Next 24 hours: Inflation is Coming!
Today’s report: Watching the Euro and UK Data
The economic calendar picks up just a little bit more in this light calendar week, with UK’s trade balance, industrial production and US wholesale inventories the main standouts. The US Dollar has been trying to make a comeback in 2018.
Wake-up call
Chart talk: Major markets technical overview video
- Euro demand
- industrial production
- BOJ taper
- SNB strategy
- Medium-term players
- NAFTA
- Waning sentiment
- red flags
- Global uncertainty
- USDTRYÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- Mifid II Regulations: Impact Explained, A. Giustiniano, Financial Times (January 9, 2018)
- Ripple Bumps and Bitcoin Blues, L. Laurent, Bloomberg (January 9, 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 1.2094 and towards the 1.2600-1.2700 area further up, which happens to coincide with falling trend line resistance off the record high from 2008. Ultimately, only a daily close back below 1.1550 will delay this outlook.
EURUSD – fundamental overview
The Euro has come under pressure this week, though it hasn’t had anything to do with economic data, which has been supportive of the Euro. On Tuesday, German industrial production and trade came in above forecast, while Eurozone unemployment dropped to the lowest levels since early 2009. At the same time, US economic data has been less impressive and less US Dollar supportive since last Friday, highlighted by the hourly earnings reading in the jobs report. And so, it seems the price action right now is nothing more than some short term profit taking, with medium term players still very happy to buy dips. Looking ahead, we get US wholesale sales and some Fed speak.
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
The economic calendar picks up for the Pound today with the market taking in the trade balance, industrial production and NIESR GDP estimates. We have seen some profit taking off recent highs in the Pound, with the UK currency weighed down mostly on the Euro drag, though the cabinet reshuffle could also be factoring a little bit. Later in the day, US wholesale inventories are out along with some Fed speak. Â
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 110.85 to strengthen this prospect.
USDJPY – fundamental overview
The Yen has been a mover this week, finding a wave of demand after the BOJ slashed its JGB purchases of maturities with durations longer than 10 years by 10 billion yen in a “shadow tapering” move. Overall, into 2018, the Yen is trying to figure out whether it needs to be selling off on the ongoing bid in global risk assets, 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. As far as today’s economic calendar goes, US wholesale inventories and some Fed speak are the primary standouts.
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
Overall, the Australian Dollar has been better bid in recent weeks, 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, have all been behind this run of gains. We are however starting to hear of offers from medium-term accounts looking to build into existing short positions at current levels. Looking ahead, US wholesale inventories and some Fed speak are the primary standouts.
USDCAD – technical overview
Despite the latest round of setbacks, there are signs of basing in this pair, after the recovery from plus two year lows back in September extended through an important resistance point in the form of the August peak. This sets the stage for additional upside, 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 1.2300.
USDCAD – fundamental overview
Overall, despite a recent run of solid Canada data and surge in the price of OIL, we would caution against getting bullish the Loonie at current levels. We believe there is plenty of downside risk to the Loonie, with the fate of NAFTA coming back into the spotlight. Any talk of a breakup will put a lot of pressure on the Canadian Dollar. Looking to today’s calendar, we get Canada building permits, US wholesale inventories and some Fed speak.
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. Last 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, especially if an overextended equities market starts to roll over. Looking ahead, US wholesale inventories and some Fed speak are the primary standouts.
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 2650 at a minimum to alleviate immediate topside pressure.
US SPX 500 – fundamental overview
The US equity market continues to push 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. Lst Friday’s subdued hourly earnings have only made investors that much more confident in the slow Fed path, fueling the latest run. 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 in 2017. 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 the market thought would be a much bigger adjustment to rates than what the CBRT delivered 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.