Special report: Jackson Hole Preview
Today’s report: Still Alive but Fading Prospects for the US Dollar
There has been a strong trend of US Dollar selling in 2017 and while that trend has paused for a breather, there’s no evidence of any change to this outlook right now. If anything, a strong argument can be made for another downside extension in the Buck.
Wake-up call
Chart talk: Major markets technical overview video
- Draghi
- Cross selling
- traditional correlation
- cushion building
- uncertainty builds
- OIL rebound,
- Government cuts
- Policy reversal
- Macro themes
- USDSGD
Peformance chart: Five day performance v. US dollar
Suggested reading
- Lowflation Demon that Vexes Central Banks, M. El-Erian, Bloomberg (August 23, 2017)
- US Share Prices Inflated by Fed, J. Authers, Financial Times (August 19, 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
On Wednesday, ECB Draghi was out on the wires and stayed away from talking down the Euro. This helped to prop the single currency back up, with the Euro also getting help from a healthy German manufacturing PMI showing. Meanwhile, softer US data in the form of US manufacturing PMIs and new home sales, and White House instability didn’t do anything to help the US Dollar’s cause. Looking ahead, the Jackson Hole Symposium kicks off and will get attention. We also get some more US data with US initial jobless claims and US existing home sales due.
GBPUSD – technical overview
Setbacks off the 2017 high from early August up near 1.3300 have extended all the way back down into the 1.2700s. This is an important area the market had broken out from in April, as it had previously defined the top of a range off the October 2016Â +30 year low. From here, look for the market to be well supported into this dip, with any additional weakness limited to the 1.2600s in favour of a push back up to fresh 2017 highs and towards the next key objective in the 1.3500-1.4000 area further up. Only a close below 1.2590 would give reason for pause.
GBPUSD – fundamental overview
There wasn’t any data out of the UK on Wednesday, and yet the Pound extended declines, trading back into an important zone in the 1.2700s. Cross related demand for EURGBP certainly contributed to the price action, with the Euro pushing higher on German manufacturing data and ECB Draghi’s refrain from talking down the Euro. There were also renewed concerns about life after Brexit, which acted as an additional strain on the currency, Looking ahead, UK GDP is due for release and will likely open more volatility. This is then followed up in the US session with initial jobless claims and existing home sales due. The Jackson Hole symposium is also getting underway and comments out of Wyoming could very well have market moving influence.
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
There has been quite a bit of back and forth going on with this major pair right now. Overall, the direction has been dictated by broader macro themes relating to risk sentiment and US Dollar appetite. And so, on Wednesday, with the US Dollar back under pressure and US equities in the red, the major pair traded lower in tandem, looking like it wanted to accelerate down towards a retest of what has been an elusive 2017 low at 108.13. US economic data wasn’t great either, with manufacturing PMIs and new home sales both coming in below forecast. Looking ahead, the focus will be on the Jackson Hole symposium and US data featuring initial jobless claims and existing 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 latest Aussie rally is showing signs of stalling out, 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. Meanwhile, base metals prices have come off and US equities look to be at risk for a more serious reversal, adding to renewed downside pressure. Looking ahead, the focus will be on the Jackson Hole symposium and US data featuring initial jobless claims and existing 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 week’s Canada retail sales showing which produced a very impressive number less autos. Meanwhile, OIL has been bid back up and Wednesday’s US data was softer, with manufacturing PMIs and new home sales disappointing. Looking ahead, an empty Canada calendar will leave the focus on a US docket that includes initial jobless claims and existing 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 break below 0.7200 has opened the door for a more meaningful reversal, that could be setting the stage for a drop all the way back down towards the 2017 low in the 0.6800s. From here, look for any rallies to be well capped below 0.7300 on a daily close basis in favour of the next 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 Wednesday, Kiwi suffered an added blow after the New Zealand government cut its growth forecasts and budget surpluses. Looking ahead, the key focus will be on risk sentiment and a US docket that includes initial jobless claims and existing home sales.
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 stock market has managed to put in an impressive rally off recent lows. 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. Interestingly, the Singapore Dollar held well on Wednesday despite a softer reading of local CPI. Looking ahead, we get Singapore industrial production on Friday.