Next 24 hours: Tale of Two Mondays
Today’s report: When Will it End?
The story may be getting tired, but the trend has yet to show such exhaustion, with the US Dollar continuing to struggle in 2017. It looked like there could be some US Dollar relief on the horizon last Thursday, but Friday’s developments prevented that from happening.
Wake-up call
Chart talk: Major markets technical overview video
- European calendar
- UK inflows
- Hard times
- SNB strategy
- Tuesday’s RBA
- Contrasting GDP
- Fonterra forecast
- growth miss
- macro uncertainty
- USDZAR
Peformance chart: Five day performance v. US dollar
Suggested reading
- There They Go Again….Again, H. Marks, Oaktree Capital (July 26, 2017)
- Libor, Phone-Smashing and Hacking, M. Levine, Bloomberg (July 28, 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
We come into the new week with the Euro continuing to do what it’s been doing for the entire year, which is to keep pushing up against the US Dollar. The single currency sits at two and a half year highs and continues to benefit from monetary policy and yield differentials favouring the ECB, contrasting economic data and ongoing struggles out of the White House. On Friday, German inflation came in hotter than expected, US GDP was a disappointment and there was another failed Republican attempt to repeal Obamacare. Looking ahead, key standouts on Monday’s calendar include German retail sales, Eurozone employment, Eurozone CPI, Chicago PMIs, US pending home sales and the Dallas Fed manufacturing index.
GBPUSD – technical overview
Although the rate has managed to push to a fresh 2017 high, the market hasn’t been able to materially extend gains on the bullish breaks. 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 correction and consolidation before that next big push and bullish continuation towards a measured move extension objective at 1.3500. Still, any 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
The Pound held up nicely in the previous week and managed to extend its run of 2017 highs. While inflation in the UK remains subdued and the Brexit overhang continues to be a point of stress, it seems the market is still taking advantage of what it believes to be a UK currency that was beaten down too hard in 2016, with the added benefit of broad based US Dollar declines only adding to the Pound’s bid. Meanwhile, we also saw a return of UK inflows, only the second inflows in 14 weeks, which has provided another layer of support for the Pound. Later this week, we get an important Bank of England policy decision. In the interim, the market will focus on the economic data. Today’s standouts are UK consumer credit, UK mortgage approvals, Chicago PMIs, US pending home sales and the Dallas Fed manufacturing index.
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 114.50 to negate this outlook and shift the focus back on the topside.
USDJPY – fundamental overview
As dovish as the BOJ has been, and as bid up as equity markets are, it still hasn’t been enough to depreciate the Yen. This is a market that has been dominated by broad based US Dollar outflows from ongoing disruptions at the White House, softness in US economic data, most recently highlighted by Friday’s below forecast GDP and a Fed that is expected to scale back on normalisation some more as a result. Dealers are now talking stops below 110.00 into the new week. As far as Monday data goes, key standouts come in the form of Chicago PMIs, US pending home sales and the Dallas Fed manufacturing index.
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 1.1200. Still, only back below 1.1000 would negate the constructive outlook.
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, more 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, and to a two and half year high. SNB Jordan was also out last week adding to the bid tone, reaffirming the central bank’s view of a Franc that is 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 at 0.8000 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 extended its run of 2017 highs last week, with the ongoing wave of broad based US Dollar selling proving too much to ignore. We did see the market ease off from highs earlier in the week, but Friday’s soft US GDP and another failed attempt to repeal Obamacare were enough to keep Aussie supported on dips. Interestingly, all of this comes at a time when Aussie inflation has been softer, while both RBA Lowe and Debelle have voiced there displeasure with the Australian Dollar strength. We may hear some more about this on Tuesday when the RBA comes out with its next policy decision. In the interim, the market will be trading on the economic calendar events into the lead up. Today, key standouts come in the form of US releases featuring Chicago PMIs, pending home sales and the Dallas Fed manufacturing index. Softer China PMIs out early Monday haven’t factored into price action.
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
There has been no stopping the Canadian Dollar since May, with the Loonie racing higher and higher, up about 10% in that time and trading at over two year highs against the US Dollar. The Fed has been talking less hawkish, while the Bank of Canada has hiked rates and is looking at a more upbeat outlook. Economic data has been confirming this contrast between the two economies, most recently this past Friday when US GDP was a disappointment at the same time as Canada GDP came in much higher than forecast. A recovery in the price of OIL and the latest failed repeal of Obamacare have only added to the Loonie’s bid. Looking ahead, Monday’s calendar features Canada industrial product and raw materials prices and US data which includes Chicago PMIs, pending home sales and the Dallas Fed manufacturing index.
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
Last week, Fonterra upped its milk price forecast for 2018, US economic data continued to come in weak and more troubles emerged out from the White House. All of this helped to drive the Zealand Dollar through the major barrier at 0.7500, up to a two year high as a result. Comments from RBNZ McDermott welcoming a lower Kiwi rate to help rebalancing fell on deaf ears, with the market entirely consumed by the US Dollar selling. Of course, bid commodities and record high equities did nothing to hurt the risk correlated Kiwi as well. Looking at Monday’s calendar, key standouts come in the form of US releases featuring Chicago PMIs, pending home sales and the Dallas Fed manufacturing index.
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 last week’s Fed decision, it was enough of a confirmation of the Fed Chair’s less hawkish testimony earlier in July 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. Certainly last Friday’s US GDP disappointment will only embolden this bet that the Fed will be forced to take things super slow.
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 the surprise July 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 improving inflation expectations 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.