Next 24 hours: That Was About Right
Today’s report: A Case of What Wasn’t Said
The latest moves in markets have been a product of a case of what wasn't said rather than what was. On Friday, the Euro rocketed to a fresh 2017 high and +2.5 year high in reaction to Jackson Hole speeches from Fed Yellen and ECB Draghi.
Wake-up call
Chart talk: Major markets technical overview video
- Jackson Hole
- Bank holiday
- BOJ Kuroda
- Franc appreciation
- RBA outlook
- NAFTA warnings
- Kiwi outlook
- Government shutdown
- Global uncertainty
- USDSGD
Peformance chart: Five day performance v. US dollar
Suggested reading
- Are Central Banks Nationalising the Economy?, D. Lacalle, Mises (August 24, 2017)
- Eight Ways Digital Currencies Will Change The Financial Landscape, Forbes (August 25, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
A period of consolidation has come to an end, with the market choosing to break in the direction of the trend, pushing to fresh 2017 and +2.5 year highs. The bullish move could now open the door for an acceleration into the 1.2100-1.2150 area, a measured move extension projection following this latest 200-250 point consolidation, mostly between 1.1900 and 1.1700. Still, weekly studies remain quite overbought and warn that additional upside should be limited for the time being, to allow for these studies to unwind, which could expose the market to a more sizable correction lower in the days ahead.
EURUSD – fundamental overview
The Euro comes into the new week on another tear after the single currency has rocketed to another 2017 high, with this momentum coming in reaction to Friday’s Yellen and Draghi speeches at Jackson Hole. But the move should be taken with a grain of salt considering Friday conditions were quite thin and neither central banker said anything that offered any new insight into the respective monetary policy outlooks. Instead it was what wasn’t said that seemed to drive the market, after Yellen made no mention of another rate hike this year and Draghi failed to talk the Euro down. Another source for US Dollar weakness was also attributed to President Trump’s comment relating to debt ceiling negotiations, warning he would allow a government shutdown, along with his threat to cancel NAFTA. Looking ahead, the economic calendar is quiet, with only the US advanced goods trade balance and Dallas Fed manufacturing standing out.
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, with any additional weakness limited to the 1.2600s in favour of an eventual push back up to fresh 2017 highs and towards the next key objective in the 1.3500-1.4000 area further up. Still, there is risk for an extended period of choppy consolidation before the bullish continuation plays out. Only a close below 1.2590 would give reason for pause.
GBPUSD – fundamental overview
UK markets will be thinner on Monday on account of the bank holiday. The Pound comes into the new week having recovered nicely from last week’s low after benefiting from Friday’s Jackson Hole US Dollar declines. Initially, the UK currency got a boost on what was perceived to be a less hawkish Yellen, with the central banker failing to make mention of another rate hike this year. The Pound then got another injection of bids, following the Euro’s lead after Draghi sounded less dovish. Other also attributed some of the US Dollar selling to warnings from President Trump of a government shutdown (debt ceiling negotiations)  and cancellation of NAFTA. Still, with UK inflation on the soft side and Brexit uncertainty hanging in the balance, Cable upside could be well capped for now. Looking ahead, the only notable standouts on the calendar come in the form of the US advanced goods trade balance and Dallas 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
Worry over the outcome of the US debt ceiling negotiations and a possible government shutdown and President Trump’s threat to cancel NAFTA has been making risk markets feel a little more uneasy into the new week, with the resulting price action benefiting the Yen on traditional correlations. Of course, the Yen was also able to capture some bids on the US Dollar selling in reaction to Jackson Hole speeches from the Fed Chair and ECB President. On the Japan front, BOJ Kuroda opened the door for less JGB purchases, though this news was largely shrugged off. For now, moves in this major pair are likely to continue to be dictated by global sentiment flow. As far as the calendar for the remainder of the day goes, the US advanced goods trade balance and Dallas Fed manufacturing are the only standouts.
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 got a decent boost on Friday, with the currency playing a game of follow the leader, rallying on the back of a Euro surge in reaction to Jackson Hole speeches from the Fed Chair and ECB President. But overall, Aussie has enjoyed a nice run in 2017 and the market is perhaps recognizing the currency may be looking a little too extended up at current levels, especially in light of an RBA that has been more vocal about its dissatisfaction with a higher Aussie exchange rate and in light of global risk appetite that is showing signs of cooling off. Looking ahead, the economic calendar isn’t all that active, with only the US advanced goods trade balance and Dallas Fed manufacturing standing out.
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 1.2500 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 daily close below 1.2400 would compromise 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 a recent run of supportive Canada data including inflation and robust components within Canada retail sales. Meanwhile, the market has been selling the US Dollar again post Yellen’s dovishly perceived Jackson Hole speech. Still, with OIL prices lower last week and with President Trump reminding the market that he is willing to terminate NAFTA, there have been Canadian Dollar offers starting to emerge into this latest rally (USDCAD pullback). Looking ahead, absence of data out of Canada will leave the focus on the US advanced goods trade balance and Dallas Fed manufacturing.
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. Last week’s news of the New Zealand government cut of growth forecasts and budget surpluses intensified declines, with the currency easily standing out as an underperformer. Overall, economic data out of New Zealand has already been less impressive, as highlighted by recent GDP, CPI and employment readings, which is forcing the RBNZ to reconsider what had been a more hawkish stance. Of course, the RBNZ has also been talking down the Kiwi rate and this in conjunction with a more compromised risk environment offer an added layer of bearish Kiwi drivers. There has been some demand off recent lows, though this price action has been more a function of broad US Dollar selling post Jackson Hole speeches from Yellen and Draghi. Looking ahead, the focus will be on the US advanced goods trade balance and Dallas Fed manufacturing
US SPX 500 – technical overview
After extending the record run in early August, the market has finally relented, acknowledgingrun earlier this month, 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 the previous weekly low, but at the same time, has also been well capped into the rally. Overall, 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. This latest worry about debt ceiling negotiations and a possible government shutdown hasn’t been doing anything to help bolster sentiment either.
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 warning 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 break back above 1.3700 to strengthen the recovery outlook, while only a close below 1.3500 negates.
Feature – fundamental overview
The Singapore Dollar has enjoyed a nice recovery in 2017. US Dollar selling has been a major supporter of the currency’s strength and we have seen some more of this on the back of White House instability, a dovishly perceived Jackson Hole speech from the Fed Chair and worry over the US debt ceiling negotiations outcome. Meanwhile, Friday’s much better than expected Singapore industrial production data has further contributed to Singapore Dollar demand. At the same time, US economic data is mostly 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 renewed safe haven US Dollar demand.