Next 24 hours: Euro Extends 2017 Run into Major Level
Today’s report: Positioning Ahead of Wednesday’s Fed Decision
The market wasn't in the mood to move much on Monday and we could see more of this today, with the economic calendar not all that busy once again. Of course, we also get the Fed decision tomorrow, which should give participants yet another reason to tread cautiously on Tuesday.
Wake-up call
Chart talk: Major markets technical overview video
- German IFO
- CBI trends
- BOJ Minutes
- policy strategyÂ
- RBA Debelle
- wholesale sales
- offers emerge
- Wednesday FOMC
- Macro backdrop
- USDZAR
Peformance chart: Five day performance v. US dollar
Suggested reading
- Salient Features of Bull Market Peaks, J. Hussman, Hussman Funds (July 24, 2017)
- Credit Manager Girds for High Yield Dislocations, J. Walsgard, Bloomberg (July 23, 2017)
Chart talk: Technical & fundamental highlights
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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 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. But the market may want to take out that monumental range high from 2015 at 1.1715 first, before it considers finally relenting into an anticipated period of healthy correction. Right now, a daily close below 1.1620 would be required to take the immediate pressure off the topside.
EURUSD – fundamental overview
The Euro is holding up near it’s 2017 high from early Monday, with the market consolidating gains in the aftermath of the latest surge following last Thursday’s ECB decision in which the market continued to hold with its hawkish outlook for the central bank. We have however seen a mild pullback into Tuesday, with the combination of softer German and Eurozone manufacturing PMIs and some position squaring into Wednesday’s Fed decision factoring. Looking ahead, key standouts on today’s calendar include German ZEW readings, second tier US housing data, US consumer confidence, the Richmond Fed manufacturing index and the US Senate’s vote on Obamacare repeal.
GBPUSD – technical overview
Although the rate has managed to extend to a fresh 2017 high in recent trade, the market continues to struggle to sustain gains beyond 1.3000. On a medium to longer-term basis, the breakout in April through 1.2775 does suggest the major pair has put in a meaningful base off the October 2016 +30 year low at 1.1840. Still, on a short-term basis, there is risk for more choppy consolidation in the 1.2500 to 1.3000 area before seeing that next big push to a measured move extension objective at 1.3500.
GBPUSD – fundamental overview
Monday was an exceptionally quiet day in markets, though the Pound managed to benefit from the price action, perhaps on the back of some lightening up in Euro long exposure ahead of tomorrow’s FOMC decision. But overall the Cable rate has struggled to sustain rallies above 1.3000, weighed down on recent softer UK inflation readings and ongoing worry over the outlook for the UK economy in the world of Brexit. Still, while broad based US Dollar selling persists, any setbacks in the UK currency should be able to find decent support. Looking ahead, we get some UK CBI trends data and US releases in the form of second tier housing data, consumer confidence, the Richmond Fed manufacturing index and the US Senate’s vote on Obamacare repeal.
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 Yen has been in decent demand over the past several sessions, with USDJPY extending declines into the 110.00s. Last Thursday’s dovish leaning BOJ decision wasn’t enough to weaken the Yen, despite the central bank pushing out its inflation target. Meanwhile, record high US equities have also been unsuccessful in weakening the Yen of late. For the moment, the broad based selloff in the US Dollar on the back of struggling US data, a less hawkish Fed Chair and more trouble at the White House, have all been playing a larger part in the flows. Earlier today, the BOJ Minutes came out but didn’t seem to factor into price action, though there have been some USDJPY bids reported on dips into the 110.00s that have helped to open a minor recovery in the major pair. Looking ahead, the only notable standouts on the calendar for the remainder of the day are US releases in the form of second tier housing data, consumer confidence, the Richmond Fed manufacturing index and the US Senate’s vote on Obamacare repeal.
EURCHF – technical overview
The market has pushed up to a fresh 2017 high through a critical psychological barrier at 1.1000, opening the door for an extension to retest the major 2016 peak at 1.1200. Only a break back below 1.0980 would take the pressure off the topside.
EURCHF – fundamental overview
Elevated risk sentiment has been a big friend to an SNB committed to doing what it can to discourage appreciation in the Franc. This, along with hawkish ECB expectations and ongoing SNB activity have helped to push the exchange rate back above the 1.1000 psychological barrier. However, the SNB could have a much tougher battle on its hands in the days ahead if it wishes to keep the Franc from appreciating. Any capitulation in US equities is likely to rattle global sentiment and invite an intense wave of unwanted Swiss Franc demand on the safe haven flow.
