Today’s report: Is That All You’ve Got?
We come into Friday with the US Dollar attempting to build on a mild Thursday recovery. It's no secret the Dollar has been hit hard in 2017 and those setbacks intensified this week on the back of a Fed decision that didn't offer much in the way of new information. US GDP ahead.
Wake-up call
Chart talk: Major markets technical overview video
- confidence indicators
- distributive trades
- diverging flow
- SNB celebrates
- RBA messages
- GDP releases
- Fonterra
- good incentive
- Shaky backdrop
- USDZAR
Peformance chart: Five day performance v. US dollar
Suggested reading
- Oil v. Fish: A Fight for Norway’s Soul, R. Milne, Financial Times (July 26, 2017)
- Investing Lessons from a Card Counter, T. Griffin, MarketWatch (July 25, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The market has finally traded up through a critical range high that had capped gains since 2015. The breakout now suggests a longer term base is in place ahead of a more significant recovery over the coming weeks and months. Still, daily studies are extended on a shorter-term basis and risk is building for a bearish reversal. Support comes in a 1.1613 and a break below this level would be required to inspire a correction.
EURUSD – fundamental overview
The Euro built on its impressive gains early Thursday, with the positive momentum carrying over from a Wednesday Fed decision that didn’t really offer much, but enough to keep the Euro bid up. However, with the market so stretched, it looked to be only a matter of time before some profit taking would kick in and that’s exactly how it played out. German Gfk confidence readings were above forecast but the market couldn’t ignore the need for a bit of a pullback, while a very solid headline US durable goods print out of the US only further contributed to the Euro’s retreat. But overall, the move this week has been significant and dealers are reporting healthy bids into dips. Looking ahead, key standouts on today’s calendar include Eurozone confidence indicators, Germany CPI, US GDP, US personal consumption and US Michigan sentiment.
GBPUSD – technical overview
Although the rate has managed to extend to a fresh 2017 high, the market continues to struggle to sustain gains. 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. But on a short-term basis, there is risk for a period of consolidation before that next big push and bullish continuation towards a measured move extension objective at 1.3500. Setbacks are now expected to be well supported in the 1.2700s, with only a break back below 1.2590 to compromise the constructive outlook.
GBPUSD – fundamental overview
This week’s consensus UK GDP and impressive CBI distributive trades data have been encouraging for the Pound, though most of the gains to another yearly high have come from the intense wave of broad based US Dollar declines. The Pound still needs to worry about the Brexit overhang, while softer UK inflation data and some demand for a beaten down Buck are keeping the UK currency well capped into rallies. Looking ahead, absence of data out of the UK will leave the focus on US GDP, US personal consumption and US Michigan sentiment.
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
No matter how much it looks like this major pair wants to break down, there appears to be an eternally persistent bid on dips. The Yen has been well bid for many sessions, but bargain buyers have crept in this week on dips into the 110.00s. While the US Dollar has been hurting of late on a dovish leaning Fed policy normalisation, the BOJ is nowhere even close to considering a reversal of its own policy, which still keeps those yield differentials attractive on the US Dollar side. Meanwhile, record high equities have offered another layer of support for USDJPY. We did see some downside pressure on the emergence of risk off flow in Thursday trade, though this was offset by the impressive headline US Durable goods print. Looking ahead, we get US GDP, US personal consumption and US Michigan sentiment. Japan retail trade and jobs data were out earlier but haven’t factored into price action.
EURCHF – technical overview
The market has pushed up to a fresh 2017 and multi-month high through massive resistance in the form of the 2016 peak at 1.1200. This takes the rate to its highest level since the collapse of January 2015, with very little in the way of resistance between 1.1200 and 1.2000. However, daily studies are now highly overextended, warning of a corrective reversal in the sessions ahead. But look for any setbacks to be well supported into previous resistance turned support at 1.1000.
