Next 24 hours: Back and Forth, Up and Down
Today’s report: FX Market Waiting for the Next Move
The FX market sold US Dollars on Monday, though the price action didn’t really do anything to change the picture. Right now, participants are trying to figure out if the consolidation over the past several sessions is a consolidation ahead of additional US Dollar recovery, or if it’s a consolidation ahead of fresh 2017 lows for the Buck.
Wake-up call
Chart talk: Major markets technical overview video
- ZEW readings
- public finances,Â
- Risk reduction
- SNB strategy
- iron ore
- retail sales
- sell interest
- Policy reversal
- Macro themes
- USDSGD
Peformance chart: Five day performance v. US dollar
Suggested reading
- Stock Market Has Been Magical…But It Can't Last, J. Sommer, NY Times (August 19, 2017)
- The Rise of Robot Currency Traders, K. Martin, Financial Times (August 21, 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 turning down from highly extended territory, warning of the need for a more significant pullback ahead. From here, expect any rallies to be well capped in favor of a more pronounced corrective decline into the 1.1500 area. A daily close below 1.1700 will strengthen this prospect. Back above 1.1900 will delay.
EURUSD – fundamental overview
Monday was a very thin day of trade in markets, with the economic calendar super thin and many off the desks for summer holiday. Nevertheless, the Euro was able to find some bids, trading up and tripping buy stops above 1.1800. There wasn’t much to assign to the price action, though some used White House instability and ongoing geopolitical tension between the US and North Korea as the source for Euro demand. Looking ahead, today’s calendar is more active. Key standouts include Eurozone and German ZEW readings and US Richmond Fed manufacturing.
GBPUSD – technical overview
The major pair 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 shift. Setbacks should be well supported into this dip, with only a drop back below 1.2590 to give reason for pause.
GBPUSD – fundamental overview
Activity has quieted down in recent sessions, partly because of the lighter economic calendar and partially because of the thinner August volumes, with many off the desks on holiday. The Cable rate has been chopping around in a tight range of late and continued to do the same on Monday. But the movement we did see was Sterling supportive, with White House instability and geopolitical tension between the US and North Korea spooking some into lightening up on US Dollar exposure. Looking ahead, UK public finances and UK CBI trends data are due, followed by the US house price index and Richmond Fed manufacturing.
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 extended back towards the range low, with scope for a retest of the 2017 base from April, just ahead of 108.00. A sustained break below 108.00 would compromise this outlook and open the door for a more pronounced decline, while inability to establish below 108.00 will keep the range intact and set the stage for a bounce, eventually back towards 114.00. But while below 111.00, the pressure remains on the downside.
USDJPY – fundamental overview
Risk markets are clearly jittery right now and we've seen a lot of this over the past week or so, with things that investors have traditionally ignored in recent years, having a more significant impact. This continues to fuel Yen demand on the traditional correlation with risk off. White House instability and geopolitical tension have been sourced as drivers of risk off flow, though with equity valuations elevated and monetary policy reversal also hanging over investor heads the market shouldn’t need much to get it moving in this direction. Looking ahead, the economic calendar is light, with only the US house price index and Richmond Fed manufacturing standing out. This will leave global sentiment as the key theme to watch on Tuesday.
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 unwinding from extended 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
The sell-off in the Franc in recent weeks has been a welcome development for the SNB, with the central bank committed to weakening its overvalued currency. In early August, the EURCHF rate traded to its highest level since the great collapse of January 2015. However, the SNB may have also been taking extra measures to weaken the Franc in anticipation of a tougher battle ahead. A more intensified capitulation in US equities is likely to rattle global sentiment and invite a wave of unwanted Swiss Franc demand on the safe haven flow. And so, building a cushion in anticipation of this risk may have been a part of the central bank’s strategy.
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. Rallies are now viewed as corrective, with a lower top sought out ahead of the next downside extension towards 0.7500. A break below 0.7800 will strengthen this outlook. Only a close back above 0.8000 would force a rethink.
AUDUSD – fundamental overview
The Australian Dollar is holding up well on dips despite the latest wave of risk off flow. It seems the currency is getting more love from the rally in base metals, highlighted by an impressive iron ore surge in recent days. Meanwhile, broad based US Dollar selling has crept back in, with White House instability and geopolitical tension between the US and North Korea resulting in some out there feeling less comfortable holding long US Dollar exposure. At the same time, the RBA has come out more neutral of late, while expressing dissatisfaction with a higher Aussie exchange rate. Of course, if the US equity market takes another hit and setbacks intensify, Aussie could very well come back under pressure. Dealers report healthy sell interest ahead of 0.8000. As far as today’s calendar goes, we get second tier US data that won’t factor. Instead, the market will keep its eye on risk sentiment.
USDCAD – technical overview
Stretched medium-term technical studies are still warning of the possibility for a more significant bullish reversal to allow for these studies to unwind. A recent break above 1.2575 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. Back above 1.2780 will strengthen this outlook and accelerate gains.
USDCAD – fundamental overview
The Canadian Dollar continues to hold up rather well, with the currency outperforming over the past week. Much of the recent wave of positive momentum comes from last week’s hotter than expected Canada inflation print. The US Dollar has also come back under some pressure in recent sessions as White House instability and geopolitical tension between the US and North Korea have some lightening up on their US Dollar exposure. However, interestingly, Canada wholesale sales came in soft on Monday, while oil reversed course, which would have normally weighed on the Loonie. But trading conditions have been thin and need to be taken with a grain of salt. Looking ahead, the calendar will be more active with an important Canada retail sales release ahead.
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
The New Zealand Dollar has come under pressure over the past couple of weeks, backing well off its recent plus two year high above that major psychological barrier at 0.7500. Overall, economic data out of New Zealand has been less impressive, while US data has been turning back up. At the same time, there have been signs of added distress in risk markets and this isn't doing anything to help a Kiwi rate correlated to risk appetite. There has been a mild recovery in recent sessions as some traders exit US Dollar longs on White House instability and geopolitical risk, though plenty of offers are waiting in the wings, with dealers reporting orders to sell up into the 0.7400 area. Looking ahead, another quiet calendar day will leave the focus on risk appetite and broader macro flow.
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 on the surface catalysts for this latest retreat have come from White House instability and geopolitical tension. But underneath, it seems this market has been readying for a more significant reversal with the record run so extended and prices deviating from the fundamentals. Moreover, the fact that policy is reversing could be resonating a little more, with Fed balance sheet reduction coming into play as soon as next month and another rate hike still on the cards this year. It's too early to tell, though a break and weekly close below 2400 could open the door for a more intensified liquidation. Inability to do so, will keep the good times going.
GOLD (SPOT) – technical overview
Setbacks have been well supported, with the latest push to a fresh 2017 high just over 1300 setting the stage for a bullish continuation towards the 2016 peak at 1375 further up. A higher low is now in place around 1265 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. A recent 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
The Singapore Dollar hasn’t been doing much in recent days, with the currency trading on the broader macro themes. US Dollar selling in 2017 has been a major supporter of the currency and we have seen some more of this into this week as White House instability and geopolitical tension between the US and North Korea keeps up. Looking ahead, the focus will continue to be on global risk appetite. We do get important Singapore data this week with CPI due tomorrow and industrial production out on Friday.