Next 24 hours: Euro Negative Headlines and Risk Off Flow
Today’s report: Fed Minutes Try to Put Dollar Back in its Place
There weren't any meaningful added insights from the Fed Minutes and this appeared to be enough to knock the US Dollar back down. After all, the Buck has been in a downtrend for the entire year and following a period of minor recovery, there were sure to be renewed offers.
Wake-up call
Chart talk: Major markets technical overview video
- Eurozone growth
- UK employment
- Yen appreciates
- Risk liquidation
- Aussie jobs
- OIL weakness
- Kiwi recovers
- Fed Minutes
- Shifting dynamics
- USDSGD
Peformance chart: Five day performance v. US dollar
Suggested reading
- China Rising Debt Unnerves IMF But…, D. Moss, Bloomberg (August 15, 2017)
- Central Banks Addicted to Open Mouth Operations, J. McGeever, Reuters (August 15, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The Euro has finally cooled off after pushing through longer-term resistance to a plus two and a half year high just over 1.1900. Weekly studies are starting to turn down from highly extended territory, warning of the need for a more significant pullback ahead. From here, expect any rallies to be well capped below 1.2000 on a daily close basis in favor of a more pronounced corrective decline into the 1.1500 area. A break back below 1.1682 will strengthen this prospect.
EURUSD – fundamental overview
The Euro had been doing a good job holding up relatively well considering this latest run of positive US economic data and more hawkish Fed speak. But there were signs of the single currency wanting to reassert on Wednesday. Initially, Eurozone GDP came in above forecast and this was followed up by horrid US housing starts, which helped to prop the major pair. Later in the day, it was the Fed Minutes that really got the market trading back up. While there wasn't much of anything to speak of in the Minutes, the market used any dovish leanings as an opportunity to focus on the weaker US Dollar story and drive the Euro back up. Looking ahead, we get Eurozone trade, the ECB Minutes, Eurozone CPI and US releases that feature initial jobless claims, the Philly Fed and industrial production.
GBPUSD – technical overview
The market remains under pressure since topping out at a fresh 2017 high above 1.3200 the other week. From here, there’s scope for additional declines into previous resistance turned support in the 1.2700s before the market considers basing out. Ultimately, on a medium-term basis, the structure is now constructive following a breakout back in April, which suggests we’re seeing the start to a longer-term bullish structural shift. And so, the market should be well supported into this dip, with only a drop back below 1.2590 to give reason for pause.
GBPUSD – fundamental overview
The combination of better US data, hawkish Fed speak and softer UK inflation had all been weighing on the Pound in recent days. But on Wednesday, the UK currency attempted to bottom out, getting a nudge back up on a better than expected UK employment report, unimpressive US housing starts and the subsequent release of the Fed Minutes, which didn't reveal all the much, but seemed to be used as an excuse to remind the market the US Dollar is in a downtrend. Looking ahead, the focus will be on UK retail sales and a batch of US data that features initial jobless claims, the Philly Fed and industrial production.
USDJPY – technical overview
The market has done a fabulous job adhering to a range trade this year, with rallies well capped above 114.00 and dips supported down into the 108.00s. The latest round of setbacks have once again been well supported down into the range low in the 108.00s which has set up the possibility for a resumption of this range trade and bounce back towards the 114.00-115.00 area in the days ahead. But a daily close back above 111.05 will be required to strengthen this outlook. Until then, scope still exists for a deeper setback to retest the range low around 108.00.
USDJPY – fundamental overview
The major pair has been trying to make its way back up this week, but has been struggling to do so. As much as solid US data and a well supported US equity market have helped to inspire renewed demand, the intense US Dollar downtrend in 2017 can not be ignored. Wednesday's disturbing US housing starts opened the door for some downside pressure, though the market waited for the release of the Fed Minutes to put in a more meaningful downside move. While there was nothing in the Fed Minutes that offered any new insight into the Fed's outlook, it seemed to be more than enough to remind the market of the Dollar's struggles in 2017. Looking ahead, we get a batch of US data that features initial jobless claims, the Philly Fed and industrial production. Earlier today, Japan trade data came in strong but failed to have an impact on the Yen.
EURCHF – technical overview
The market recently pushed up to a fresh 2017 and multi-month high through massive resistance in the form of the 2016 peak at 1.1200, taking the rate above 1.1500 and to its highest level since the collapse of January 2015. However, daily studies are finally unwinding from highly overextended readings, warning of an additional corrective reversal in the sessions ahead, possibly back into a previous resistance turned support zone between 1.1000-1.1200, before the market considers a higher low and resumption of gains through 1.1539 and towards 1.2000.
