Special report: US Jobs Preview – Forget NFPs
Today’s report: Euro Readies for Next Push
We come into Friday with the US Dollar under pressure across the board against the developed currencies and continuing with the trend of US Dollar weakness we had seen for much of 2017. Plenty of data out today, highlighted by the US jobs report.
Wake-up call
Chart talk: Major markets technical overview video
- Eurozone inflation
- calendar quiet
- Profit taking
- SNB strategy
- trade data
- employment reports
- sell interest
- hourly earnings
- Global uncertainty
- USDTRYÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- New Year Move is US Dollar Negative, R. Blitz, Financial Times (January 4, 2018)
- Markets Are Less Stable Than They Seem, S. Das, Bloomberg (January 4, 2018)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
Despite a prolonged period of sideways trade, the outlook for the major pair remains highly constructive. The door is now open for a more immediate resumption of a well defined uptrend that has taken form in 2017. Look for any setbacks to be well supported ahead of 1.1700, for the next major upside extension beyond the current yearly high of 1.2093 and towards the 1.2500 area further up. But ultimately, only a daily close back below 1.1550 will delay this outlook.
EURUSD – fundamental overview
The combination of solid data out of the Eurozone, more hawkish ECB speak and broad based negative sentiment for the US Dollar have accounted for this continued run in the single currency, now looking to extend its run following a healthy period of consolidation. Any stress relating to German coalition talks and Italian elections have been brushed aside. The economic calendar on Friday includes German retail sales, Eurozone inflation readings, US ISM non manufacturing and US trade though the feature event will be the US jobs report.
GBPUSD – technical overview
The market has been consolidating but ultimately looks poised for a continuation of the 2017 uptrend, with a higher low waiting to be confirmed at 1.3027 on a break of the 2017 high at 1.3658. This will then open the door for a measured move upside extension back above 1.4000 and towards 1.4200 into 2018. Any setbacks should now be well supported into previous range resistance now turned support in the 1.3300 area.
GBPUSD – fundamental overview
Absence of first tier economic data out of the UK on Friday, will leave the Pound focused on the broad based sentiment towards the US Dollar and fallout from the US economic data docket later in the day, which includes ISM non manufacturing and trade, and features the US employment report. Any updates relating to the Brexit outlook could also factor, as they did earlier this week, when Jim O’Neill suggested UK Brexiteers were clueless about the global economy, citing the cabinet’s fantasy approach to post Brexit trade. On Thursday, UK services PMI data came in above forecast.
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 topside failure off the range high strengthens this outlook, though the market will ideally need to break back down below 112.00 to strengthen this prospect.
USDJPY – fundamental overview
Into 2018, the Yen is trying to figure out whether it needs to be selling off on the ongoing bid in global risk assets and yield differentials that favour the Buck, as the Fed looks to continue with its policy normalisation, or if it needs to be rallying on the back of broad based US Dollar weakness and the possibility that an extended risk market could finally begin to capitulate. These are the big drivers that will dictate direction going forward. Into Friday, USDJPY has been bid up on the back of a minor US Dollar recovery on profit taking ahead of today’s US employment report. However, the gains haven’t been all that impressive considering, and with equities well extended, there could be room for another USDJPY decline ahead. US ISM non manufacturing and US trade are also due.
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 in 2018. 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 US equities. But any signs of capitulation on that front into this new year, 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
Technical studies have turned back up over the past several days, with the market in the process of recovering after trading down to a fresh multi-day low around the 0.7500 barrier in December. Overall however, the pressure remains on the downside and additional upside could be difficult into solid internal resistance ahead of 0.8000.
AUDUSD – fundamental overview
Aussie trade data came out on the weaker side of expectation early Friday, resulting in some relative underperformance on the day, with the currency retreating off multi-week highs. Overall, the Australian Dollar has been better bid, with the currency extending its recovery into 2018. The combination of surging commodities prices, record US stocks, a broad based wave of US Dollar outflow, rallying iron ore prices and a more upbeat outlook for the Australian economy have been behind this run of gains. Dealers are however starting to talk decent sell interest from medium term players. Looking ahead, the primary focus will be on the US jobs report, though we also get US ISM non manufacturing and trade.
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 next focus 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
The Canadian Dollar has been better bid of late on the back of some solid Canada data, a surge in the price of OIL, better bid commodities across the board, higher US equities, and broad based US Dollar outflows. Nevertheless, in 2018, there is plenty of downside risk to the Loonie as the fate of NAFTA comes back into the spotlight, with any talk of a breakup to put more pressure on the Canadian Dollar. As far as today’s docket goes, we get the double dose of monthly employment reports out of Canada and the US, along with the added hit of Canada Ivey PMIs, US ISM non manufacturing and US trade.
NZDUSD – technical overview
The market is turning up after recently trading down to a fresh 2017 low in November. The price action has taken the form of a kind of inverse H&S pattern, with the break back above 0.6980 strengthening the prospect for this current run towards a measured move objective at 0.7200. However, once this area is tested, additional upside is expected to be limited, with the market at risk of rolling over again.
NZDUSD – fundamental overview
The New Zealand Dollar has broken up to multi-week highs, with the currency extending its recovery off the 2017 low from November. The combination of surging commodities prices, record high US equities and a broad based wave of US Dollar outflow have been behind this accelerated run of gains. This week’s uptick in the GDT auction and some solid Kiwi manufacturing data have also helped the cause, though technical traders cite solid resistance into 0.7200, while dealers report heavy sell orders around the barrier as well, which could limit gains from here. As far as today’s docket goes the primary focus will be on the US jobs report, though we also get US ISM non manufacturing and trade.
US SPX 500 – technical overview
The market continues to shrug off overextended technical readings, with any setbacks quickly supported for fresh record highs. Still, technical readings are tracking well overbought and are in desperate need for a period of healthy corrective action. Ultimately however, it will take a break back below 2652 at a minimum to alleviate immediate topside pressure.
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 in 2018, excitement around infrastructure plans and a belief the Fed will remain super accommodative under Jerome Powell are all factoring into the relentless bid. Nevertheless, investor immunity to downside risk is not looking as strong these days and 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 the Fed finally following through with forward guidance erring on the side of policy normalisation. Today’s jobs report will be important as any signs of a pickup on the hourly earnings side could make the market nervous about the implication of the Fed being forced into a position where it needs to be more aggressive on rates. But for now, it’s more of the same, with the market shrugging off any red flags. 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. Look for this most recent dip to round out that next meaningful base 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 1200.
Feature – technical overview
USDTRY is in the process of correcting off the record highs in November to allow for extended studies to unwind. However, the uptrend remains firmly intact and a fresh higher low is now sought out ahead of the next big push through the massive psychological barrier in the form of the 4 handle. Ultimately, any setbacks should be well supported ahead of 3.6500, with only a break back below this level to delay the outlook.
Feature – fundamental overview
The CBRT did a fabulous job disappointing investor expectation for what was believed to be a much bigger adjustment to rates than the one the market got in December. The Turkish central bank opted to only raise by a modest 50bps in the LLW. This is viewed as a knock on CBRT credibility, with the central bank clearly influenced by the ongoing pressure from the Erdogan government to keep policy as loose as possible. The Lira could be poised for a fresh record low in the days ahead, with USDTRY considering a break of the massive psychological barrier at 4.00. The emergence of new stress in the global economy could add to the Lira strain if we see a global reduction in risk appetite that ultimately drags the entire emerging market space.