery
- US Dollar
- USDSGDÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- Market’s Unusual Tranquility, D. McCrum, Financial Times (May 31, 2017)
- Cohen Fund Not Too Big to Succeed, S. Gandel, Bloomberg  (May 30, 2017)
Chart talk: Technical & fundamental highlights
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EURUSD – technical overview
The market is showing signs of short-term exhaustion after extending its 2017 run. But with the medium-term structure still quite bullish, any setbacks that we do see in the sessions ahead should ideally be well supported in favour of the next higher low and bullish continuation towards key resistance around 1.1365, which represents the August 2016 peak. Only a break back below 1.1110 would now take the immediate pressure off the topside.
EURUSD – fundamental overview
Wednesday’s Eurozone inflation data came in soft and US data was mixed. Meanwhile, we got more hawkish comments from Fed Williams suggesting the Fed could go ahead with two more rate hikes this year. And yet, in the face of all of this, the Euro has held up well and looks to be still committed to extending its run of fresh 2017 highs. It seems the market has been supported on hawkish ECB speak, despite the latest inflation readings and despite comments from President Draghi that show no signs of reversal yet. Meanwhile, on the other side, the market continues to doubt the Fed’s path forward which has served as an additional prop. Today we get some Eurozone manufacturing data, though the main focus will be on the batch of US releases that include ADP employment, initial jobless claims and ISM manufacturing. Of course, tomorrow we get the main event of the week in the form of the monthly employment report out of the US and today could also be about positioning ahead of that event risk.
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.
GBPUSD – fundamental overview
A lot of chop in the Pound right now, with the market taking in election polls showing a wide variance on the size of the Tory lead. Meanwhile, a minor recovery in the US Dollar has stalled out, with Cable setbacks well supported around 1.2800 as market participants continue to doubt the prospect of the Fed actually following through with two more rate hikes in 2017. Interestingly, economic data has been solid overall out of the US over the past week, while Fed speak continues to stay with the more hawkish outlook as reflected by Fed Williams’ latest remarks. Looking ahead, we get UK manufacturing data, though the main focus here will be on UK election headlines and a batch of US data that features ADP employment, initial jobless claims and ISM manufacturing. Of course, tomorrow we get the main event of the week in the form of the monthly employment report out of the US and today could also be about positioning ahead of that event risk.
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
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 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, with the implication more risk off for this currency than it is US Dollar supportive. Looking ahead, the main focus will be on a batch of US releases that include ADP employment, initial jobless claims and ISM manufacturing. Of course, tomorrow we get the main event of the week in the form of the monthly employment report out of the US and today could also be about positioning ahead of that event risk.
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 (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 and only a break back above 0.7611 to negate the outlook.
AUDUSD – fundamental overview
Although Aussie retail sales came in strong, it hasn’t been enough to offset some bearish developments that include softer Aussie capex, China PMIs in contractionary territory and slumping iron ore. The market is also trying to figure out if the Fed will in fact follow through with two more rate hikes this year, which would add to Aussie bearishness, and data this past week, along with these latest hawkish comments from Fed Williams are confirming. The focus now shifts to the next batch of US data that features ADP employment, initial jobless claims and ISM manufacturing. Of course, tomorrow we get the main event of the week in the form of the monthly employment report out of the US and today could also be about positioning ahead of that event risk.
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
Wedesday wasn’t a great day for the Canadian Dollar, with a fresh round of Loonie offers building on the back of some mixed GDP results and another downturn in the price of OIL. Although the month over month Canada GDP print was stronger, the year over year readings was a good deal softer. Overall, the Loonie remains a sell on rallies for most players out there, with these participants getting some more help from a recent run of better US data and hawkish Fed Williams comments that continue to point to the Fed raising rates two more times this year, something the market continues to bet against. Looking ahead, we get the Canada leading indicator and Canada manufacturing, though most of the focus will be on movement in the price of OIL and the US batch of data that features ADP employment, initial jobless claims and ISM manufacturing. Of course, tomorrow we get the main event of the week in the form of the monthly employment report out of the US and today could also be about positioning ahead of that event risk.
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 a recent break to fresh 2017 lows. 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 a daily close back above 0.7100 delays the bearish outlook.
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. A better run of the US over the past week and these latest hawkish Fed Williams comments are adding to downside pressure. Looking ahead, the main focus will be on a batch of US releases that include ADP employment, initial jobless claims and ISM manufacturing. Of course, tomorrow we get the main event of the week in the form of the monthly employment report out of the US and today could also be about positioning ahead of that event risk.
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 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 a better run of US data over the past week and hawkish comments from Fed Williams strengthen the bearish case. Looking ahead, the main focus will be on a batch of US releases that include ADP employment, initial jobless claims and ISM manufacturing. Of course, tomorrow we get the main event of the week in the form of the monthly employment report out of the US and today could also be about positioning ahead of that event risk.
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, 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.
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 and Fed Williams still leaving the door open for two or even three 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.