Next 24 hours: Loonie on a Tear, Pound Gets Healthy Boost
Today’s report: Yen, Pound and Loonie Stand Out
It’s been a quiet start to the week, with very little going on of note thus far and participants positioning ahead of Wednesday’s monster calendar day. But we have seen some movement in the Yen, Pound and Canadian Dollar. Tuesday standouts include UK CPI, German ZEW and US producer prices.
Wake-up call
Chart talk: Major markets technical overview video
- ECB Coeure
- outcome weighsÂ
- Sankei
- intervention efforts
- business confidence
- BoC Wilkins
- Macro players
- investor bets
- Risk off
- USDZARÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- A Couple of Thoughts, R. Dalio, Linkedin (June 5, 2017)
- Peer-to-Peer Live: David Rubenstein and Paul Singer, Bloomberg (June 8, 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
Monday’s light economic calendar kept the Euro trading within a tight range, with nothing much going on to influence the single currency in either direction. The only development of note came from ECB Coeure, who offered some hawkish speak, but also managed to offset those comments. The central banker highlighted progress on the inflation front and a general move towards policy normalisation, but at the same time, tempered the remarks after saying now was not the right time to discuss tapering. Looking ahead, key standouts on today’s calendar include German and Eurozone ZEW surveys and US producer prices. Of course, with Wednesday’s jam packed economic calendar on the horizon, which climaxes with a very important FOMC decision, we could see more consolidation as the market positions for the event risk.
GBPUSD – technical overview
The latest round of setbacks are viewed as corrective with the market expected to be very well supported on dips into the 1.2500s in favour of a higher low and bullish continuation towards a measured move extension objective at 1.3500 in the weeks ahead. A breakout above critical resistance at 1.2775 back in April triggered a structural shift in the major pair warning of a longer-term base. Only a break back below 1.2360 would compromise this outlook.
GBPUSD – fundamental overview
The Pound has been showing signs of coming back under pressure since stabilising in the aftermath of the surprising UK election result, as uncertainty starts to run up again. While the election outcome does carry a Sterling supportive component in that it may deliver a softer Brexit outcome, with so much hanging in the balance and no one knowing yet how the new government will take shape, the market is considering a bigger downward adjustment in the Pound. Looking ahead, we get some important UK data in the form of CPI, followed up later in the day by US producer prices. Of course, with Wednesday’s jam packed economic calendar on the horizon, which climaxes with a very important FOMC decision, we could see more consolidation as the market positions for the 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 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
As is traditionally the case with this funding currency, most of the flow will be predicated on risk sentiment, with any deterioration fueling Yen demand and any increased risk appetite inspiring Yen declines. Some downside pressure in US tech stocks has been propping up the Yen in the early portion of the week. However, tomorrow and Friday, the other major drivers of direction will come into play, with the FOMC and BOJ policy decisions due. At the moment, the market is still not sure whether the Fed will signal it is done for the year after it hikes as widely expected on Wednesday. Whatever the Fed signals will unquestionably have a material impact on this major pair. The Bank of Japan is then out on Friday and we have been hearing chatter of the need for a more official conversation on policy reversal, which could be something else to watch this week. Still, reports out from the Sankei have conflicted with this view, saying the BOJ won’t be making any tweaks to its economic assessment this Friday, something that could be weighing on the Yen a bit into Tuesday. As far as the rest of the day goes, US producer prices are the only notable standout.
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 in the months ahead. 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 is trading with a fuller feel on Tuesday as Australia returns from holiday. Overall, the Australian Dollar has been one of the stronger performers in the developed currency basket over the past week, with Aussie getting an additional boost from a balanced RBA decision, better than expected Australia GDP and impressive China trade data. Stability in commodities prices have also been helping to prop, along with an ongoing bid in US equities. However, there has been the emergence of offers from medium-term players into this rally, with these accounts still feeling quite skeptical about the outlook for China, elevated equities and choppy commodities prices. Moreover, Tuesday’s pullback in Aussie business conditions and business confidence readings are inviting additional offers into rallies. Looking ahead, US producer prices are the only notable standout on the calendar for the remainder of the day. As such, the market will likely take its cues from broader macro flow. Of course, with Wednesday’s jam packed economic calendar on the horizon, which climaxes with a very important FOMC decision, we could see more consolidation as the market positions for the event risk.
USDCAD – technical overview
Despite the latest round of setbacks, the longer-term 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 is the strongest in the developed currency basket over the past week, helped along by last Friday’s solid Canada employment report, an upbeat assessment of the Canadian economy out from RBC and Monday’s hawkish comments from Bank of Canada Wilkins. On Monday, BoC Wilkins said there were reasons to be encouraged by the economic recovery, while downplaying concern about the Toronto housing market. The central banker also added that all of this warranted a reconsideration of current policy stimulus and whether it was still required. Odds for a 2017 rate hike have now jumped above 50%, reflecting a shifting sentiment, clearly benefiting the Loonie as a result. Looking ahead, the economic calendar is light on Tuesday, with only US producer prices standing out. Of course, the Canadian Dollar should keep an eye on broader sentiment flow and the price of OIL for additional directional insight.
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 producer prices standing out. Most of the focus will be on broader risk appetite, sentiment in the aftermath of the UK election and positioning ahead of Wednesday’s critical FOMC decision.
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 ongoing 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 economic calendar is exceptionally thin today, but with a critical FOMC decision capable of shaking things up tomorrow, we could see investors start to position ahead of the major event.
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
USDZAR has been under pressure in recent weeks, though setbacks have managed to stall ahead of the 2017 low thus far. At this point, while additional setbacks are favoured, with the downtrend still intact, a break back above 13.21 would negate the bearish outlook and open the door for a bullish resumption.
Feature – fundamental overview
The South African Rand has done a good job holding up in the aftermath of Friday’s Moody’s downgrade with a negative outlook. Moody’s cited a weakening South Africa institutional framework, reduced growth prospects and the erosion of fiscal strength as the primary drivers behind its decision. However, the market was readying for the possibility of a two notch downgrade and the ability for the country to escape this outcome while barely clinging on to investment grade status, has been helping to offset weakness in the aftermath. It would seem though that with all the political mess in the country and concern over the overall health of the economy, the greater risk from here is for Rand weakness. Remember, a lot of Rand strength in 2017 has come from broad US Dollar weakness and equity market strength. But with the Fed capable of inviting renewed interest in the US Dollar tomorrow, and US equities looking increasingly vulnerable at lofty heights, the case for Rand declines becomes even more compelling.