Special report: UK Election Preview
Next 24 hours: Jitters Ahead of Thursday’s Triple Threat
Today’s report: Looking Ahead to Thursday Risk
Wednesday is likely to be mostly about getting ready for Thursday risk, with participants positioning ahead of Thursday's UK election, ECB decision and FBI Comey testimony. Earlier today, Aussie GDP came out better than expected and has propped the Australian Dollar.
Wake-up call
Chart talk: Major markets technical overview video
- factory orders
- election polls
- external drivers
- intervention efforts
- solid GDP
- building permits
- GDT auction
- Comey news
- global distress
- USDSGDÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- Trading in Era of Higher Valuations, M. Johnson, Financial Times (June 6, 2017)
- Steven Bregman on ‘The Greatest Bubble Ever’, J. Felder, Super Investors (June 6, 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
The Euro continues to find good demand on dips in 2017, with the single currency gaining momentum on a major shift in fundamentals. Reduced structural risk associated with the Euro, improving economic data and chatter of ECB policy reversal in the months ahead have all helped to fuel Euro gains. Meanwhile, on the other side, the US Dollar has been struggling mightily as it contends with scaled back Fed rate hike odds on softer US data, turmoil in the US government and the US administration’s protectionist policies. As far as today goes, German factory orders and US consumer credit are the only notable standouts and while we could see another 2017 high, it’s unlikely the Euro will want to do too much ahead of Thursday’s event risk in the form of the ECB decision and FBI Comey testimony. It’s also worth noting the potential impact on volatility from Thursday’s UK election as well.
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
The Pound has been very comfortable holding onto gains since breaking out in April, with the combination of the pricing out of worst case Brexit fears and US Dollar bearish fundamentals helping to keep the Cable rate elevated. Of course, the market hasn’t been wanting to get too aggressive given all of the risk ahead, which begins with tomorrow’s UK election. We will get another round of polls today which could inspire some volatility, but at this point, it looks as though the Conservatives will get the necessary victory to give the market what it was expecting, which could end up doing very little to the Pound. And once the election is out of the way, it will be about the Brexit negotiations, quite capable of giving the Pound a bit of a headache. As far as today goes, absence of first tier UK data leaves only US consumer credit to watch, which shouldn’t be a big mover. Most likely, it will be the polls if anything that moves the market.
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. Into Wednesday, the combination of some risk off flow and ongoing negative US Dollar sentiment are proving to be strong drivers of Yen outperformance, with the Japanese currency closing in on a retest of its 2017 high (USDJPY low). Looking ahead, the economic calendar is exceptionally thin, with only US consumer credit 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 1.0800 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 this Thursday, 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
The Australian Dollar has been the clear outperformer on Wednesday, with the currency getting a nice bump from the better than expected Australia GDP result. Not only did the market beat expectations but there was also talk making the rounds ahead of the data that we could see a negative print, which only further contributed to the nice intraday rally when the data came out in positive territory and better than forecast. The GDP print follows Tuesday’s as expected RBA policy decision where the central bank came out with a balanced outlook. Looking ahead, the calendar for the remainder of the day is exceptionally thin, with only US consumer credit standing out. Price action will probably be more influenced by risk sentiment and performance in commodities.
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 in the previous week 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 fronts for additional cues. Certainly last Friday’s disappointing US employment data has helped to fight against renewed Loonie weakness. Looking ahead, as far as economic data goes, Canada building permits and US consumer credit are due.
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, GDT auction results, 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. Looking ahead, the economic calendar is exceptionally thin, with only US consumer credit standing out. Price action will probably be more influenced by risk sentiment and performance in commodities.
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. The market was proven right once again last Friday after the US employment report proved to be a big disappointment. Stocks have also been supported into Wednesday on news Thursday’s former FBI Comey testimony may not be as damaging to President Trump as initially thought.
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 break to a fresh 2017 high confirms that next higher low in the 1215 area and opens an upside extension 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 in recent days including non-oil domestic exports and disappointing GDP, 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 has been another source of Singapore Dollar demand.  But dealers have been talking about 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 push in global equities that could be at risk for reversal which would weigh on emerging market FX.