Next 24 hours: Currencies Hang Tight With US Out
Today’s report: Market Conditions to Thin Out for US Holiday
Japan is out on its own Thanksgiving holiday and the US market will be completely shut down today for its Thanksgiving holiday, with market conditions not expected to return to normal until next week. The big takeaway right now is that the US Dollar is back under pressure.
Wake-up call
Chart talk: Major markets technical overview video
- Eurozone data
- GDP readings
- double shot
- equity exposure
- Iron ore
- retail sales
- good news
- red flags
- Macro accounts
- USDZARÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- Dollar Hoarding Is a Year-End Risk for Markets, B. Emons, Bloomberg (November 22, 2017)
- Cryptocurrencies – Investing or Gambling?, I. Kamiska,  FT (November 22, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The major pair pushed back above a consolidation high at 1.1690 in the previous week, and this takes the immediate pressure off the downside, while introducing the prospect for a resumption of the broader uptrend in 2017. At this point, it would be premature however to get too bullish and a daily close above the right shoulder of the head and shoulders top at 1.1880 would be what required to encourage bullish prospects.
EURUSD – fundamental overview
There wasn't much to speak of with respect to the Euro on Wednesday,though a round of intense US Dollar bearishness on dovish Yellen speak, discouraging US economic data and caution in the Fed Minutes were more than enough to prop up the single currency. But the Euro will get more attention today with German GDP, German and Eurozone manufacturing PMIs and the ECB Minutes due. Market conditions will then thin out for the remainder of the week, with the US gone for Thanksgiving.
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 a multi-day consolidation high at 1.3338 to strengthen the bullish prospect. Back below 1.3027 would delay but not negate the constructive outlook.
GBPUSD – fundamental overview
The Pound managed to extend its recent run of gains, inching closer to some important resistance up around 1.3340. The market seemed to be mostly pleased with the UK budget, after the UK Chancellor scrapped stamp duty for some first time home buyers, promised funds to the NHS, and set aside 3 billion GBP in preparation for Brexit. OBR's downward revisions to UK growth forecasts didn't seem to bother the Pound as much, perhaps offset by the US Dollar bearishness on dovish Yellen speak, discouraging US economic data and caution in the Fed Minutes. Looking ahead, we get some UK GDP readings and UK CBI reported sales. Market conditions will then thin out for the remainder of the week, with the US gone for Thanksgiving.
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 latest break below 111.65 reaffirms this outlook, encouraging the next big drop all the way back to the range lows in the 107-108 area. Look for rallies to be well capped below 113.00.
USDJPY – fundamental overview
The Yen was a strong performer on Wednesday, with profit taking in record high US equities and US Dollar bearishness from dovish Yellen speak, discouraging US economic data and Fed Minutes caution, all driving the Yen outperformance. USDJPY stops were taken out below 111.65, with the drop further strengthening the case for a deeper setback towards the 107-108 area in adherence of a very well defined range play in 2017. Japan was closed for its own Thanksgiving on Thursday and looking ahead, trading conditions will thin out for the remainder of the week on account of the US Thanksgiving. But it will be worth keeping an eye on any updates relating to US tax reform.
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.
EURCHF – fundamental overview
The SNB will need to be careful right now as its strategy to weaken the Franc could face headwinds from the US equity market. The record run in the US stock market has been a big boost to the SNB’s strategy with elevated sentiment encouraging Franc weakness. Of course, the SNB is no stranger to this risk, given a balance sheet with massive exposure to the US equity market. But 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.  And so, we speculate the SNB continues to be active buying EURCHF in an attempt to build some cushion ahead of what could be a period of intense Franc demand ahead.
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 extending declines into the 0.7500s thus far. It’s worth noting technical studies are in the process of unwinding from oversold readings, resulting in this latest minor bounce. But overall, the pressure is on the downside and rallies are viewed as corrective while below 0.7900.
AUDUSD – fundamental overview
A round of Aussie demand has finally kicked in, though the bounce was to be expected with the currency so offered of late. The primary driver of the mild recovery has come from this intense wave of mid-week US Dollar bearishness on the back of dovish Yellen speak, discouraging US economic data and caution in the Fed Minutes. At the same time, iron ore prices have been turning up, while the market is not feeling as dovish about the RBA outlook after Governor Lowe commented earlier this week that the next move in rates would likely be a hike. Looking ahead, trading conditions will thin out for the remainder of the week on account of the US Thanksgiving. But it will be worth keeping an eye on any updates relating to US tax reform.
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.
USDCAD – fundamental overview
While there has been some improvement in economic data over the past couple of weeks, data overall has deteriorated in the aftermath of the central bank’s aggressive move of consecutive rate hikes in 2017. Moreover, while Poloz appearances post BoC have been less dovish than the tone from the latest BoC meeting, this doesn’t come as a surprise, as the central banker is going to do his best to justify the recent consecutive rate hikes. And Poloz and the Canadian government will have another big fear on their hands into 2018, with the possibility of a NAFTA breakup looking a lot more realistic than the market is giving it credit for. For now, there is optimism surrounding the outlook for NAFTA, with news on Tuesday of progress, helping to fuel some Loonie demand, while an intense wave of mid-week US Dollar bearishness on the back of dovish Yellen speak, discouraging US economic data and caution in the Fed Minutes has also inspired CAD gains. Certainly, OIL’s push to multi-month highs has not hurt the Canadian Dollar either. Looking ahead, Canada will take in its own retail sales data, but will not have the pleasure of trading alongside a US market closed for the Thanksgiving holiday.
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 opened a more meaningful reversal that has accelerated declines to fresh 2017 lows below 0.6800. This sets the stage for a fresh downside extension to support from May 2016 at 0.6676, though with daily studies turning up from oversold, the market is taking time to allow those studies to unwind a bit so the market can carve out a lower top. While below 0.7200, the structure remains bearish.
NZDUSD – fundamental overview
It’s been a welcome few sessions for the ailing New Zealand Dollar, with the Kiwi rate recovering out from 2017 lows against the Buck. Most of the demand has been driven off this intense wave of US Dollar bearishness on the back of dovish Yellen speak, discouraging US economic data and caution in the Fed Minutes. But we have also seen some demand early Thursday after New Zealand retail sales managed to come in above forecast. Overall however, we would caution against getting overly optimistic about Kiwi’s prospects. Data overall has been less than impressive and the market is still trying to figure out the new government. Looking ahead, trading conditions will thin out for the remainder of the week on account of the US Thanksgiving. But it will be worth keeping an eye on any updates relating to US tax reform.
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 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 establishing above this next major barrier at 2600.
US SPX 500 – fundamental overview
The US equity market continues to be well supported on dips, pushing further into record high territory. It seems, on a macro level, the combination of blind momentum, expectation US tax reform will ultimately work out well and the appointment of Jerome Powell as the next Fed Chair are helping to keep the move going. But at the same time, there’s a clear 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. There has been a little more in the headlines relating to the Russia probe fallout and possibility for more stress ahead for the US administration, while the President has just designated North Korea as a terror sponsor. But for now, no reaction to these stories and it’s more of the same. At this point, 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 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.
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 breaking out of a period of multi-month consolidation, with the price surging to fresh 2017 highs beyond 14.00, suggesting the run could have a lot more to go. The next major level of resistance comes in at 14.76, the high from August 2016. Setbacks should be well supported fahead of 13.50.
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. SARB Gov Kganyago has said there is scope for counter-cyclical accommodative monetary policy to support the economy. 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. October’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 key focus will be on today’s SARB decision where the central bank should probably steer clear of rocking the boat ahead of tomorrow’s critical rating agency determinations. 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.