Special report: US Jobs Report – The Hurricane Effect
Today’s report: US Dollar Moving with Purpose
We come into Friday with the USD in control and extending its recovery. The latest gains have come from a combination of factors including technical buying, another round of solid US data, hawkish Fed speak and optimism surrounding US tax reform.
Wake-up call
Chart talk: Major markets technical overview video
- factory orders
- job security
- macro themes
- less help
- still reeling
- soft trade
- Official results
- Warning signs
- Shifting dynamics
- USDZARÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- How to Spot A Financial Crisis Before it Spots You, D. McWilliams, FT (October 5, 2017)
- Who will be Confirmed Fed Chair on February 4, 2018?, PredictITÂ (October 6, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The uptrend in 2017 has stalled out for now after the market triggered a head and shoulders topping formation and broke back below the 50-Day SMA for the first time since the Euro broke out earlier this year. The measured move extension off the head shoulders top projects a drop to 1.1555, which also loosely coincides with the 100-Day SMA. Next support comes in at 1.1663 and only a daily close back above 1.1900 will negate the current bearish outlook.
EURUSD – fundamental overview
The Euro is still contending with fallout from the Catalan referendum, while scaled back ECB hawkishness in the aftermath of some more dovish Draghi speak in recent days and the latest ECB Minutes have also continued to to weigh. Of course, much of the single currency’s slide is coming from the US Dollar side, with the Buck gaining steam on the back of technical buying, another round of solid US data, hawkish Fed speak and optimism surrounding US tax reform. Looking ahead, the market will digest German factory orders, though the monthly employment report out of the US will unquestionably be the main event for the day.
GBPUSD – technical overview
The market has entered a period of correction since topping out at a fresh 2017 high in September. From here, there’s room for additional declines into the 1.3000 area. However, additional setbacks below the psychological barrier should be limited, with the greater risk for the formation of that next meaningful higher low ahead of a continuation of the newly formed uptrend in 2017.
GBPUSD – fundamental overview
All of this drama surrounding the UK PM and her job security has been too much for the Pound, which has clearly suffered from the saga. The UK currency has been a clear underperformer over the past week and the Cable rate is now considering a drop back below major psychological support at 1.3000. News that the UK will remain in office hasn’t managed to to stop the Sterling declines, though the Pound is also getting hit on a legitimate rally in the US Dollar, with the Buck gaining steam on the back of technical buying, another round of solid US data, hawkish Fed speak and optimism surrounding US tax reform. Looking ahead, developments surrounding the UK PM and Brexit will be monitored closely, while the market will also need to think about the monthly employment report out of the US. UK Halifax prices and a BOE Haldane speech are also on today’s docket but shouldn’t factor much into price action.
USDJPY – technical overview
The market has been confined to a range trade for much of 2017, with rallies well capped ahead of 115.00 and dips well supported below 108.00. The recent run up is therefore expected to stall out yet again into the resistance zone ahead of renewed downside pressure and bearish decline back towards the range low. Only a clear break above 115.00 or back below 107.00 would negate the outlook.
USDJPY – fundamental overview
The major pair continues to trade off the bigger macro themes including broader risk sentiment and developments on the US front. An ongoing bid in US equities at record highs and US Dollar positives, including a more hawkish leaning Fed, solid US data and a revival of the Trump reflation trade, have been behind a lot of this latest rally. Looking ahead, all eyes will be on this latest monthly employment report out of the US. There has been no reaction to the earlier release of Japan labour cash earnings which came in well above forecast.
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 last 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 2017 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. Interestingly, the latest surge in stocks has failed to bolster the exchange rate.
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 opening the door for the next downside extension towards 0.7500. Look for rallies to now be well capped ahead of 0.8000, with only a close back above the psychological barrier to put the pressure back on the topside.
AUDUSD – fundamental overview
The Australian Dollar has already come under pressure early Thursday on the back of a terrible Aussie retail sales showing, but has since managed to extend declines below 0.7500. Much of the weakness has come from the US Dollar side, with the Buck making a legitimate recovery in recent days on the back of technical buying, another round of solid US data, hawkish Fed speak and optimism surrounding US tax reform. And early Friday, we’ve seen more soft data out of Australia, this time from weaker construction readings. Looking ahead, all of the attention turns to the monthly employment report out of the US.
USDCAD – technical overview
Despite the September breakdown to a fresh 2017 and +2 year low, stretched medium-term technical studies continue to warn of the possibility for a more significant bullish reversal as oscillators turn up again. From here, there’s room for a push to retest key resistance in the form of the August peak at 1.2780, while any setbacks should be well supported ahead of 1.2300.
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 last month. Thursday’s weak Canada trade data has only made the Canadian Dollar even less attractive after a string of discouraging results including GDP, employment, manufacturing, exports, retail sales and inflation. And it’s been no surprise to see Bank of Canada Governor Poloz singing a much different tune in recent days. At the same time, the Fed’s more hawkish leaning decision, revival of the Trump reflation trade and healthy US data are giving the US Dollar a bid of its own. Looking ahead, it’s going to be a busy day for the Loonie. We get the employment reports out of Canada and the US and Canada Ivey PMIs.
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. Any rallies should now be very well capped ahead of 0.7300.
NZDUSD – fundamental overview
There have been too many negative drivers for the market to ignore, which should continue to inspire Kiwi offers and underperformance. New Zealand government growth and budget cuts, discouraging economic data and this lingering uncertainty around the recent election result should continue to weigh. This week, Kiwi took another hit after the latest GDT auction results produced a disappointing negative print. The only saving graces for the Kiwi rate in 2017 have been the record run in US equities and an intense distaste for the US Dollar. But even on this front, while US equities continue to run, there is no denying fundamentals that have been more supportive of the Buck of late, including a revival of the Trump reflation trade, solid US data and a more hawkish leaning Fed. Looking ahead, the big focus for the day will be on the US employment report. It’s worth noting we get the release of the official New Zealan election results tomorrow, which should kick off talks to form the new government.
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 run to that next major barrier at 2600. At this point, it would take a daily close back below 2487 at a minimum to take the pressure off the topside, while a break all the way back below 2400 would be required to force 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 Friday. But at the same time, there’s 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 2500 to turn heads.
GOLD (SPOT) – technical overview
Setbacks have been well supported over the past several months, with the market continuing to put in higher lows and higher highs, opening a recent push to a fresh 2017 high up around 1357. And so, look for the latest round of weakness to once again be well supported on the dip, with a higher low sought out ahead of 1250 ahead of the next major upside extension and bullish continuation towards a retest of the 2016 peak at 1375 further up. Ultimately, only a drop back below 1200 would negate the outlook.
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
USDZAR is trying to poke back above a multi-week range that has capped gains in 2017. A clear break above 13.71 will open the door for additional upside towards the 2017 high from early January just shy of 14.00. At the same time, inability to establish a clear break through 13.71 will suggest the range trade is still intact, setting up the possibility for a renewed downside extension towards the range low in the 12.55 area.
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. The political mess 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 US Dollar demand from a more hawkish leaning Fed, solid US data and the revival of the Trump reflation trade. This week’s SARB monetary policy report flagging scope for additional rate cuts on the basis of near zero growth and a negative output gap aren’t doing anything to help the Rand either. The only supportive theme at the moment is arguably the record run in US equities which is a positive for risk correlated markets. However even here the Rand should be sitting uneasy as the prospect for a capitulation is looking increasingly realistic with stocks going parabolic.