Special report: FOMC Preview – The Fed’s Trend
Next 24 hours: Weak Data Opens USD Drop Ahead of Fed
Today’s report: Calendar Loaded with Data ahead of Fed Decision
There’s no denying the potential impact of today's calendar on markets, with a heavy dose of first tier data due before we then get the FOMC policy decision. Of course, it would be easy to see a scenario where we don't end up seeing much movement until the Fed decision is out of the way.
Wake-up call
Chart talk: Major markets technical overview video
- German CPI
- Softer Brexit
- policy decisions
- intervention efforts
- China data
- Shifting outlook
- Current account
- Investor bets
- Global uncertainty
- USDZARÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- The Ether Thief, M. Leising, Bloomberg (June 13, 2017)
- Central Bankers, Financial Bubbles and White Burgundy, Felder Report (June 13, 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 has been comfortable consolidating recent gains to 2017 highs, with the market less inclined to extend gains ahead of today’s highly anticipated FOMC policy decision. Of course, last week’s less hawkish than expected ECB decision has also contributed to the single currency’s reservation, though dips remain very well supported on the back of broad based US Dollar weakness from softer economic data, scaled back Fed rate hike odds and US administration soft US Dollar protectionist policy. As far as today goes, there is a healthy batch of first tier data out ahead of the FOMC decision including German inflation, Eurozone employment, Eurozone industrial production, US retail sales and US CPI. But ultimately, most of the volatility is likely to come post Fed.
GBPUSD – technical overview
The latest round of setbacks are viewed as corrective with the market expected to be very well supported on dips ahead of 1.2500 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 idea of the possibility for a softer Brexit has been helping to offset uncertainty weakness in the aftermath of the surprise UK election result thus far. The notion of ‘NO Brexit’ has even come up after German FinMin Schaeuble and French President Macron teased the door was open for a return to the EU bloc if the UK wished. Meanwhile, Tuesday’s hotter UK CPI readings have also helped to prop the Pound, though it’s also clear that the longer it takes for the Conservatives to secure its position, the greater the risk the Pound comes under renewed downside pressure. For today, the market will have the added responsibility of contending with first tier data and a highly anticipated FOMC decision as well. Data out ahead of the Fed includes UK employment, US CPI and US retail sales.
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, a good portion of the flow is be predicated on risk sentiment, with any deterioration fueling Yen demand and any increased risk appetite inspiring Yen declines. Of course, yield differentials are another major driver, with today’s FOMC meeting and Friday’s BOJ decision to factor. 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 later today. Meanwhile, there’s been chatter of the need for a more official conversation on policy reversal over at the BOJ, which will make Friday even more interesting. Still, reports out from the Sankei this week have conflicted with this view, saying the BOJ won’t be making any tweaks to its economic assessment on Friday. As far as other things to watch today go, keep an eye on US retail sales and US CPI.
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
Overall, the Australian Dollar has done a good job holding up on the back of broad based US Dollar weakness in 2017 and local developments that include a recently balanced RBA decision, better than expected Australia GDP and solid China 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, this week’s suspect Aussie business conditions, business confidence and consumer confidence readings are inviting additional offers into rallies. Looking ahead, US retail sales and US CPI are due, though most of the day’s focus will be on the outcome of the highly anticipated FOMC decision later in the day.
USDCAD – technical overview
The latest round of setbacks has taken the pressure off the topside for now, with the market trading back into the middle of a longer-term range. The recent break below 1.3200 opens the door for the possibility of a more pronounced decline in the days ahead towards 1.3000. Ultimately however, the longer-term uptrend remains intact and setbacks should be well supported around the 1.3000 psychological barrier.
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 this week’s hawkish comments from Bank of Canada Wilkins and Poloz. The central bankers have been flagging a reconsideration of current policy stimulus and the prospect for a rate hike in the 2017 pipeline. Odds for a 2017 rate hike have jumped well above 50%, reflecting this shift in BoC sentiment, clearly benefiting the Loonie as a result. Interestingly, all of this Loonie upside and outperformance comes at a time when OIL is struggling. Looking ahead, it will be worth keeping an eye on the price of OIL and important US data that includes US CPI and retail sales. But most of the volatility today isn’t expected to come until after the highly anticipated FOMC decision. Second tier Canada housing data won’t be a factor.
NZDUSD – technical overview
Despite the intense surge over the past several days, the overall pressure remains on the downside with the market expected to be very well capped in the 0.7200s. 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 the outlook strengthened on the May breakdown to fresh 2017 lows. Only a clear break back above 0.7300 would compromise the 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 overall upbeat batch of Kiwi data including consumer confidence, GDT auction results, firmer producer prices and trade. 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, there’s a strong case to be made for selling Kiwi into rallies. Certainly Wednesday’s current account miss could get some bears jumping back in, while the market will also be thinking about the early Thursday Kiwi GDP release. Of course for now, all of the focus will be on US retail sales, US CPI and the highly anticipated FOMC policy 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 administration 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 forward guidance. This bet will be put to the test yet again today as the market considers the latest FOMC policy decision and some first tier data ahead of the risk that includes CPI and retail sales.
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 last 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, 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, and US equities looking increasingly vulnerable at lofty heights, the case for Rand declines becomes even more compelling. Ahead of today’s Fed decision, we also get South Africa retail sales, US CPI and US retail sales.