Today’s report: Can Anything Save the Slumping Buck?
A fresh wave of broad based US Dollar selling has ensued in the aftermath of the ECB decision, though there was nothing in the decision itself to justify this move. The market is simply committed to selling US Dollars at every turn in 2017. Will anything save the Buck?
Wake-up call
Chart talk: Major markets technical overview video
- ECB
- industrial production
- Sell stops
- SNB strategy
- China exports
- jobs report
- Ailing Kiwi
- Investor tension
- Macro players
- USDSGD
Peformance chart: Five day performance v. US dollar
Suggested reading
- Fed Model Loses its Grip on Stocks, S. Gandel, Bloomberg (September 7, 2017)
- Valuations and Breathtaking Risks, J. Hussman,  Hussman Funds (September 4, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The market has broken out to another fresh 2017 high, with the push beyond 1.2071 confirming a higher low at 1.1824, opening the door for the next measured move extension towards 1.2300. However, at the same time, weekly studies are well overextended, warning that additional upside could soon be limited in favour of a significant bearish reversal. But a break back below 1.1824 would now be required at a minimum to take the pressure off the topside.
EURUSD – fundamental overview
The Euro has extended its run in 2017 in the aftermath of the ECB decision, though the decision itself didn’t seem to justify the move. The ECB held policy as expected, didn’t get into a whole lot of detail about the QE taper plan and expressed concern about the strength of the Euro. It seems most of the flow continues to come from broad based negative US Dollar sentiment, with anything and everything used as an excuse to drive the Buck lower. German trade data has come in on the soft side today, which has offered some US Dollar relief, but the Buck is going to need a lot more help if it wants to have a fighting chance. Later on in the day, we get a Fed Harker speech.
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, 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 the latest rally 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, helped along by this latest run post ECB. On the other side, UK data has also been struggling and Brexit uncertainty persists. 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. Looking ahead, after a quiet UK calendar week, things will pick up as the market takes in industrial production and trade. Later in the day, we get a speech from Fed Harker.
USDJPY – technical overview
The market had done a fabulous job holding up above 108.00 despite repeated attempts to break the barrier in 2017. But on Friday, the downside pressure could not be overcome, with the level finally taken out to potentially warn of a bigger decline ahead. A daily close below 108.00 could now open a measured move downside extension back into the 100.00 – 102.00 area. At the same time, inability to sustain the drop below 108.00 would suggest a false break in favour of a continuation of the broader range trade, eventually resulting in a push back towards 115.00.
USDJPY – fundamental overview
The major pair had been exceptionally well defended down at the 108.00 barrier this year, before finally taking out the level on Friday, breaking to fresh 2017 lows. The combination of this ongoing wave of broad based US Dollar weakness and some risk off flow have given the Yen that double punch to break through to these highs (USDJPY lows). Looking ahead, the only notable event on the calendar today is a speech from Fed Harker, though there will be plenty to watch as the broader macro themes of risk sentiment and the US Dollar outlook dictate direction.
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
The market has broken back above the recent 2017 high at 0.8066, extending the run into the 0.8100s thus far. There is now risk for a continuation of gains towards a measured move in the 0.8250 area, though at the same time, medium-term studies are extended and suggest additional upside could be limited in favour of a reversal back to the downside. A drop back below 0.7975 would however be required at a minimum to take the immediate pressure off the topside.
AUDUSD – fundamental overview
Aussie retail sales and trade data were weaker than expected on Thursday, while China exports were a let down on Friday. And yet, the commodity currency hasn’t shown any signs of worry, breaking out to fresh +2 year highs on the back of this post ECB US Dollar liquidation craze. Still, we haven’t had much in the way of any real fundamental justification for this latest slide in the Buck and with the RBA not excited about the higher exchange rate and risk sentiment looking a little shaky, there is scope for another topside failure up here. Looking ahead, the calendar is quite light and the focus will be on broader macro themes. Fed Harker is slated to speak later today.
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. But right now, the market would need to break back above 1.2242 to encourage this prospect.
USDCAD – fundamental overview
It’s been an incredible rally for the Canadian Dollar, with the Loonie running on all cylinders. A pickup in Canada economic data this year has resulted in a hawkish Bank of Canada, that has been in the process of reversing monetary policy at an even more aggressive pace than many had been projecting. Meanwhile, the market continues to hate on the US Dollar, with the Buck going through another intense round of declines into Friday, resulting in fresh +2 year lows. Interestingly, all of this craze has the market perhaps overlooking not so great Canada trade data on Wednesday, followed up by disappointing building permits and a drop in Ivey PMIs on Thursday. Looking ahead, a lot of attention will be placed on the Canada employment report, while the direction in OIL and global sentiment will also factor. Later in the day, we get a speech from Fed Harker.
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 has been a notable laggard in the FX market, but has finally been able to participate in this latest run of broad based US Dollar weakness that can’t be ignored. But overall, there have been too many negative drivers for the market to ignore, which should continue to inspire offers into rallies. New Zealand government growth and budget cuts, discouraging economic data and uncertainty around the upcoming election have all been behind the currency’s underperformance. Looking ahead, the calendar is quite light and the focus will be on broader macro themes. Fed Harker is slated to speak later today.
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 and the threat of another hurricane is only adding to the nervous energy out there.
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 rally in 2017, extending it’s run into Friday. 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 the possibility for a more dovish leaning Fed. 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 this week. 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, especially with this correlation being lost on the US Dollar right now.