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 recently push the exchange rate back up to its highest level since the great collapse of January 2015. 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 taking extra measures 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
Daily studies have been in the process of turning down after the market recently surged through the critical 0.8000 barrier to a fresh +2 year high. From here, there is risk for a deeper drop back towards a previous resistance turned support zone in the 0.7500 area. As such, the latest bounce back above 0.7900 is viewed as corrective, with a lower top sought out ahead of 0.8000 in favour of the next downside extension towards 0.7500.
AUDUSD – fundamental overview
The Australian Dollar was finally ready to come roaring back on Wednesday, with the price action attributed to rallying metals and renewed downside pressure on the Buck in the aftermath of the Fed Minutes. While the Minutes didn't seem to offer anything all that new as far as insights into the Fed's outlook were concerned, there was enough there to get US Dollar bears taking advantage of selling back into an intense US Dollar downtrend in 2017. Aussie employment data has since come out and given the currency another boost on the better than expected headline print, though it’s worth noting, most of the data beat came from part time employment. Looking ahead, we get a healthy batch of US data that features initial jobless claims, the Philly Fed and industrial production.
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 1.2775 strengthens this outlook, opening the door for an eventual return towards the 38.2% fib retrace off the 2017 high-low move, which comes in at 1.2940. Only a close back below 1.2500 would negate the recovery prospect and put the pressure back on the downside.
USDCAD – fundamental overview
The Canadian Dollar did a great job recovering on Wednesday and you would never have guessed it would have been capable of such a move if you were just looking at the price of oil. But oil weakness was not a factor, with most of the flow dictated by an intense selloff in the aftermath of the Fed Minutes. While the Minutes didn't seem to offer anything all that new as far as insights into the Fed's outlook were concerned, there was enough there to get US Dollar bears taking advantage of selling back into an intense US Dollar downtrend in 2017. Looking ahead, the calendar features Canada manufacturing shipments and a batch of US releases that include initial jobless claims, the Philly Fed and industrial production.
NZDUSD – technical overview
Daily studies have turned down after the market pushed up to a plus two year high through 0.7500 in late July. A recent close back below 0.7400 has opened the door for a more meaningful corrective pullback, possibly towards 0.7000 over the coming days. As such, look for any rallies to now be well capped below 0.7400 on a daily close basis in favour of a lower top and fresh downside extension towards the psychological barrier at 0.7000.
NZDUSD – fundamental overview
Overall, New Zealand economic data has been less than impressive of late, while US data has been showing signs of life and Fed speak has been more hawkish. But ultimately, the US Dollar has been in an intense downtrend in 2017, with US Dollar bears looking to sell the Buck at every turn on an expectation that the Fed will continue to leave policy as accommodative as policy and the US administration will implement soft US Dollar policies. The release of the Wednesday Fed Minutes didn't really offer any new insights into the Fed outlook, but have been used as an excuse to trigger renewed Dollar selling and a sharp rebound in the Kiwi rate. Tuesday's negative GDT auction print appears to be long forgotten. Earlier today, Kiwi producer price data came in mixed, while consumer confidence readings were solid, but both didn't really have much of an impact. Looking ahead, we get a batch of US data that features initial jobless claims, the Philly Fed and industrial production.
US SPX 500 – technical overview
After extending the record run in the previous week, the market has finally relented, acknowledging the need for a period of corrective decline to allow for highly extended longer-term studies to unwind. Still, while the market holds above 2400 on a weekly close basis, the uptrend remains firmly intact. A weekly close below 2400 would be required to signal the possibility for a more meaningful top and bearish structural shift.
US SPX 500 – fundamental overview
The US equity market has done a good job proving it can hold up into any dip and 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. At the same time, the Fed’s move to policy normalisation and the prospect for Fed balance sheet reduction as soon as September are not supportive of stocks, while the longer-term technical picture has been quite extended, warning of the need for a major correction. And so now we’re back to finding out whether the market will once again easily wash away this latest dip, or if this is the start to a bigger reversal that has been long overdue. Investors will be looking to today’s Fed Minutes for more clarity and this could have an impact on direction.
GOLD (SPOT) – technical overview
Setbacks have been well supported, with the latest push back above 1275 setting the stage for a bullish resumption through 1300 and towards the 2016 peak at 1375 further up. A higher low is now in place around 1250 and only back below this level would offset this latest wave of bullish momentum.
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 well supported, 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 has added 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. The latest daily close back above 1.3650 strengthens this outlook and opens the door for a more meaningful bounce towards 1.4000 further up. Only a close below 1.3500 negates.
Feature – fundamental overview
A healthy recovery for the Singapore Dollar on Wednesday, with the rally in the emerging market currency helped along by broad based US Dollar selling in the aftermath of the Fed Minutes. Still, the Dollar selling on the back of the Minutes didn’t seem to be entirely justified, with very little new insight offered as far as the Fed’s outlook was concerned. There have also been signs of the Singapore Dollar topping out against the Buck on a medium term basis (USDSGD bottoming). Looking ahead, the key focus for this market will be the latest Singapore NODX data.