Special report: ECB Preview – A Tricky One
Next 24 hours: Selling the US Dollar at all Costs
Today’s report: Not Much Movement, But Plenty Going On
Although we didn't see much movement on Wednesday, there were things going on that could factor in going forward. News of the 3-month debt ceiling extension was one of those things, with the Buck getting minor relief from the headline. Focus now shifts to the ECB decision.
Wake-up call
Chart talk: Major markets technical overview video
- ECB decision
- offers reported
- stop gap
- risk sentiment
- disappointing data
- rate hike
- souring outlookÂ
- Debt ceiling
- Increased demand
- USDSGD
Peformance chart: Five day performance v. US dollar
Suggested reading
- Central Bankers’ Shifting Goalposts, D. Gros, Project Syndicate (September 6, 2017)
- The Risk of Betting Against Bitcoin, M. Johnson,  Financial Times (September 6, 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
The lack of movement in the Euro this week has been somewhat unsettling considering the fact that the single currency has been racing higher all year and is sitting just off +2.5 year highs. But a lot of this directionless trade has been a product of a market that has not wanted to make any new decisions until today’s ECB decision is out of the way. The central bank event risk has been the most highly anticipated risk on the calendar this week and heading in, there has been talk of concern over the strength of the Euro and some softer data out of the zone that is forcing bulls to at least hold off for the moment. Still, on the US Dollar side, there hasn’t been too much to feel good about with US data also moving back in the wrong direction and Fed Fischer announcing an early resignation from his post as Vice Chair. On Wednesday, there was some relief on the debt ceiling front, with news of a stop-gap bill, though this didn’t factor into trade. Looking ahead, the ECB decision is the main event, but other standouts on the day include German industrial production, Eurozone GDP and US initial jobless claims. Late in the day, we get speeches from Fed’s Mester and Dudley.
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 1.3200.
GBPUSD – fundamental overview
We’ve reached a point where there is strong two way demand in the Cable rate, ultimately leaving the major pair in a lot of choppy up and down. On the one side, the Pound has been supported by broad based US Dollar weakness in 2017. On the other side, UK data has also been struggling and on the Brexit front, there has been a growing tension between EU and UK officials on the divorce bill, rights of EU citizens and the status of the UK Ireland border. So on net, this reconciles the choppy sideways price action at the moment. Dealers have been talking about healthy offers ahead of 1.3200. On Wednesday, after pushing up towards 1.3100 on the broad USD weakness from the BoC decision and on news of the Fed Fischer departure, the market fell back down to daily opening levels, with the US Dollar getting relief from the US stop gap debt/spending bill. Looking ahead, absence of first tier UK data will leave the focus on the ECB decision and US initial jobless claims. Late in the day, we get speeches from Fed’s Mester and Dudley.
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 and scope exists for an accelerated drop below 108.00.
USDJPY – fundamental overview
The 108.00 barrier is proving to be a monster support level for the major pair, with the market under pressure on a consistent basis but unable to drop below the level. Price action here continues to be driven off global risk sentiment and news of the stop gap bill in the US that will kick the bucket down the road until December inspired another impressive bounce out from the 108.00s. Of course, this only delays the debt ceiling uncertainty to December and with geopolitical tension continuing to run high and risk appetite looking more shaky, the major pair could come back under pressure once again. Looking ahead, the key focus will be on fallout from the ECB decision, price action in US equities and US initial jobless claims. Late in the day, we get speeches from Fed’s Mester and Dudley.
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, medium-term 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. An 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. Looking ahead, Swiss data isn’t usually much of a factor when it comes to price action, but with GDP and CPI due, it will be worth keeping an eye.
AUDUSD – technical overview
Medium term studies have been in the process of unwinding 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 below 0.8066 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
The Australian Dollar continues to face stiff resistance on rallies above 0.8000 and this latest attempt is stalling out yet again, with plenty of fundamental catalysts to inspire the pullback. On Wednesday, the US Dollar found some renewed demand on news of the US debt ceiling stop gap measure , while early Thursday, Australia retail sales and trade data both came in below forecast, throwing cold water on the outlook for the Australian economy. Looking ahead, the market will be taking its cues from the reaction to the ECB decision, while also keeping an eye on US equities, commodities and US initial jobless claims. Late in the day, we get speeches from Fed’s Mester and Dudley.
