Next 24 hours: Another Dollar Run…But Offers Emerge
Today’s report: Follow Through or False Break?
It’s been a tough go for the US Dollar in 2017 and now that we've seen the Buck make a little headway, it will be interesting to see if it can actually follow through. US durable goods, pending home sales and some Fed speak ahead.
Wake-up call
Chart talk: Major markets technical overview video
- sell-stops
- CBI sales
- Geopolitical worry
- Franc appreciation
- yield differentials
- Poloz speech
- Political uncertainty
- negative drivers
- Macro backdrop
- USDZARÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- The Real Threats to the Equity Bull Market, N. Colas, Bloomberg (September 25, 2017)
- Electric Cars Put Pressure on Oil Demand, D. Sheppard,  Financial Times (September 26, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The Euro has broken down below an important support level around 1.1825, representing the 50-Day SMA and a neckline of a head and shoulders top off the recent +2.5 year high. This is the first time the market has traded back below the 50-Day SMA since the Euro broke out earlier this year and the measured move extension off the head shoulders top projects a possible acceleration into the 1.1500s. Next support comes in at 1.1663 and only a break back above 1.2000 negate the current outlook favouring a deeper correction.
EURUSD – fundamental overview
The Euro has come under added pressure this week after ECB Draghi caught the market off guard on Monday, saying the Euro recovery needed to translate into stronger inflation, while substantial accommodation was still needed. The comments come in the aftermath of a less than impressive weekend election result for Germany’s Merkel and rising political unrest in Europe as reflected in Spain. The single currency has since taken out a healthy round of sell stops around 1.1820 that could now open the door for a more meaningful decline, especially with the Fed looking like it will follow through with another rate hike in 2017. The Fed Chair was on the wires on Tuesday but didn’t offer anything to give the market reason to be thinking differently. Looking ahead, the calendar is quiet in the European session. Key standouts for the day come in the form of President Trump's tax speech, US durable goods, pending home sales and more Fed speak.
GBPUSD – technical overview
The rally in this market has been impressive since it broke out above critical resistance at 1.2775 earlier this year. The breakout suggested the major pair had put in a longer term base and was in the process of turning back up, with an initial objective around 1.3500. That objective has now been met and exceeded, leaving daily studies unwinding from stretched readings and at risk for a period of corrective weakness. The recent breakdown below 1.3450 sets up the possibility for a drop back into the 1.3200s before the market considers a higher low and resumption of the uptrend.
GBPUSD – fundamental overview
Though the UK Treasury has done its best to play down the recent Moody’s downgrade of the UK’s credit rating, claiming the action to be outdated, the development has been a weight on the Pound. This comes at a time when the market is back to worrying about Brexit and the US Dollar is regaining momentum in the aftermath of last week’s more hawkish leaning Fed decision. The Fed Chair was on the wires on Tuesday but didn’t offer anything to give the market reason to be thinking differently. Looking ahead, the calendar is quiet in the UK session with only CBI sales readings due. Key standouts for the day come in the form of President Trump's tax speech, US durable goods, pending home sales and some Fed speak.
USDJPY – technical overview
The market has seen an impressive recovery out from a recent 2017 low at 107.32. This sets up the possibility for a bullish shift and run up towards multi-day range resistance in the 115.00 area. However, the market will need to hold above 111.00 in the sessions ahead to strengthen this outlook. Until then, there is still risk for another bearish break and retest back down towards and below the 2017 low in the 107.00s.
USDJPY – fundamental overview
This week’s announcement of another stimulus package and snap election in Japan was well telegraphed and also something that wasn’t likely to factor much into Yen volatility, with the market continuing to trade on traditional risk correlations. The market is keeping a close eye on developments relating to North Korea, though it’s looking like nothing more than a big war of words at this point, which is helping to prop up the major pair, especially with the Buck back in demand on expectation for a more hawkish Fed trajectory in the aftermath of last week’s FOMC decision. The Fed Chair was on the wires on Tuesday but didn’t offer anything to give the market reason to be thinking differently. Looking ahead, the calendar is quiet in the European session. Key standouts for the day come in the form of President Trump's tax speech, US durable goods, pending home sales and more Fed speak.
EURCHF – technical overview
A period of multi-day consolidation has been broken, with the market pushing up to a fresh 2017 high beyond 1.1600. The bullish break could now get the uptrend thinking about a test of that major barrier at 1.2000 further up. In the interim, look for any setbacks to be very well supported ahead of 1.1200, while only back below the figure would delay the overall constructive tone.
EURCHF – fundamental overview
The SNB kept with its general policy line when it met this month and there were no major waves from the event risk. The one notable exception was the language relating to the strength of the Franc, with the SNB viewing the Franc as “highly valued” rather than significantly overvalued. This was a downgrade to the level of concern over the currency’s strength, but again, not much of a reaction. Overall, the sell-off in the Franc in 2017Â has been a welcome development for the SNB. Still, the central bank will need to be careful as the record run in the US stock market has been a big boost to the SNB’s strategy. Any signs of capitulation on that front, will likely invite a very large wave of demand for the Franc, which could put the SNB in a more challenging position to weaken the Franc.
