ECB Event Risk Highlights Thursday Docket

GBPUSD – technical overview

The market has eased off quite a bit since topping out at a fresh 2017 high in September, with the price dropping back into the 1.3000 area thus far. However, while there is risk for another drop, setbacks should be limited below the psychological barrier, with the greater risk for the formation of that next meaningful higher low ahead of a continuation of the newly formed uptrend in 2017. Look for a daily close back above 1.3338 to confirm the constructive outlook and accelerate gains. Ultimately, only back below 1.2775 would delay the outlook.

• R2 1.3338– 13Oct high – Strong
• R1 1.3300 – Figure – Medium
• S1 1.3158 – 23Oct low – Medium
• S2 1.3110 – 25Oct low – Strong

GBPUSD – fundamental overview

The Pound caught a nice bid on Wednesday following the better than expected UK GDP print, with the market using the data to push up those rate hike odds at next week’s BOE decision to a near certain 90%. At the same time, ongoing Brexit negotiation uncertainty, still sluggish growth and decision motivated more by higher inflation than anything else, could leave the UK currency vulnerable in the sessions ahead, especially with next week’s risk so priced in. Gains were also tempered on Wednesday after US data came in strong, as reflected through durable goods and pending home sales. Looking ahead, absence of first tier UK data will leave the focus on fallout from the ECB and a US docket that includes initial jobless claims, the advanced goods trade balance, pending home sales and the House vote on the Senate budget plan.

USDJPY – technical overview

The major pair 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 market has been in rally mode over the past several days, taking the rate back into the range highs. At this point, look for the market to adhere to the range and stall out yet again for the start to a drop back towards the range low.

• R2 114.50 – 11Jul high – Strong
• R1 114.24 – 25Oct high – Medium
• S1 113.00 – Figure – Medium
• S2 112.30 – 19Oct low – Strong

USDJPY – fundamental overview

The price action here continues to be driven off the broader macro themes, with risk sentiment at the top of the list. The ongoing record run in US equities has helped to drive the major pair back towards some important resistance in the 114.00s, though we did get a small wave of offers after US equities sold off a bit on weak US earnings and fear of overextension. Some of those big ticket items the Yen is monitoring at the moment include renewed provocations out from North Korea, US tax reform progress and the next Fed Chair appointment. Wednesday’s US economic data was broadly US Dollar supportive, after durable goods and new home sales beat. Looking ahead, the focus will be on fallout from the ECB and a US docket that includes initial jobless claims, the advanced goods trade balance, pending home sales and the House vote on the Senate budget plan.

EURCHF – technical overview

A period of multi-day consolidation has been broken, with the market pushing up to a fresh 2017 high. 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 1.1400, while only back below 1.1260 would delay the overall constructive tone.

• R2 1.1800 – Figure – Medium
• R1 1.1707 – 25Oct/2017 high – Medium
• S1 1.1485 – 17Oct low – Medium
• S2 1.1390 – 2Oct low – Strong

EURCHF – fundamental overview

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 will put the SNB in a more challenging position to weaken the Franc. The Franc has just dropped to another low against the Euro this year on what could be ramped up SNB activity. We speculate this activity could be an attempt to build some cushion ahead of what could be a period of intense Franc demand in the event of a sell off in global equities.

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 0.7900, with only a close back above the psychological barrier to put the pressure back on the topside. Today’s break back below 0.7734 strengthens the outlook.

• R2 0.7835 – 23Oct high – Strong
• R1 0.7785 – 25Oct high – Medium
• S1 0.7650– Mid-Figure – Medium
• S2 0.7572 – 5Jul low – Strong

AUDUSD – fundamental overview

The Australian Dollar is still reeling from Wednesday’s softer than expected Aussie inflation readings, with the data likely to keep the RBA from making any moves towards rate hikes any time soon. At the same time, as we highlighted on Wednesday, the softness in the CPI was more from one component, while the RBA has already been ahead of this risk, letting the market know it isn’t going to be pressured by other central bank policy normalisations and is in no hurry to make any moves. On the US front, the combination of strong durable goods and new home sales along with some deterioration in risk sentiment on weaker US earnings and uncertainty surrounding US tax reform and the next Fed Chair, perhaps also weighed on the commodity currency. Looking ahead, the focus will be on fallout from the ECB and a US docket that includes initial jobless claims, the advanced goods trade balance, pending home sales and the House vote on the Senate budget plan.

USDCAD – technical overview

Clear signs of basing in this pair, with the recovery from plus two year lows back in September extending through an important resistance point in the form of the August peak. This sets the stage for additional upside in the days and weeks ahead, with the immediate focus now on a retest of the psychological barrier at 1.3000. In the interim, any setbacks should now be well supported ahead of 1.2500.

