Next 24 hours: More than Geopolitics
Today’s report: Markets Hit with Downturn in Sentiment
It's all heating up into the mid-week despite the lack of first tier data and thin calendar. The Euro sold off more aggressively in Tuesday trade on the back of the stellar US JOLTS print, while US equities reversed coursed after initially extending their record run.
Wake-up call
Chart talk: Major markets technical overview video
- sell stops
- Tide shifts
- Risk liquidation
- global sentiment
- business confidence
- housing starts
- repricing RBNZ
- geopolitical tension
- increasingly attractive
- USDSGDÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- Estimating Market Losses at Extremes, J. Hussman, Hussman Funds (August 7, 2017)
- Prospect of a New UK Political Party, L. Barber, Financial Times (August 8, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The Euro has finally entered an overdue corrective phase after pushing through longer-term resistance to a plus two and a half year high just over 1.1900. Weekly studies have been highly extended, warning of the need for a healthy pullback and Tuesday’s daily close below 1.1800 opens the door for further declines, potentially back towards the 50-Day SMA in the 1.1400s before the market considers a higher low and continuation of the 2017 run.
EURUSD – fundamental overview
The Euro had been hanging out, consolidating a minor bout of setbacks in the aftermath of last week’s impressive US employment report, but had been holding up relatively well into the North American session on Tuesday. However, the release of a record print in US JOLTS job openings finally got things moving, with the single currency relenting to downside pressure, taking out stops below 1.1800 and 1.1750. Technical studies had already been looking quite extended and in need of a more significant correction and it seems as though it wasn’t going to take much to fuel the accelerated round of profit taking. It’s worth noting that earlier on in Tuesday trade, German trade data came in soft, which perhaps gave the market an additional excuse to retreat once the US JOLTS reading was revealed. Looking ahead, absence of first tier data on Wednesday will leave the focus on broader macro themes and flow.
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. But shorter-term, the market is looking tired following an impressive run to a fresh 2017 high and there is risk for a period of additional correction and consolidation before a bullish continuation 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
It shouldn’t come as much of a surprise to see this latest round of profit taking on Cable longs after the market had run up a good deal on the back of broad based US Dollar weakness and perhaps a little too much confidence about a more reassuring Brexit outcome. We’re now seeing the momentum turn back the other way on a US economic data recovery, renewed Brexit concerns, worry over the UK political outlook and a less hawkish and upbeat BOE. Tuesday’s record print in US JOLTS job openings has been seen as a catalyst behind the latest run of declines, taking the major pair for a dip back below 1.3000. Looking ahead, there is no data to speak of on today’s calendar and it looks like broader macro themes and flow will dictate direction.
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 deeper 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
Tuesday was one of those days where the Yen was getting pulled in both directions, though ultimately, the Japanese currency chose to move in the direction of risk sentiment rather than yield differentials. While there was more US Dollar demand, this time from a record US JOLTS job openings print, this was more than offset by a wave of risk off flow, perhaps intensified on geopolitical risk relating to escalated tensions between the US and North Korea. Of course, with US equities already looking quite extended after pushing to yet another record high, some form of a risk liquidation already seemed to be imminent and the downside pressure and negative impact on sentiment was enough to open a fresh wave of Yen demand. Looking ahead, there is no first tier data to speak of and broader macro themes and flow will likely 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 unwinding 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 a recovery in the Eurozone, 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 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. However, shorter-term technicals are now in the process of unwinding from overbought readings, setting up the possibility for a more significant retreat in the sessions ahead. A daily close below 0.7876 would strengthen this outlook.
AUDUSD – fundamental overview
The Australian Dollar has been showing signs of topping out off an impressive 2017 run. Last week, the RBA sent a message that it was not as hawkish as many thought, while also talking the currency down. Of course, a run of solid US data that started with higher core PCE and followed up by the strong monthly employment report and Tuesday’s record US JOLTS job openings print has also contributed to the Aussie pullback. Still, Aussie did hold up rather impressively on Tuesday, perhaps on cross related EURAUD selling and on the better than expected NAB business confidence print. At the same time, China trade data was distressing, with a drop in iron ore imports not Aussie positive, which made Aussie’s ability to hold up somewhat difficult to reconcile. Earlier today, Aussie Westpac consumer confidence and China CPI came in soft, though the data hasn’t had much of an impact. Looking ahead, there is no first tier data to speak of and broader macro themes and flow will likely dictate direction.
USDCAD – technical overview
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
The Canadian Dollar has been giving back some gains, following an impressive 14 big figure run that began back in May when it was trading at a yearly low against the US Dollar. Diverging economic data and central bank outlooks had been the primary drivers of this flow, though we have since seen the market book profit on long Canadian Dollar positions that may have run a little too far and fast. Certainly things have been moving back the other way on the fundamental side, with last week’s Canada data not as impressive and overshadowed by a robust US employment report. Tuesday’s record print in US jobs JOLTS openings has only helped to keep the Loonie under pressure. Still, Canadian Dollar declines were mild on Tuesday, perhaps on cross related EURCAD liquidation. Looking ahead, the calendar is light, with only Canada housing starts and building permits standing out. Of course, as is always the case, traders with exposure here will also be monitoring the price of OIL.
NZDUSD – technical overview
Daily studies are in the process of unwinding from overbought readings after the market pushed up to a plus two year high through 0.7500. A recent close back below 0.7400 has opened the door for a more meaningful corrective pullback in the sessions ahead, possibly towards 0.7200, before the market considers a higher low and resumption of gains.
NZDUSD – fundamental overview
The New Zealand Dollar has come under renewed pressure since pushing to a two year high through 0.7500 the other week. A run of softer local data including CPI, GDP, employment, the weakest GDT auction since March, and a slide in consumer inflation expectations have forced Kiwi bulls to reconsider their exposure. At the same time, we’ve seen a resurgence in US Dollar demand as data out of the US has been looking a lot better. Last week’s rise in core PCE and robust employment report opened more downside, while Tuesday’s record US JOLTS job openings print has further contributed to declines. Looking ahead, the calendar is exceptionally thin and will leave the market trading on broader macro themes and flows while also positioning into the early Thursday RBNZ policy decision.
US SPX 500 – technical overview
The market has extended its record run, taking out the next measured move extension objective at 2480. Daily studies are however highly extended across the weekly and monthly time frames, warning of the possibility for some form of a meaningful corrective retreat. Still, setbacks continue to be well supported on the smallest of dips and only a daily close back below 2458 would take the pressure off the topside.
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. Technically, this market is once again extended across all major time frames, which continues to warn of a meaningful pullback ahead, but as of yet, there have been no signs. There was some geopolitical risk that may have weighed a tiny bit on Tuesday as President Trump issued a strong warning to North Korea in response to the news of a North Korea provocation. But as we have seen many times before, geopolitical risk hasn’t been something this market has been worried about for more than a few moments.
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 for an extended period, 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, stretched studies are starting to turn back up and there are signs of the possibility for a meaningful bullish reversal to allow for these 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 daily close back above 1.3650 to strengthen this outlook and open the door for a more meaningful bounce towards 1.4000 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 economic data is turning back up and this has helped to inspire additional profit taking in the EM currency as yield differentials shift back in the US Dollar’s favour. Of course, the Singapore Dollar could also face headwinds if we enter a period of global risk liquidation. As far as the calendar goes, all is quiet until Friday when Singapore GDP and retail sales are released.