Next 24 hours: Dollar Run Comes to Screeching Halt
Today’s report: US Dollar Holds Up Surprisingly Well in August
So much USD selling in 2017 and yet, as August gets ready to close out, the Buck has held up rather well. Looking at the most actively traded currencies, the Euro and Yen are flat, Sterling, Aussie and Cad are moderately lower, while Kiwi is down a good chunk.
Wake-up call
Chart talk: Major markets technical overview video
- Eurozone data
- cross related
- themes align
- SNB plan
- Private capex
- Canada GDP
- Kiwi struggles
- core PCE
- Metal diversification
- USDSGD
Peformance chart: Five day performance v. US dollar
Suggested reading
- Barbarians at the Monetary Gate, A. Sheng, Project Syndicate (August 30, 2017)
- Ray Dalio’s Forecast of Doom Is Overblown, B. Carlson,  Bloomberg (August 29, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The market has finally entered a period of correction after racing to a fresh +2.5 year high shy of 1.2100. Medium term studies have been tracking in overbought territory, warning of the need for a period of weakness and scope exists for additional setbacks over the coming sessions. Still, while above 1.1663, the uptrend remains firmly intact, with the market looking to put in a higher low above the level ahead of a bullish continuation. Only back below 1.1663 would trigger a more significant bearish shift.
EURUSD – fundamental overview
Political risk in Europe has crept back into the picture, with comments of a parallel currency in Italy and a story about the Spanish cabinet favouring a national security law to block Catalonia's independence referendum making Euro longs a little more jittery. Of course, Wednesday’s stellar economic data out of the US has been getting most of the attention and has been sourced as the primary driver behind this latest round of Euro weakness. Both ADP employment and GDP readings were robust, forcing market participants to think more seriously about those odds for another Fed hike this year. Looking ahead, key standouts on the calendar include German retail sales, German unemployment, Eurozone unemployment, Eurozone CPI, US initial jobless claims, US core PCE and US pending home sales. US Core PCE could very well be the biggest market mover on the day, especially if the number comes in above forecast.
GBPUSD – technical overview
The major pair has been very well supported back down into previous resistance at 1.2775. From here, look for the market to continue 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, which means rallies could be well capped below 1.3100.
GBPUSD – fundamental overview
Interestingly, the Pound was able to hold up rather well on Wednesday despite the notable strength in the US Dollar elsewhere on the back of a stellar round of US economic data including ADP employment and GDP readings. It seems a good deal of that relative outperformance was cross related, with the UK currency recovering out from cyclical lows against the other actively traded currencies. The Pound had been trading at yearly lows against the Euro and has also been sitting at critical lows against the commodity bloc currencies. At the same time, rallies have been well capped in the Cable rate, with the Brexit overhang still a major point of stress as negotiations look to be in for a long, tough road ahead, with both sides not looking to budge. As far as today’s docket goes, BOE Saunders is do to speak. In the US session, we get initial jobless claims, pending home sales and an important core PCE release.
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 been exceptionally well supported ahead of the 2017 low range bottom at 108.13 and this could open the door for a resumption of the range trade, for that next big push back towards the 114.00 area. Still, while the market holds below 111.00 on a daily close basis, the pressure remains on the downside.
USDJPY – fundamental overview
The focus of this major pair has very little to do with Japanese fundamentals, with the market far more concerned about global risk sentiment and the Fed policy outlook. As far as both of these themes go, both were exceptionally supportive of the US Dollar on Wednesday, with sentiment further improving since the dip earlier this week on the North Korea provocation and US economic data blowing away expectations, opening a widening of yield differentials in the Buck’s favour. There is a lot of resistance reported up around 111.00 and while there are signs the Yen might be about to accelerate (USDJPY higher), it all remains quite shaky out there and we could easily see another downturn in sentiment or softer bout of US data inspiring renewed Yen demand (USDJPY lower). Looking ahead, we get another round of important US data that features initial jobless claims, pending home sales and core PCE.
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 consolidation 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 daily close back above 0.8000 would force a rethink.
AUDUSD – fundamental overview
Earlier today, official China PMIs came in above forecast, while Aussie private capex was impressive. This has helped to prop Aussie against its commodity currency cousins, though it has been under pressure against the Buck. Wednesday’s round of stellar US data in the form of ADP employment and GDP readings has really given the US Dollar a healthy boost into month end, with market participants forced to reconsider prospects for another Fed hike this year. Looking ahead, it will be important to see how US equities perform on Thursday, while US data is also in the spotlight with initial jobless claims, pending home sales and core PCE featured.
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, setting up the possibility for a double bottom formation, with the neckline sitting at 1.2780. A break above 1.2780 would trigger the bottoming pattern and open the door for a measured move extension projecting upside well into the 1.3100s.
USDCAD – fundamental overview
This month’s drop in the price of OIL has been one source of renewed Canadian Dollar selling, while the improvement in the US economic outlook has been another. Wednesday’s stellar US ADP employment and GDP readings have further bolstered the US Dollar, with market participants forced to reconsider long Canadian Dollar exposure as the prospect for another Fed rate hike in 2017 becomes more real. Looking ahead, it’s going to be a busy day on the calendar. Canada GDP is due along with important US releases featuring initial jobless claims, pending home sales and core PCE.
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 seen a major reversal of fortune 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. Meanwhile, 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. On Thursday, we saw some more soft data, this time in the form of weak business confidence. Meanwhile, things have been turning up on the US Dollar side, as the data outlook improves, forcing market participants to seriously reconsider prospects for another Fed rate hike this year. On Wednesday, US ADP employment and GDP were very strong. Looking ahead, it will be important to see how US equities perform on Thursday, while US data is also in the spotlight with initial jobless claims, pending home sales and core PCE featured.
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 US equity market continues to be well supported on dips. But at the same time, there is a growing sense investors could be getting ready for a more significant reversal, with the record run so extended and prices deviating from fundamentals. Moreover, the fact that Fed monetary policy is normalising 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. Certainly the improvement in the economic data is something that will force the Fed to lean more hawkish, especially if this is accompanied by any signs of a pickup on the inflation front. US core PCE readings come into focus and if above forecast, this could invite renewed downside pressure.
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 1.3507. 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 encourage 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, worry over the US debt ceiling negotiations outcome and Hurricane Harvey. But going forward, the Singapore Dollar’s run may be limited. US economic data is moving back in the right direction which could speed up the Fed’s monetary policy reversal process and fuel renewed USDSGD demand as yield differentials widen in favor of the Buck. We are already seeing signs of this as the market bounces from this week’s yearly low that was unable to break back below a major psychological barrier at 1.3500. Dealers now report buy stops above 1.3700.