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 solid Eurozone data, hawkish ECB expectations and ongoing SNB activity have helped to push the exchange rate through 1.1200 to its highest level since the January 2015 crisis. SNB Jordan was out adding to the bid tone this week, reaffirming the central bank’s view of a Franc that was overvalued. However, the SNB could be doing whatever it can to weaken the Franc now in anticipation of a tougher battle ahead. 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 would confirm the bullish structural shift. However, shorter-term technicals are extended 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 was able to extend its run to +2 year highs this week, with the currency also clearing major technical levels at 0.7800 and 0.8000 to spark the interest of longer-term investors looking for a possible structural shift. Interestingly, all of this came at a time when Aussie inflation was soft, while the two top central bankers at the RBA were out with commentary encouraging a lower Australian Dollar. But the week was all about broad based US Dollar declines, which ultimately fueled the gains. Wednesday’s Fed decision didn’t produce any surprises, but whatever dovishness the market could grab onto it did, with the Dollar rapidly depreciating in the aftermath. However, with the US Dollar dropping so far and fast, we are seeing some profit taking kick in on Aussie longs, helped along by a very solid headline US durable goods print. And so, if the Dollar tries to extend the recovery in the sessions ahead, it could get the market paying attention to that more dovish RBA speak and soft Aussie inflation data, opening a more pronounced Aussie retreat. Friday’s slightly hotter Aussie producer prices haven’t factored into price action. Looking ahead, key standouts come in the form of US GDP, US personal consumption and US Michigan sentiment.
USDCAD – technical overview
There has been a clear shift in the outlook over the past several days, with declines holding below 1.3000 and the market collapsing to a fresh 2017 low through the 2016 base at 1.2461. However, technical studies are in the process of turning up from deep oversold territory, warning of the possibility for an overdue bullish reversal to allow for these studies to unwind. A daily close back above 1.2700 would be required to officially 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 and at a +2 year high. 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 seemingly shifted to a less hawkish normalisation path, US economic data is struggling and the US administration continues to battle intense headwinds. This week’s rally in the price of OIL and an upbeat Fitch outlook on Canada only added to the Loonie demand. On Thursday, the Loonie did finally relent a bit, mostly on broad based profit taking on a highly oversold US Dollar, helped along by an impressive headline US durable goods print. Looking ahead, it should be a busy day for this pair with growth data due out of Canada and the US along with US Michigan sentiment.
NZDUSD – technical overview
The market has extended through a major barrier at 0.7500 with the breakout opening the door for a bullish continuation towards next key resistance going back to April of 2014 at 0.7740. Daily studies are however stretched, suggesting we could initially see a period of healthy corrective declines before the market considers a bullish resumption. But a break back below 0.7400 would be required to take the immediate pressure off the topside.
NZDUSD – fundamental overview
Earlier this week, RBNZ McDermott was out welcoming a lower Kiwi rate to help rebalancing, though the comments fell on deaf ears. The US Dollar slide was too much of an event to ignore. There weren’t any surprises from this week’s Fed decision, but this was enough to reinforce the markets’ dovish take on Fed policy. Kiwi tripped stops above 0.7500 in the aftermath and has pushed up to a +2 year high. Another story that could be supporting the Kiwi rate is the news that Fonterra has upped it’s milk price forecast for 2018, citing growing confidence and improving global demand. Looking ahead, key standouts come in the form of US GDP, US personal consumption and US Michigan sentiment.
US SPX 500 – technical overview
The market has extended its record run, trading into a key measured move objective at 2480. Though this trend is quite stretched, setbacks continue to be well supported on the smallest of dips and only a daily close back below 2400 would suggest the market is contemplating a possible reversal.
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. While there wasn’t much in the way of any surprise from Wednesday’s FOMC decision, it was enough of a confirmation of the Fed Chair’s less hawkish testimony earlier this month to justify investor expectations. Rates may not be going lower in the US, but it seems a dovish policy normalisation is the next best thing and enough to keep the artificially supported rally going.
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 expectation 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.