Next 24 hours: Aussie and Pound Stand Out in Quiet Monday
Today’s report: Disturbing Trends and Dollar Weakness
Keeping with one of the more disturbing trends in financial markets, the weekend terror in London has had no meaningful impact on price action, with market immunity to such risk prevailing as it has done so many times before. Meanwhile, the US Dollar should remain under pressure following the disappointing Friday jobs report.
Wake-up call
Chart talk: Major markets technical overview video
- soft USD
- London terrorÂ
- Confusing times
- intervention efforts
- China PMIs
- OIL direction
- Cross selling
- data recovery
- US Dollar
- USDSGDÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- Central Bank Cash Flood Swells Bond Danger, L. Abramowicz, Bloomberg (June 2, 2017)
- Bitcoin: Journey Beyond the Hype, J. Felder, Real Vision (June 2, 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. 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
Friday’s discouraging US employment report resulted in another 2017 high for the major pair, with the US Dollar back under pressure as the odds for two more rate hikes from the Fed this year were scaled back. The combination of the softer NFP print, downward revisions and still subdued hourly earnings will probably get the Fed thinking more seriously about the health of the data and possibility a recent slowdown may not have been transitory. This of course would be Euro supportive, though profit taking from short-term accounts and positioning ahead of this week’s ECB decision could cap additional upside for now. While there has been talk and reports of the ECB reversing policy, Draghi has yet to confirm given where inflation is at, and this is keeping Euro bulls a little more reserved. Looking to today’s calendar, key standouts come in the form of Eurozone services PMIs, German services PMIs, US ISM non manufacturing and US factory orders.
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
Unsurprisingly, setbacks in the Pound have been limited despite the weekend terror in London. The market has been immune to such risk for many years, given the distraction of unprecedented monetary policy accommodation. Meanwhile, Friday’s disappointing US employment report has put a serious dent in Fed forward guidance, with the market reducing expectations even further of the possibility for two more Fed hikes this year. Of course, the Pound has enjoyed a nice run of late and with the UK election later this week and Brexit negotiations hanging in the balance, additional upside for the Pound could be tough. As far as today goes, we get UK services PMIs, US ISM non-manufacturing and US factory orders.
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 112.00, though only a break back above the recent high at 114.37 will negate the outlook 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 and the Yen is having a more difficult time figuring it all out on account of broad based US Dollar weakness exacerbated by Friday’s US jobs report at the same time as we’re seeing this ongoing record push in equities. Looking ahead, US ISM non-manufacturing and US factory orders stand 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 1.0800 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 signs of 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
A solid round of second tier Aussie data and well received China Caixin services PMIs have helped to fuel an additional run in the Australian Dollar on Monday, with the currency outperforming on the day thus far. Aussie was already bid up from the broad based USD weakness post Friday’s discouraging US employment report. Meanwhile, the market is also starting to position ahead of the early Tuesday RBA policy decision which should be interesting to watch. As far as the rest of today goes, we get US ISM non manufacturing and US factory orders.
USDCAD – technical overview
The uptrend in this market remains firmly intact, getting added confirmation following the May 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 1.4200 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 run of late but has been showing signs of coming back under pressure, with a fresh round of Loonie offers building on the back of some mixed Canada GDP results and another downturn in the price of OIL. Overall, the Loonie is going to be watching the price of OIL and developments out from the US on the political and economic front for additional cues, with this latest round of disappointing US employment data fueling broad based USD declines that have helped the Loonie into Monday. Looking ahead, as far as ecoomic data goes, absence of data on the Canada calendar will leave the market to digest US ISM non manufacturing and US factory orders.
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. However, the recent break back above 0.7100 does take the immediate pressure off the downside, with scope for this corrective run to extend before the market rolls back over. But any upside from here should be well capped below 0.7300. A break back below 0.7035 strengthens this outlook and should accelerate declines.
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 recently, announcing it was 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 worried about an intense wave of risk off flow ahead, these players are happy to sell Kiwi into rallies. Into Monday, there has also been the emergence of AUDNZD demand off multi-day lows on the back of solid China data and ahead of Tuesday’s RBA decision. As far as the rest of today goes, we get US ISM non manufacturing and US factory orders.
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. The market was proven right once again on Friday after the US employment report proved to be a big disappointment.
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 the 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 in recent days, with the emerging market currency rallying to a fresh 2017 high on the momentum from a wave of US Dollar selling in 2017. Meanwhile, China’s revamped fix methodology and this latest Singapore PMI showing have 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 considering a record run in global equities that could be at risk for a reversal which would weigh on emerging market FX.