• R2 1.2945 – 11Jul high – Medium
• R1 1.2860 – 7Jul low high– Strong
• S1 1.2693– 24Oct high– Medium
• S2 1.2622 – 24Oct low – Strong

USDCAD – fundamental overview

As much as this risk was flagged from our end, the market was still caught off guard by the dovish shift at the Bank of Canada meeting on Wednesday. The Canadian Dollar was hit hard on the day, extending a run of recent declines that have come since economic data has deteriorated in the aftermath of the central bank’s aggressive move of consecutive rate hikes in 2017. The BoC warned it would remain cautious when considering future rate hikes while also citing concern over the stronger currency. Another looming threat to the Canadian Dollar at the moment is the NAFTA uncertainty and possibility the agreement will be cancelled as per President Trump’s threats. Market odds for a December BoC hike have since declined and are now sitting at 43.6% from what had been 80% in early September. Looking ahead, absence of first tier data on the Canada calendar will leave the market focus on fallout from the ECB and a US docket that includes initial jobless claims, the advanced goods trade balance, pending home sales and the House vote on the Senate budget plan.

NZDUSD – technical overview

Medium term studies have turned down sharply after the market pushed up to a plus two year high through 0.7500 in late July. A recent break below 0.7000 has now opened a more meaningful reversal looking to retest the 2017 low at 0.6818. Any rallies should now be very well capped ahead of 0.7200.

• R2 0.7036 – 20Oct high – Strong
• R1 0.7004 – 24Oct high – Medium
• S1 0.6861 – 25Oct low – Medium
• S2 0.6818 – 21May/2017 low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar continues to struggle in the aftermath of a surprise election result that saw the emergence of Labour. Overall, the currency had already been under pressure in the lead up to the election, with economic data heading the wrong way and the market pricing a less hawkish RBNZ path forward. The PM elect was on the wires this week shaking things up some more after outlining the intention to ‘review and reform’ the Reserve Bank Act. We have seen some bids come in ahead of the 2017 low on Thursday, with the market perhaps finding support on uncertainty surrounding US tax reform and the next Fed Chair appointment. At the same time, stronger US economic data and a pullback in US equities are not supportive developments for the risk correlated commodity currency. Earlier today, New Zealand trade data came in weaker than expected but was improved from the previous showing. Looking ahead, the focus will be on fallout from the ECB and a US docket that includes initial jobless claims, the advanced goods trade balance, pending home sales and the House vote on the Senate budget plan.

US SPX 500 – technical overview

The market continues to shrug off overextended technical readings, with any setbacks quickly supported for fresh record highs. At the same time, it’s worth noting that the market broke out in August after a 75 point consolidation, which projected a measured move to 2565. And now that this 2565 measured move objective has been met and slightly exceeded, it could warn of some form of a reversal to come, though we would need to see a daily close back below 2544 at a minimum to take the immediate pressure off the topside. Until then, the record run continues into unchartered territory, with the focus on the next major barrier at 2600.

• R2 2600.00 – Psychological – Strong
• R1 2580.00 – 23Oct/Record high – Medium
• S1 2543.00 – 25Oct low – Medium
• S2 2487.00 – 25Sep low – Strong

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 tax policy are helping to keep the move going. 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, 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. At this point, it will take a breakdown in this market back below 2500 to turn heads. US earning season, tax reform updates and who President Trump appoints as the next Fed Chair continue to be the primary focus this week. As far as today’s docket goes, we get initial jobless claims, the advanced goods trade balance, pending home sales and the House vote on the Senate budget plan.

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 this most recent dip to round out that next higher low around 1260 in favour of a bullish continuation towards a retest of the 2016 peak at 1375 further up. Ultimately, only a drop back below 1200 would negate the outlook.

• R2 1334.35 – 15Sep high – Strong
• R1 1316.10 – 20Sep high – Medium
• S1 1260.70 – 6Oct low – Medium
• S2 1251.45 – 8Aug low  – Strong

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 has been confined to range trade hat extends back into 2016, with rallies well capped in the 14.00 area and dips supported into the 12.30 area. A the moment, we’re seeing a strong surge through 14.00 to a fresh 2017 high and it will be interesting to see if we get another topside failure or the onset of a bullish breakout. A close above 14.20 would be required to set up the bullish breakout possibility.

• R2 14.76 – August 2016 high – Strong
• R1 14.14 – 25Oct high – Medium
• S1 13.65 – 23Oct low – Medium
• S2 13.25 – 16Oct low – Strong

Feature – fundamental overview

The South African economy is in greater need for flexibility on rates on the basis of a near zero growth and a negative output gap, though rising inflation is forcing the SARB to think about going in the opposite direction.  Meanwhile, the Rand remains exposed to ongoing tension on the political front which will persist into year-end on account of the upcoming ANC leadership election. Wednesday’s Budget Statement dealt the emerging market currency another big blow, with the Rand sinking to a fresh 2017 low on the revelation of sharp revisions to debt and deficit projections, highlighting risk for further downgrade. The only supportive Rand driver at the moment has come from the record run in US equities, which is a positive for risk correlated emerging market currencies. However even here the Rand should be sitting uneasy as the prospect for a capitulation is looking increasingly realistic on overbought technicals and an unstable backdrop around the globe.