AUDUSD – technical overview
Despite rallying to a fresh +2 year high in September, the market has been unable to hold onto gains, quickly reversing course and trading back below 0.8000. There is now risk for the formation of a more meaningful top. This would be confirmed if setbacks extend back below what looks to be neckline support at 0.7808. Back above 0.8126 would negate and keep the pressure on the topside.
AUDUSD – fundamental overview
Overall, there have been signs of the market feeling worried about Aussie trading at elevated levels as the RBA leans a little more to the dovish side, while the Fed has surprised in the opposite direction after last week’s meeting. The Fed Chair was on the wires on Tuesday but didn’t offer anything to give the market reason to be thinking differently. Risk sentiment is another factor here and how investor appetite holds up, will play an added role in determining direction. Any further deterioration in sentiment will add to downside pressure. Looking ahead, key standouts for the day come in the form of President Trump's tax speech, US durable goods, pending home sales and more Fed speak.
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 1.2500 to really encourage this prospect.
USDCAD – fundamental overview
It hasn’t been a good run of developments for the Canadian Dollar since the Bank of Canada opted to catch the market off guard and hike rates for a second consecutive time this month. We’ve since seen a discouraging employment report, soft manufacturing data, weaker exports, a retail sales miss and below forecast inflation readings, all of which suggest the Bank of Canada may have been too aggressive. At the same time, the Fed’s more hawkish leaning decision is also making the Canadian Dollar less attractive at current levels, while the emergence of risk off flow is only adding to the Loonie bearishness. The Fed Chair was on the wires on Tuesday but didn’t offer anything to give the market reason to be thinking differently. And so, while the market has been buying Canadian Dollars in 2017 on what has been a dramatic turnaround in the BoC outlook, it now feels like a lot of this has been aggressively priced in, leaving room for a move the other way. The only supportive development for the Loonie has been a rebound in the price of OIL, though this hasn’t done much to help. Looking ahead, key standouts for the day come in the form of a speech from Bank of Canada's Poloz, President Trump's tax speech, US durable goods, pending home sales and some more Fed speak.
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 is under added pressure after the weekend election failed to produce a majority government. The National and Labour parties will be forced to seek a coalition government which adds to uncertainty in an already vulnerable New Zealand economy. Overall, the Kiwi outlook is less encouraging right now, as there have been too many negative drivers for the market to ignore, which should continue to inspire offers. New Zealand government growth and budget cuts, discouraging economic data and this lingering uncertainty around the election result should continue to weigh. The only saving grace for the Kiwi rate in 2017 has been the intense distaste for US Dollar. But even here, we are starting to see some demand for the Buck on optimism around US policy reform and on the back of a more hawkish leaning Fed decision. The Fed Chair was on the wires on Tuesday but didn’t offer anything to give the market reason to be thinking differently. Risk sentiment is another factor here and how investor appetite holds up, will play an added role in determining direction. Any further deterioration in sentiment will add to downside pressure. Looking ahead, key standouts for the day come in the form of President Trump's tax speech, US durable goods, pending home sales and more Fed speak.
US SPX 500 – technical overview
The market continues to shrug off overextended longer term technical readings, once again pushing up to fresh record highs. The latest break now opens the door for the possibility of a measured move upside extension into the 2550 area. At this point, it would take a clear break back below 2417 at a minimum to take the pressure off the topside and suggest we could finally be seeing the onset of a bearish structural shift.
US SPX 500 – fundamental overview
The US equity market continues to be well supported on dips, pushing further into record high territory. It seems the combination of blind momentum and expectation of favourable US policies are helping to keep the move going into this week. But at the same time, there is a nervous tension out there as the VIX sits at unnervingly depressed levels. The fact that Fed policy is normalising, however slow, could start to resonate a little more, with stimulus efforts exhausted, wage growth still subdued, balance sheet reduction coming into play and another rate hike still on the cards this year. But for now, it’s more of the same. 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 sought out above 1267 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. Dealers are now reporting demand in size ahead of 1260.
Feature – technical overview
USDZARÂ has been confined to a consolidation over the past several months, with the market unwilling to establish any new directional bias at the moment. In the interim, rallies are expected to be well capped towards 13.71, while dips should be supported towards 12.55. We have recently seen a bounce out from the range lows, which could open the door for a bigger recovery back towards the 13.71 range high in the days ahead. But only a clear break above 13.71 or back below 12.55 would force a shift in the structure.
Feature – fundamental overview
The Rand has been struggling of late, as ongoing tension on the political front prevents the emerging market currency from making any headway. This has made the Rand one of the least attractive emerging market currencies out there at a time when risk correlated currencies are coming back under pressure on the reemergence of political uncertainty and geopolitical risk. The only saving grace for the currency has been a SARB policy decision which failed to live up to expectations for another rate cut last week after the central bank seemed to downplay risks, opting for a more balanced outlook. Meanwhile, on the other side, we have seen demand for the US Dollar after last week’s Fed decision produced a more hawkish leaning result.