AUDUSD – technical overview
The latest surge through major resistance in the 0.7800 area suggests the market could be in the process of carving out a meaningful longer-term base. The next major resistance level comes in at 0.8163, the high from May 2015. A clear break above there would confirm the bullish structural shift. However, shorter-term technicals are now well overextended and risk is building for a healthy bearish reversal in the sessions ahead. A daily close below 0.7876 would set up this anticipated pullback.
AUDUSD – fundamental overview
The Australian Dollar is starting to show signs of wanting to reverse lower following an impressive run through major technical resistance at 0.7800. Last week’s hawkish RBA Minutes and continued selling in the US Dollar were the primary drivers of the Aussie gain. But last Friday, Aussie got a bit of a reality shot on the back of comments from RBA Deputy Governor Debelle. The central banker downplayed any hawkishness from the RBA Minutes as being misconstrued, while he also made an effort to express discomfort with such a strong currency. We have since seen the Australian Dollar under mild pressure which could intensify if stops are taken out below 0.7850. Of course, broad based US Dollar outflows have helped to mitigate Aussie weakness and if the US Dollar selling persists, the Australian Dollar could hold up for a break of 0.8000. Looking ahead, the only notable standouts on the calendar for the remainder of the day are US releases in the form of second tier housing data, consumer confidence, the Richmond Fed manufacturing index and the US Senate’s vote on Obamacare repeal.
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 1.2400s 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 has extended its impressive run in 2017, with the currency up nearly 10% since trading at 2017 lows in early May. The Bank of Canada’s hawkish policy shift that resulted in its first rate hike in seven years comes at a time when the Fed has been sounding less hawkish, US economic data isn’t pretty and the US administration continues to battle intense headwinds. Last Friday’s higher core Canada inflation and much better Canada retail sales were followed up with another beat on Monday, this time from wholesale sales. Still, with the Loonie running so far and fast and with the Fed possibly scaling back as per Yellen’s recent testimony, it wouldn’t be unrealistic to see a scaled back BoC adjustment in the days ahead. Looking ahead, the only notable standouts on the calendar for the remainder of the day are US releases in the form of second tier housing data, consumer confidence, the Richmond Fed manufacturing index and the US Senate’s vote on Obamacare repeal.
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 latest run to stall out in favour of a more pronounced bearish reversal. Only a clear break back above 0.7500 would compromise the outlook, while a daily close back below 0.7394 strengthens the bearish case.
NZDUSD – fundamental overview
As much as the New Zealand Dollar has tried to extend its impressive run following Kiwi supportive FinMin Joyce comments, rallies have been well capped ahead of 0.7500. It’s hard to ignore extended technicals, last week’s soft Kiwi inflation data and overall lackluster GDT auction results. Of course, the US Dollar getting hit hard across the board, US equities at record highs, commodities in recovery mode, and the US administration continuing to battle intense headwinds, have all helped to mitigate any Kiwi weakness from local developments, at least into Tuesday. Looking ahead, the only notable standouts on the calendar for the remainder of the day are US releases in the form of second tier housing data, consumer confidence, the Richmond Fed manufacturing index and the US Senate’s vote on Obamacare repeal.
US SPX 500 – technical overview
The market has extended its record run, trading into a key measured move extension objective at 2480. Setbacks continue to be quite shallow and only a daily close back below 2400 would take the immediate pressure off the topside.
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 earlier this month, 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. Meanwhile, the market continues to shrug off a downturn in US economic data and a never ending string of turbulence out of the White House. Looking ahead, tomorrow’s Fed meeting will likely have an impact on equity market sentiment, with anything that confirms a move back to the dovish side fueling more gains, while anything pushing back to the hawkish to likely inspire an intense round of profit taking.
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 held up exceptionally well despite last week’s surprise SARB move to cut rates for the first time in 5 years. The deteriorating growth outlook had the central bank wanting to lean in this direction and an improving inflation outlook allowed the central bank to make the move. And yet, with broad US Dollar selling continuing to be a major theme and with US equities sitting at record highs, the Rand has been able to hang on, even with the lower rates. But overall, there is risk for renewed Rand downside when considering South Africa political instability including a never ending string of Zuma corruption charges, recessionary forces, yield differentials shifting in favor of the major central banks and the looming prospect for a material reversal in elevated global equities. Looking ahead, the market takes in South African employment data.