Next 24 hours: US Dollar Gets Boost from Rise in Core PCE
Today’s report: White House Shenanigans No Help to USD
The US administration's protectionist policies have been aimed at weakening the US Dollar and yet, it's the endless string of White House controversy and disruption that has been making the US Dollar even less attractive in 2017. US core PCE and ISM manufacturing stand out on Monday.
Wake-up call
Chart talk: Major markets technical overview video
- Eurozone GDP
- Thursday BOE
- no match
- SNB Jordan
- RBA policy
- OIL extends
- GDT auction
- Investors
- Unstable markets
- USDZAR
Peformance chart: Five day performance v. US dollar
Suggested reading
- Swiss Banks Paid $1 Billion in H1 2017, J. Franklin, Reuters (July 31, 2017)
- Washington Chaos Lulls Bond Market to Sleep, L. Abramowicz, 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. Key short-term support comes in a 1.1724 and a break below this level would be required to inspire a correction.
EURUSD – fundamental overview
All of this short term technical overextension in the Euro and yet it hasn’t mattered, with the market paying more attention to what could be a broader structural shift and fundamentals that show nothing going for the US Dollar at the moment. The Euro has extended its run following a sequence of events in Monday trade that left traders no choice but to keep buying. Initially it was above forecast core Eurozone CPI, then it was solid Eurozone employment and EURCHF supportive comments from SNB Jordan. And into the US session, a drop in Chicago PMIs and month end flow accelerated the run through stops over 1.1800. US pending home sales and Dallas Fed manufacturing managed to come in on the better side of consensus but were largely shrugged off. Looking ahead, Tuesday's calendar features German employment data, Eurozone GDP, US core PCE and US ISM manufacturing.
GBPUSD – technical overview
On a medium-term basis, the breakout back in April through 1.2775 suggests the major pair has put in a meaningful base off the October 2016 +30 year low at 1.1840, with the door open for a test of a measured move extension at 1.3500. Short-term however, there is risk for a period of correction and consolidation before that next big push towards 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
Monday’s round of second tier UK data came in broadly in line with expectation, leaving the UK currency to trade off external flow involving another round of US Dollar selling on month end flow, softer Chicago PMIs and more shenanigans at the White House. For the most part, Monday’s run to another 2017 high came from an acceleration in Euro demand, which pulled the Pound up along with it. Today, we get UK manufacturing data, followed up by key US releases that include core PCE and ISM manufacturing. But it’s worth remembering the Brexit overhang remains in the background, with this and softer UK inflation to potentially cap additional upside as we get closer to Thursday’s anticipated BOE event risk.
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 and a Fed that is expected to scale back on normalisation as a result. Dealers are now talking stops below 110.00. As far as today economic calendar goes, core PCE and ISM manufacturing are the key standouts.
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 until 1.2000. However, daily studies are now highly overextended, warning of a corrective reversal in the sessions ahead. Look for any additional upside to be well capped around 1.1500 in favour of a short-term pullback towards that previous resistance at 1.1200.
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, to a two and half year high. SNB Jordan has been more active on the wires adding to the bid tone, reaffirming the central bank’s policy. 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, but ongoing weakness in US data and White House shenanigans have been keeping Aussie well 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 today when the RBA comes out with its next policy decision. Other calendar events of note on Tuesday include US core PCE and ISM manufacturing. Early Tuesday, Aussie got a healthy boost on the back of a well received China PMI reading and some impressive second tier Aussie releases.
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 1.2577 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, while a recovery in the price of OIL and ongoing disruptions at the White House are only adding to the Loonie’s bid. There was a mild bout of Loonie selling on Monday on account of disappointing Canada industrial product and raw materials prices, but these setbacks were very well supported, with USDCAD dropping back to its recent two year low into the close. Looking ahead, key standouts on today’s calendar include Canada manufacturing PMIs, US core PCE and US ISM manufacturing.
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. Meanwhile, US economic data continues to come in weak and the disruptions at the White House appear to be never ending. All of this has helped to keep the New Zealand Dollar trading up at over two year highs against the Buck. Last week’s comments from RBNZ McDermott welcoming a lower Kiwi rate to help rebalancing have fallen on deaf ears, with the market entirely consumed by the broad based US Dollar selling. Of course, bid commodities and record high equities have done nothing to hurt the risk correlated Kiwi as well. Looking at today’s calendar, the market will be paying close attention to the latest GDT auction result, while also taking in US core PCE and ISM manufacturing.
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 a soft run of US economic data 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 took quite a hit on Monday despite continued US Dollar selling elsewhere and a stronger than forecast South Africa trade surplus. News that the ANC MPs must vote along party lines on the Zuma no confidence vote has more than offset the supportive Rand developments, with the local market not feeling good about the fact that this reduces the chance President Zuma will be ousted from government. Meanwhile, Moody’s has been out warning that the SARB is under political pressure which could end up resulting in additional downgrade speculation.