Next 24 hours: Euro, Pound Extend 2017 Runs
Today’s report: Revisiting the Pace of the US Dollar Decline
While the possibility of a major structural shift, pointing to a secular decline in the US Dollar is one that needs to be seriously considered, for the moment, most out there also recognize the pace of recent Dollar declines has been quite intense.
Wake-up call
Chart talk: Major markets technical overview video
- Tuesday data
- UK manufacturing
- Stops tripped
- despite NIRP
- RBA concern
- OIL retreat
- GDT, jobs
- market sentiment
- Macro players
- USDZAR
Peformance chart: Five day performance v. US dollar
Suggested reading
- Contagious Investor Confidence, D. McCrum, Financial Times (August 1, 2017)
- An Interview with Howard Marks, L. Abramowicz, Bloomberg (August 1, 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 at 1.1724 and a break below this level would likely inspire an overdue correction.
EURUSD – fundamental overview
The Euro has been making a habit of racing to fresh 2017 highs on a daily basis, with the uptrend intensifying over the past several days. And so, to see the market fail in an attempt to post a fresh high and then close lower on the day, is already a story in its own right. Short term technical studies have been calling out for some form of a Euro pullback and on Tuesday, there were finally some fundamental catalysts forcing the single currency to pause for a break. Initially, it was softer Eurozone data with German manufacturing PMIs, German employment and Eurozone manufacturing PMIs all coming in below forecast. This was then followed up by an above forecast core PCE reading out of the US, something that inspired broader US Dollar demand on the impact of some upward pressure on inflation, possibly forcing the Fed into a more hawkish stance. Eurozone GDP came in flat, while the other readings out of the US were also mostly in line. Looking ahead, Wednesday’s calendar features Eurozone producer prices, US ADP employment and speeches from Fed's Mester and Williams.
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
While most of the developed currencies traded convincingly lower against the Buck on Tuesday, the Pound held up well, initially pushing to a fresh 2017 high before retreating into the close. The release of better than expected UK manufacturing PMIs was seen as the early catalyst driving the UK currency, though a hotter US core PCE reading was able to offset the UK data, with the broader FX market coming back under pressure against the Buck. Looking ahead, key standouts on Wednesday’s calendar include UK construction PMIs, US ADP employment and speeches from Fed's Mester and Williams. The market will also start to position ahead of Thursday’s highly 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 to the topside.
USDJPY – fundamental overview
The major pair had been eyeing a break of 110.00 and finally took out stops below the barrier before getting bid back up into the close. It seems the initial weakness came from the ongoing wave of broad based US Dollar selling, though a well received US core PCE reading propped the market back above the barrier. Perhaps some additional Yen demand has been coming from repatriation flow as Abe approval ratings sink amidst scandal and the resignation of Defense Minister Inada. Overall, 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. Looking ahead, key standouts on today’s calendar come in the form of US ADP employment and Fed speak from Mester and Williams.
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. SNB Jordan has also been more active on the wires of late, adding to the bid tone as he reaffirms the central bank’s policy strategy. 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 came under pressure on Tuesday, with the RBA decision and above forecast US core PCE reading acting as the primary drivers behind Aussie’s weakness. While the RBA decision wasn’t exactly downbeat and on the whole, offered a balanced take, there was enough concern with respect to the elevated Australian Dollar, wages, inflation and housing to result in some profit taking on Aussie longs. Of course, the rise in US core PCE inspired a broad based recovery in the US Dollar, with the upward pressure on inflation seen possibly forcing the Fed into a more hawkish stance. Looking ahead, US ADP employment and speeches from Fed's Mester and Williams will be the key standouts on Wednesday’s calendar. Aussie building approvals were out earlier and haven’t materially 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 1.2577 would strengthen this outlook.
USDCAD – fundamental overview
There has been a mild bout of Loonie selling this week on account of Monday’s disappointing Canada industrial product and raw materials prices, Tuesday’s above forecast US PCE and this latest bout of OIL weakness. Overall, however, the Canadian Dollar is still trading just off its recent plus two year high (USDCAD low) as economic data and central bank policy divergence influence direction. Looking ahead, today’s economic calendar is empty in Canada and the key focus will be on the price of OIL, US ADP employment and Fed speak from Mester and Williams.
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. Look for a daily close back below 0.7400 to strengthen this outlook and accelerate declines.
NZDUSD – fundamental overview
The New Zealand Dollar has been showing signs of exhaustion since pushing to a two year high through 0.7500. The combination of the weakest GDT auction result since March, an above forecast US core PCE reading and a big miss in this latest New Zealand employment data have inspired Kiwi bulls to reconsider their exposure. Not only was the Kiwi jobs headline print soft but earnings were also below forecast. Still, broad US Dollar bearishness has helped to support dips in recent weeks and there will need to be a positive shift in US Dollar sentiment to have a meaningful weighing influence on the Kiwi rate. Looking ahead, US ADP employment and Fed speak from Mester and Williams stand out.
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 rates may not be going lower in the US, 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 1250 setting the stage for a bullish resumption through 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 come under renewed pressure this week on a plethora of drivers. The news that ANC MPs must vote along party lines on the Zuma no confidence vote reduces odds 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. Finally, South Africa manufacturing PMIs have come in soft.