Special report: BOE Preview – Vote Split, Inflation
Next 24 hours: Pound Retreats Post BOE, US Jobs Ahead
Today’s report: Bank of England Risk Highlights Thursday Calendar
If the market was looking for a Euro correction earlier this week, it will be that much hungrier for one into Thursday, with the single currency extending its 2017 run yet again, this time through 1.1900. Looking ahead, all eyes on today’s BOE policy decision risk.
Wake-up call
Chart talk: Major markets technical overview video
- ADP, Bullard
- BOE decision
- BOJ overshadowed
- Franc weakness
- trade data
- Tired OIL
- Bad run
- Rising inflation
- USD recovery
- USDZAR
Peformance chart: Five day performance v. US dollar
Suggested reading
- Traders Betting on Stock Market Shock, J. Ciolli, Business Insider (August 2, 2017)
- Strong Euro, Weak Equities?, J. Eley, Financial Times (August 2, 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 wasn’t a whole lot in the way of fresh market drivers on Wednesday, but this didn’t stop the Euro from extending its run, with the major pair pushing through that next barrier at 1.1900. But if there were two possible catalysts for the latest jump they were probably the headline miss in US ADP employment (despite a positive upward revision that was offsetting) and dovish comments from Fed Bullard who said he didn’t see rates going up any time soon with inflation still subdued. But again, these comments were offset by Fed Mester who supported a more hawkish timeline and another rate hike this year in an effort to stay ahead of the inflation curve. Looking ahead, key standouts on today’s calendar include Eurozone services PMIs, Eurozone retail sales and US initial jobless claims. We also should expect movement on fallout from the BOE decision.
GBPUSD – technical overview
On a longer-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 push to 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 continues to extend its run of 2017 highs, though despite the run up, the market isn’t too excited about accelerating to the topside, almost as if it is rallying in protest. UK construction PMIs would support this argument, after the data came out on the softer side on Wednesday, though it’s possible a reassuring upgrade on UK banks from Moody’s was behind some of the demand, while a headline miss on US ADP employment and dovish Fed Bullard comments also contributed to the move. But at the same time, US ADP did produce a positive upward revision, while Fed Mester was out with more hawkish leaning comments that should have helped to offset gains. Of course, with the Bank of England decision out later today, it also wouldn’t be surprising to see some profit taking kick in ahead of the risk which also includes the inflation report and Minutes. US initial jobless claims are out today as well, but will be overshadowed by the BOE and positioning into tomorrow’s US NFPs.
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 this week before getting bid back up. Overall, as dovish as the BOJ has been, and as bid up as equity markets are, it still hasn’t been enough to offset an intense broad based negative sentiment for the US Dollar. This is a market that has been dominated by 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. On Wednesday, various Fed officials were on the wires, though there was nothing surprising with a dovish Fed Bullard sticking to his guns, while the more hawkish Fed Mester did the same. Looking ahead, most of the Thursday action will revolve around fallout from the BOE decision and positioning into tomorrow’s monthly employment report out of the US.
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 below 1.1600 on a daily close basis 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 1.1500, with the market at 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 also 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 has been less inclined to extend its 2017 run this week, with setbacks initially coming from Tuesday’s RBA decision and above forecast US core PCE reading. 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 has also inspired US Dollar demand, with the upward pressure on inflation seen possibly forcing the Fed into a more hawkish stance. Aussie has come under added pressure on Thursday following the much softer trade data and round of weak China PMIs. Looking ahead, US initial jobless claims is the only remaining standout. Most of the focus will now shift to tomorrow’s risk with Aussie retail sales, the RBA statement on monetary policy and US NFPs due.
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. The break back above 1.2575 sets up the possibility for additional corrective upside in the sessions ahead towards 1.2800.
USDCAD – fundamental overview
We’re seeing 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 pullback in OIL. 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. Wednesday’s developments weren’t all that exciting, with a lot of the events offsetting, leaving the market to trade more on technicals and broader flow. Headline US ADP was a below forecast, but we got an upward revision, while Fed speak was both dovish and hawkish. Looking ahead, today’s calendar is quiet for these markets, with only US initial jobless claims standing out. But it’s a good thing with the Friday calendar packing a real punch as the market takes in monthly job reports and trade data out of both Canada and the US.
NZDUSD – technical overview
The market recently 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 this week’s 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 likely need to be a positive shift in US Dollar sentiment to have a meaningful weighing influence on the Kiwi rate despite all of the negative Kiwi drivers. Looking ahead, today’s calendar is thin, with only US initial jobless claims standing out and not likely to have an impact. Instead, the focus for this market will be on broader flow, risk sentiment and positioning into tomorrow’s monthly employment report out of the US.
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. This week’s higher core PCE reading is one of those things that could rattle investors if we start to see signs of more upward pressure on inflation, which could make tomorrow’s hourly earnings component in the US employment report even more interesting to watch. The logic here is that inflation starts to tick up, the Fed will need to take rate hikes more seriously, something the stock market isn’t keen on seeing.
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. On the local front, 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. Meanwhile, there have been signs of renewed US Dollar demand on the horizon, with the Buck technically extended short term and US equities at risk for an overdue correction that would invite additional downside pressure on the Rand. It’s worth noting the Rand is the weakest performing EM currency over the past week.