Next 24 hours: Buck Holds Up in Sluggish Monday Trade
Today’s report: US Dollar Steps Back from the Edge
The US Dollar closed out the previous week showing signs of life. A mid-week rise in US core PCE and some extended short-term technicals seemed to spark some interest before Friday's employment report really got things going, after the data impressed in all areas.
Wake-up call
Chart talk: Major markets technical overview video
- USD headlines
- BOE decision
- yield differentials
- strategy exposed
- stronger Aussie
- different ways
- softer data
- Inflation rise
- healthy demand
- USDSGDÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- How the Developed World is Losing Ground, Financial Times (August 2, 2017)
- Single Trader Manipulating Bitcoin Price, D. Dinkins, Coin Telegraph (August 6, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The uptrend remains firmly intact in 2017 and a recent break above a range high going back to 2015 suggests we could be in the process of seeing a more significant structural shift that points to a much larger Euro rally ahead. But for the moment, the Euro has reversed lower, to allow for stretched daily readings to unwind. Look for additional setbacks over the coming sessions, potentially back towards 1.1200-1.1400 area before the market considers a higher low and bullish resumption.
EURUSD – fundamental overview
There hasn’t been much out there that’s been able to scare Euro bulls away in 2017, though the Euro was unable to ignore Friday’s economic data and news headlines which were all US Dollar supportive. The monthly employment report out of the US was strong, with all of the components exceeding expectations, while White House advisor Cohn said he expected to see a comprehensive tax reform bill delivered in the fall. Looking ahead, the economic calendar is exceptionally thin, with broader macro flow expected to influence direction.
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 additional 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 comes into the new week under renewed pressure off a 2017 high after taking back to back hits this past Thursday and Friday. Last Thursday’s less hawkish BOE decision initially triggered a round of profit taking, while Friday’s very well received US employment report fueled additional setbacks. There was also news out from the White House about tax reform going through by the fall, yet another US Dollar supportive development. Looking ahead, the economic calendar is exceptionally thin and the market is expected to trade off broader macro flow.
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 latest recovery in the major pair has been all about yield differentials, with the US Dollar regaining some momentum this past Friday after the US employment report came in better than expected in all areas of the data. The report has fueled speculation the Fed will be needing to lean back over to the hawkish side of policy normalization, particularly with signs of rising inflation creeping back in. Of course, an ongoing bid in correlated equities markets has also been supportive of the major pair. Looking ahead, Monday’s calendar is thin and broader macro flows will dictate direction.
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 finally correction from highly overextended readings, warning of an additional corrective reversal in the sessions ahead, possibly back towards that previous resistance now turned support 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 showing signs of topping out off an impressive 2017 run. Initially, the RBA sent a message to the market that it was not as hawkish as many thought it may have been, while also jawboning the currency lower. Though there was some upbeat language in the central bank’s latest message, it was clear there was a concern about the currency appreciating too much. Of course, last week’s stronger US core PCE and Friday’s very solid employment report only helped to inspire more profit taking on Australian Dollar longs. Looking ahead, the economic calendar for today is exceptionally thin and broader macro flow will dictate direction.
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 a more significant bullish reversal to allow for these studies to unwind. The recent break back above 1.2575 strengthens this outlook, opening the door for a possible return to 1.3000.
USDCAD – fundamental overview
We’ve seen the emergence of profit taking on Canadian Dollar longs in the previous week, with many of these players reconsidering their exposure after the Loonie had seen a 10% appreciation since May. Friday’s employment report out of the US was a much better result than the employment report from Canada, while US trade data was more impressive than Canada trade. Canada Ivey PMIs also pulled back from their previous print and all of this helped to inspire more liquidation in the Canadian Dollar long position, with USDCAD extending its recovery. Looking ahead, the economic calendar is quite light and the focus will be on broader macro flow and the price of OIL.
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. A recent run of softer data including CPI, GDP, employment and the weakest GDT auction since March, have all forced Kiwi bulls to reconsider their exposure. Meanwhile, Friday’s very solid and well received US employment report has only reinforced this prospect, with the data possibly putting the Fed in a position to start leaning back over to the more hawkish side, something that would be of tremendous benefit to the Buck on the yield differential front. Looking ahead, the economic calendar for today is exceptionally thin and broader macro flow will dictate direction.
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. Initial support comes in at 2458.
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. But one thing that could rattle investor sentiment is a sign of upward pressure on inflation. Last week’s rises in core PCE and hourly earnings are exactly the types of things that could translate into a more rapid, out of nowhere inflation rise. The implication is that higher inflation would force the Fed into needing to be more aggressive about hiking rates, something equity market investors do not want to see.
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. Look for a higher low ideally ahead of 1230 in favour of the next upside extension back towards the 2017 high at 1296.
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
USDSGDÂ has been under pressure in 2017, with the market recently dropping down to a fresh yearly low at 1.3544. However, daily studies are now looking stretched and there are signs of the possibility for a meaningful bullish reversal to allow for these stretched studies to unwind. Setbacks have also stalled out around an important 78.6% fib retracement off the 2016 to 2017 low to high move. Look for a break back above 1.3644 to strengthen this outlook and open the door for a more meaningful bounce towards 1.3720 further up. Only a close below 1.3500 negates.
Feature – fundamental overview
There have been signs of a reversal in the Singapore Dollar’s fortunes of late. Various employment readings are tracking at their lowest levels in months, while soft domestic conditions and a reliance on exports could influence the MAS into encouraging weakness in the local currency. Meanwhile, the US employment report was very solid and this has helped to inspire additional profit taking in the EM currency as yield differentials shift back in the US Dollar’s favour. Monday’s calendar features Singapore foreign exchange reserves data. There’s nothing else on the local calendar for the remainder of the week until Friday’s Singapore GDP and retail sales showings.