Next 24 hours: Mixed Performance in FX on Wednesday
Today’s report: Don’t Forget It’s August
The market continues to chop around and while there have been various catalysts sourced as the driving forces behind the moves, it all feels a little weak out there and it's hard to ignore we're in a month of trade where conditions are generally quite thin with many off the desks for summer holiday.
Wake-up call
Chart talk: Major markets technical overview video
- German ZEW
- tax receipts
- tax reform
- SNB strategy
- metals cool
- retail sales
- Souring outlook
- uncertainty remains
- Macro players
- USDSGD
Peformance chart: Five day performance v. US dollar
Suggested reading
- Traders Find New Riches In Cryptocurrencies, N. Vardi, Forbes (August 22, 2017)
- The Next Quant Meltdown, M. Celarier, Institutional Investor (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 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
German ZEW came in worse than expected and set the tone for the day, with the Euro reversing course and giving back most of Monday’s gains. The US Dollar was also back in demand, though there wasn’t really anything that could truly be attributed to the Dollar recovery, much in the same way this was the case with the US Dollar slide on Monday. There were some who did try to source the US Dollar rebound to reports of talk about a US debt ceiling raise and news President Trump was making progress on tax reform. US economic data was mixed, with the house price index weaker and Richmond Fed stronger. Looking ahead, the key focus for the day will be on a speech from ECB Draghi, German and Eurozone manufacturing PMIs, a Fed Kaplan speech, US manufacturing PMIs, US new home sales and Eurozone consumer confidence.
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 constructive following a breakout back in April, which suggests we’re seeing the start to a longer-term bullish shift. Setbacks should therefore be well supported into this dip, with only a drop back below 1.2590 to give reason for pause.
GBPUSD – fundamental overview
Tuesday’s batch of UK public finances and CBI trends data weren’t all that bad, and yet the Pound was under quite a bit of pressure. It seems the market was growing worried about slowing UK tax receipts. The Brexit overhang continues to be a headache as well and news of China pulling out of a London property deal, may have contributed to additional jitters for the UK currency. Meanwhile, the US Dollar enjoyed a healthy round of gains, with this price action helped along by reports the US President was getting closer on tax reform and chatter of upbeat talk on a US debt ceiling raise. Looking ahead, absence of UK data will leave the focus on a Fed Kaplan speech, US manufacturing PMIs and US new home sales.
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
On Tuesday, risk markets came roaring back, while the US Dollar was also bid. Generally, when you see these two things happening, it’s a pretty good bet that USDJPY is going to be moving higher as well. This is precisely how it all played out yesterday, with both stocks and the US Dollar perhaps feeling better about the news of progress being made on tax reform in the US and chatter of upbeat talk on a US debt ceiling raise. Looking ahead, risk appetite and global sentiment should be monitored closely. The major pair will also take in a Fed Kaplan speech, US manufacturing PMIs and US new home sales.
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 previous resistance turned support around 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 stalled out in Tuesday trade, with the market perhaps recognizing its impressive run in 2017 and the possibility that Aussie may be looking a little too extended up at current levels. The RBA has also been more vocal about its dissatisfaction with a higher Aussie exchange rate, which has contributed to a recent pullback from plus two year highs above 0.8000. On Tuesday base metals prices eased back, while the US Dollar was well bid across the board, with most of the demand coming from reports of progress on US tax reform and chatter of upbeat talk on a US debt ceiling raise. Setbacks were however rather mild, with the risk correlated Aussie getting some help from a recovery in stocks. Looking ahead, the key focus will be on risk sentiment and a US docket that includes a Fed Kaplan speech, US manufacturing PMIs and US new home sales.
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.
USDCAD – fundamental overview
The Canadian Dollar continues to hold up rather well. Much of the recent wave of positive momentum comes from last week’s hotter than expected Canada inflation print and this latest Canada retail sales showing which produced a very impressive number less autos. However, we did see offsetting US Dollar demand emerge on Tuesday, with the market buying back into the Buck on reports the US President had been making good progress on tax reform and chatter of upbeat talk on a US debt ceiling raise. The price of OIL didn’t factor, with the commodity trading sideways. Looking ahead, an empty Canada calendar will leave the focus on a US docket that includes a Fed Kaplan speech, US manufacturing PMIs and US new home sales.
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 in August, backing well off the late July, 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. On Tuesday, Kiwi pulled back on broad based US Dollar demand that was attributed to reports of good progress being made on US tax reform and chatter of upbeat talk on a US debt ceiling raise. Looking ahead, the key focus will be on risk sentiment and a US docket that includes a Fed Kaplan speech, US manufacturing PMIs and US new home sales. The market will also be digesting New Zealand pre-election economic and fiscal updates.
US SPX 500 – technical overview
After extending the record run in early August, 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 stock market put in an impressive rally on Tuesday. Reports of progress on US tax reform and chatter of upbeat talk on a US debt ceiling raise helped to inspire some of this demand, while the rest may have been on the same buy on dips strategy that has been fueling this super bullish trend for so many years. But underneath it all, there is a feeling investors could be getting ready for a more significant reversal with the record run so extended and prices deviating from the fundamentals. Moreover, the fact that Fed monetary 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 another topside failure followed by a break and drop below 2400 could open the door for what has been a highly anticipated intensified liquidation.
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. At the same time, US economic data is moving back in the right direction, which could speed up the Fed’s monetary policy reversal process and fuel USDSGD demand as yield differentials widen in favor of the Buck. Risk sentiment is also looking a lot more shaky in recent days and any downside pressure here could invite safe haven US Dollar demand. As far as today’s calendar goes, participants will be taking time to digest this latest Singapore CPI, while also keeping an eye on global risk appetite.