Next 24 hours: Looking to a Busy Thursday Calendar
Today’s report: Macro Themes and Event Risk Positioning
The US Dollar is still in quite of bit of pain into Wednesday and as of yet, there are no signs of meaningful reversal. Most of the developed currencies are trading at or near 2017 highs, as less hawkish Yellen testimony, soft US data and US administration policy gridlock suffocate the Buck.
Wake-up call
Chart talk: Major markets technical overview video
- Thursday ECB
- softer inflation
- Yield differentials
- SNB policy
- negative drivers
- 8%
- GDT auction
- dovish hopes
- Dollar declines
- USDZAR
Peformance chart: Five day performance v. US dollar
Suggested reading
- Is the VIX Still A Meaningful Indicator?, M. Johnson, Financial Times (July 18, 2017)
- Frankfurt the Big Winner in Battle for Brexit Bankers, G. Finch, Bloomberg (July 18, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
This run of 2017 highs has finally extended into a major longer-term range resistance zone in the 1.1500 to 1.1700 area. This comes at a time when daily studies are also looking stretched, suggesting any additional upside could be difficult, at least over the short-term, with the greater risk building for some form of a meaningful bearish reversal. Still, the uptrend in 2017 is well intact and a break back below 1.1472 would be required at a minimum to take the immediate pressure off the topside.
EURUSD – fundamental overview
The Euro has enjoyed quite the run in 2017, with the rally accelerating over the past week on the back of a confluence of negative US Dollar drivers including less hawkish Yellen testimony, soft US data and US administration policy gridlock. But with the single currency looking a little extended and into major technical resistance levels, there could be some room for a bout of profit taking on Wednesday, especially with the market starting to position into Thursday’s anticipated ECB interest rate decision. The only data of note out on Wednesday is Eurozone construction output, US housing starts and US building permits.
GBPUSD – technical overview
This latest push to a fresh 2017 high reinforces the prospect for an extension towards a measured move at 1.3500. However, Tuesday’s pullback has resulted in a bearish outside formation warning the market might not be ready to set out on that 1.3500 run just yet. Ultimately, the structure is constructive, though there’s room for more choppy consolidation between 1.2500 and 1.3000 before the market finally decides to get going with the run to 1.3500.
GBPUSD – fundamental overview
The Pound had to stop and think twice on Tuesday after the Cable rate initially pushed up to another 2017 high on the back of the latest round of US Dollar selling. UK inflation data came out a good deal softer than expected and caught longs off guard, with the Pound selling off as a result. BOE Governor Carney comments that the unexpected inflation slowdown didn’t change the outlook helped to prop the market into setbacks, though ultimately, the Pound settled lower on the day. Looking ahead, the UK calendar has nothing to offer, with only US housing starts and building permits standing out. UK political uncertainty and the Brexit overhang are other developments that will need to be monitored closely as these continue to be stories that could weigh more heavily on the UK currency.
USDJPY – technical overview
The market remains confined to a multi-day range. The latest topside failure above 114.00 strengthens this outlook, leaving the door open for a drop back towards range support in the 108.00s, also coinciding with the 2017 low from April. Ultimately, it would take a clear break through 115.50 to negate this outlook and shift the focus back on the topside.
USDJPY – fundamental overview
The major pair remains weighed down into the middle of the week, with the Yen unable to ignore the ongoing wave of intense broad based US Dollar declines. Yield differentials have moved back in the Yen’s favour on less hawkish Fed expectations, with the market most recently clearing stops below 112.00. There has been some support for USDJPY on dips, with the demand coming from an ongoing bid in US equities to fresh record highs. Looking ahead, the economic calendar is super light on Wednesday, with only US housing starts and building permits standing out.
EURCHF – technical overview
The market has pushed up to a fresh 2017 high through a critical psychological barrier at 1.1000 which could now open the door for an extension to retest the major peak from 2016 at 1.1200. However, inability to hold above 1.1000 in the sessions ahead would suggest a false break and put the pressure back on the downside for an acceleration of declines towards 1.0600.
EURCHF – fundamental overview
The SNB is surely delighted with the most recent price action in the FX market, as the Swiss Franc extends its run of declines on the back of continued central bank activity, recent ECB hawkishness and record high US equities. However, the inflated US equity market should be a worry for the SNB as any capitulation on this front is likely to invite massive safe haven Franc demand the central bank will have an extremely difficult time offsetting, irrespective of the central bank’s negative rate policy and intervention efforts. For now, the SNB is hoping global sentiment will remain artificially elevated and the ECB will continue to paint a more hawkish picture as has been seen over the past few weeks.
AUDUSD – technical overview
Despite the latest intense rally to fresh 2017 highs, the market continues to be very well capped on a medium-term basis ahead of 0.8000. Ultimately, any additional moves to the topside could be limited with the market once again at risk of stalling out and rolling over. Only a daily close above 0.8000 would give reason for a rethink. Look for a break back below 0.7787 to strengthen this outlook and accelerate declines.