USDCAD – technical overview
Despite this latest intense breakdown to a fresh 2017 and +2 year low, stretched medium-term technical studies continue to warn of the possibility for a significant bullish reversal to allow for these studies to unwind. Right now, the market would need to break back above 1.2500 to encourage this prospect.
USDCAD – fundamental overview
The already incredibly strong Canadian Dollar surged yet again on Wednesday after the Bank of Canada came out and defied odds, raising rates for a second time this year. The market was looking for the central bank to issue a hawkish outlook, but stopping short of hiking rates again just yet, given still subdued inflation, a less certain outlook over at the Fed and shaky global backdrop. But the Bank of Canada didn’t seem to be worried enough about these risks, instead focusing on the recent run of strong economic data supporting the move to higher rates. The news of a stop gap that will delay the debt ceiling talks until December did provide some support for the US Dollar off the lows, but as of yet, there are no signs of a very overbought Canadian Dollar reversing just yet, with higher OIL also helping the Loonie. Interestingly, Wednesday’s Canada trade data was not all that impressive, which makes things interesting into tomorrow’s Canada employment report. As far as today goes, the focus will be on fallout from the ECB decision, Canada building permits, Canada Ivey PMIs, the price of OIL and US initial jobless claims. Late in the day, we get speeches from Fed’s Mester and Dudley.
NZDUSD – technical overview
Medium term 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 warns of the possibility 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 0.7400 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 had 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 month’s news of the New Zealand government cut to growth forecasts and budget surpluses intensified declines. Meanwhile, economic data out of New Zealand has been less than impressive, as highlighted by recent GDP, CPI and employment readings, which is forcing the RBNZ to reconsider what had been a more hawkish stance. The market is also starting to think about the upcoming New Zealand election, with polls showing a very tight race as Labour climbs neck and neck. Back in April, Labour’s finance spokesperson had proposed including the goal of maximum employment in the RBNZ mandate, which would keep the central bank from moving on policy reversal. This is yet another possible strain on the Kiwi rate. The only supportive driver right now is the broad based selling in the US Dollar. But even here, we are seeing some US Dollar demand on news of the 3-month debt ceiling extension. Looking ahead, the focus will be on fallout from the ECB decision, broader risk sentiment and US initial jobless claims. Late in the day, we get speeches from Fed’s Mester and Dudley.
US SPX 500 – technical overview
After extending the record run in early August, the market has cooled off, acknowledging the need for a period of consolidation at a minimum 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. Moreover, the fact that Fed monetary policy is normalising could be resonating a little more, with Fed balance sheet reduction coming into play and another rate hike still on the cards this year. We’ve also seen a strong trend of stocks rallying on softer US data given the implication it will slow the Fed’s normalisation process. But the market’s failure to extend its record run post last Friday’s US jobs report (which only gives the Fed more reason to err back on the side of accommodation), could suggest the strong uptrend may be coming to an end. Meanwhile, geopolitical tension persists, keeping investors from adding to exposure. While Wednesday’s news of a stop gap bill was somewhat supportive on the surface, in reality, it’s just a 3 month extension before the debt ceiling worry returns.
GOLD (SPOT) – technical overview
Setbacks have been well supported, with the latest surge to fresh 2017 highs through 1300 setting the stage for a bullish continuation to 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. Look for any dips to be well supported now around 1300.
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 below 1.3500. However, stretched studies are warning of the possibility for a meaningful bullish reversal to allow for these studies to unwind. Wednesday’s break to fresh 2017 lows below 1.3500 now exposes a possible retest of the 2016 base down at 1.3315, but again, with technical studies extended, the greater risk from here is for a significant reversal to the topside.
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, soft US Dollar policy talk, worry over the US debt ceiling negotiations outcome, disappointing US data and dovish Fed comments. Stanley Fischer’s early departure throws more cold water on the Fed outlook and could be adding to the Singapore Dollar’s rally to fresh 2017 highs into Thursday. Meanwhile, data out of Singapore has been solid, with this week’s PMI readings coming in above forecast. At the same time, given the correlation with the Yen, the Singapore Dollar also has the ability to benefit from safe haven flow.