Next 24 hours: Pound Shines, Yen Slumps
Today’s report: UK Inflation Data Takes Tuesday Spotlight
It’d be hard to call it a comeback, but the US Dollar is trying to build some momentum this week, as it extends its mild Monday run into early Tuesday trade. The primary focus thus far has been on the recovery in sentiment, after weekend fears weren't realized. UK CPI ahead.
Wake-up call
Chart talk: Major markets technical overview video
- ECB Constancio
- Brexit bill
- drivers align
- investor appetite
- business confidence
- Loonie outperforms
- US JOLTS
- Investor tension
- Global backdrop
- USDSGD
Peformance chart: Five day performance v. US dollar
Suggested reading
- How Investors are Dealing with Uncertainties, M. El-Erian, Bloomberg (September 11, 2017)
- No Escape from Debtors’ Prison for Greece, H. Dixon,  Reuters (September 11, 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
On Monday, there was profit taking from leveraged, momentum and real money names which knocked the single currency back a bit, while the relief that Hurricane Irma was not as bad and diffused geopolitical tension also factored into the lower Euro rate. There was actually another source of Euro weakness after ECB Coeure was on the wires saying “exogenous shocks to the exchange rate, if persistent, could lead to an unwarranted tightening of financial conditions with undesirable consequences for the inflation outlook.” But in the end, even with all that, the Euro actually held up rather well. Dealers continue to talk about good demand on dips, with no real sell orders up on the boards until 1.1820. Looking ahead, the calendar is quiet in the Eurozone, though we do get ECB speak from Constancio. Later in the day, US JOLTS job openings stand out.
GBPUSD – technical overview
The latest bullish reversal out from very strong previous resistance turned support at 1.2775 has opened the door for a healthy rally back towards a retest of the 2017 peak at 1.3268. Still, with technical studies looking a little stretched on the daily chart, any rallies beyond 1.3268 could be limited ahead of another reversal to the downside. Overall, the structure is now constructive, favoring an eventual push into the 1.3500-1.4000 area over the medium-term, but short-term, we still could see some more choppy consolidation.
GBPUSD – fundamental overview
The Pound has stalled out for now ahead of the recent 2017 high, with Monday’s round of broad based US Dollar demand factoring into the price action. However, dips have been well supported. News of the UK House of Commons passing the 2nd reading of the Brexit repeal bill that paves the way to proceed with the next stage, has definitely been one of those things that has helped to prop the Pound up into declines. Of course, it’s a busy week ahead, which kicks off with today’s UK inflation readings. The market will be looking at today’s data to see how it should be positioning for the Bank of England later this week. Later in the day, we get US JOLTS job openings.
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 we have finally seen that bearish below 108.00 which could set up a bearish structural shift, exposing a deeper drop towards a measured move extension around 102.00. At the same time, inability to sustain the drop below 108.00 in the sessions ahead 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
With weekend threats averted, the Yen has been exceptionally comfortable reversing lower (USDJPY higher). The major pair continues to track along with traditional correlations and Monday’s risk appetite revival coupled with broad based US Dollar demand proved to be an intense one-two knockout punch of those Yen longs. Looking ahead, the market will continue to monitor the broader macro themes while also taking in US JOLTS job opening later in the day.
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.
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
The Australian Dollar was already under pressure on Monday following the broad based recovery in the US Dollar. But into Tuesday, setbacks have extended after Australia business confidence and business conditions readings disappointing. Looking ahead, the calendar is quiet with only US JOLTS job opening standing out. Broader macro themes will be watched closely.
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
The Canadian Dollar has come under some pressure since last week’s run to fresh +2 year highs. Friday’s Canada employment report was rather discouraging beneath the surface and this was followed up by broad based US Dollar demand in Monday trade. Still, the Loonie remains in the driver’s seat for the time being and USDCAD would need to clear buy stops above 1.2250 to really suggest the Canadian Dollar is relenting. Monday’s mixed round of Canada housing starts hasn’t factored into price action. Looking ahead, absence of Canada data will leave the focus on US JOLTS job openings.
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
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. The only saving grace for the Kiwi rate has been the intense distaste for US Dollar exposure in 2017. Looking ahead, the calendar is quiet with only US JOLTS job opening standing out. Broader macro themes will be watched closely.
US SPX 500 – technical overview
After extending the record run in early August, the market has deferred to sideways trade, acknowledging the need for a period of consolidation to allow for 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. As of yet, there has been no confirmation of such a bearish shift in the price action and it will take a breakdown in this market back below 2400 to turn heads.
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, exposing a possible retest of the 2016 base down at 1.3315. However, stretched studies are warning of the possibility for a meaningful bullish reversal to allow for these studies to unwind and if the market holds above 1.3315 and breaks back above 1.3500, we could see the formation of another base in favor of significant medium-term upside back above 1.4000.
Feature – fundamental overview
The Singapore Dollar has enjoyed a nice rally in 2017, extending its run this past week. 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. Meanwhile, data out of Singapore has been solid, with last week’s PMI readings coming in above forecast and today’s retail sales beating as well. 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. We have seen some SGD weakness in the early week as weekend fears have been averted, but the follow through has been quite mild. We also didn’t see much reaction from Monday’s UN water downed sanctions on North Korea.