AUDUSD – fundamental overview
The Australian Dollar has emerged as a major outperformer in the FX market over the past week, with the currency exploding through critical resistance at 0.7800 on the back of US Dollar bearish developments, a hawkish RBA Minutes, solid China data and stabilising commodities prices. There have however been some negative developments into Wednesday including technical overextension, softer second tier data, a report out from Westpac that RBA hawkishness should be taken with a grain of salt and a Reuters poll producing lower Aussie GDP forecasts. As far as the calendar for the remainder of the day goes, the market is expected to digest RBA Heath comments, before later taking in US housing starts and building permits.
USDCAD – technical overview
There has been a clear shift in the outlook for this market over the past several days, with declines holding below 1.3000 and the market extending to fresh 2017 lows in the 1.2500s thus far. Technical studies are tracking in oversold territory, though a bounce may not come until the market retests the 2016 low at 1.2461. A daily close back above 1.2700 would now be required to take the immediate pressure off the downside.
USDCAD – fundamental overview
The Canadian Dollar surprised many last week, despite the market having already priced in the Bank of Canada’s first hike in 7 years. Taking a page out of the Fed’s book, the Bank of Canada downplayed subdued inflation, while communicating the economy had also adjusted to lower OIL prices. The central bank stopped short of offering more detailed insight on the path forward, leaving it up to data and macro developments, but despite all of this being telegraphed, there has been continued demand. A lot of this has to do with the contrasting developments out of the US, as highlighted by decidedly less hawkish comments from the Fed Chair, a soft run of US data and US administration policy gridlock. Looking ahead, keep an eye on the price of OIL and economic data that includes Canada manufacturing shipments, US housing starts and US building permits. It’s worth noting the Canadian Dollar is up about 8% since May.
NZDUSD – technical overview
Despite an impressive rally in recent weeks, the market remains confined to a longer-term range, with strong resistance into the 0.7400-0.7500 area. As such, look for this most recent topside failure to produce a more pronounced bearish reversal taking the market back down towards the 2017 low in the 0.6800s. Only a clear break back above 0.7500 would compromise the outlook, while back below 0.7200 strengthens the bearish case.
NZDUSD – fundamental overview
The New Zealand Dollar has been holding up well, though the gains have been far less impressive than its Aussie cousin, as New Zealand data continues to underwhelm. While the broad based US Dollar selling from a scaled back Yellen, ongoing weakness in US data and this latest failed US healthcare repeal has not been lost on the Kiwi rate, the New Zealand Dollar is finding solid offers in the 0.7300s. Tuesday’s New Zealand CPI data came in much softer than expected and has acted as a cap on gains towards the 2017 high. Meanwhile, the latest GDT auction results did manage to post a positive print, though the gains were marginal and the market wasn’t in the mood to react much. As far as the calendar for the remainder of the day goes, US housing starts and building permits are the only notable standouts.
US SPX 500 – technical overview
Any setbacks have been exceptionally mild thus far and at a minimum, a daily close back below 2400 would be required to take the immediate pressure off the topside, though only a break below 2320 would signal a meaningful shift in the structure. Until then, the market is capable of extending the record run towards the next measured move extension target at 2480 further up.
US SPX 500 – fundamental overview
The US equity market has done a good job proving it can hold up into any dip and can keep pushing to record highs as it focuses on rates staying lower for longer and the Fed continuing to underdeliver on forward guidance. Janet Yellen played right into the market’s hand last week, when the Fed Chair’s overall tone was quite a departure from recent messages since the June Fed meeting. Yellen was decidedly less hawkish, expressing upgraded concerns about low inflation, while also adding rates would only need to go a little higher before policy was at a neutral level. At this point, it might not be enough to completely remove hawkish prospects, though it’s clearly inviting additional record high demand with hawks forced to reconsider their bets.
GOLD (SPOT) – technical overview
Setbacks have been well supported ahead of 1200, with the latest push back above 1230 setting the stage for a bullish resumption towards 1300. Only below 1200 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 exhausted monetary policy, extended global equities, political uncertainty, systemic risk and geopolitical threats. All of this should continue to keep the commodity supported around 1200, 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 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 will hold up on risk off macro implications.
Feature – technical overview
USDZARÂ is showing signs of the formation of a meaningful base since bottoming out around 12.30 earlier this year. A recent push back above 13.00 strengthens this outlook and sets the stage for a continuation of gains towards next key resistance at 13.71 further up. Any setbacks should ideally be well supported ahead of 12.55, with only a break back below this level to negate the constructive outlook.
Feature – fundamental overview
The Rand has been given a break from all the political and economic turmoil that had been weighing on the currency, instead benefiting from a fresh wave of broad based US Dollar selling and demand for risk assets in the aftermath of a decidedly less hawkish Yellen testimony, softer US data and this latest news of the failed US healthcare repeal. Meanwhile, there was some good news on the local front last week with South African mining production coming in much higher than expected, helping to keep the Rand recovery in play. Still, looking out, it’s hard to be too dismissive of the South African political uncertainty, including a never ending string of Zuma corruption charges. Throw in persisting South African recessionary forces, yield differentials shifting in favor of the major central banks and the still looming prospect for a material reversal in elevated global equities and it all points to the greater risk for additional Rand weakness going forward. In the interim, the market will start to think about today’s South Africa CPI release and Thursday’s SARB decision.