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Next 24 hours: Is the Market Reconsidering Dollar Bets?

Today’s report: Back to Fuller Trade

We get back to fuller trading conditions today, with the US returning to the market after enjoying the long holiday weekend. Monday price action was a non-event and the momentum from last Friday is reasserting, with the US Dollar benefiting as a result.

Wake-up call

Chart talk: Major markets technical overview video

Chart talk: Technical & fundamental highlights

EURUSD – technical overview

Though last Friday’s bearish reversal could set up a shorter-term pullback, the uptrend remains firmly intact and there is still a little more room to run before risk builds for a meaningful correction. The break of the 2017 high set up a bullish continuation and the next major measured move upside extension into the 1.2650-1.2700 area, which coincides with monumental resistance in the form of a falling trend-line off the record high from 2008. Right now, a drop back below 1.2200 would be required to take the immediate pressure off the topside.

  • R2 1.2556 – 16Feb/2018 high – Strong
  • R1 1.2500 – Psychological – Medium
  • S1 1.2300 – Figure – Medium
  • S2 1.2277 – 14Feb low – Strong

EURUSD – fundamental overview

The market will return to fuller trading conditions on Tuesday as the US returns from the long holiday weekend. The Euro came under pressure last Friday and could be continuing with this momentum as the week gets going, with the market perhaps taking the prospect for a more aggressive Fed policy normalization more seriously. As far as today’s calendar goes, key standouts come in the form of German producer prices, German ZEW and Eurozone consumer confidence.

GBPUSD – technical overview

The market has entered a corrective phase since pushing to a 2018 high at around 1.4350 and rallies should be well capped ahead of the 2018 high for additional corrective activity. There is still scope for additional declines into the 1.3400-1.3600 area, though setbacks should then be very well supported in favour of that next meaningful higher low and bullish continuation.

  • R2 1.4200– Figure – Medium
  • R1 1.4145 – 16Feb high – Medium
  • S1 1.3959 – 19Feb low – Medium
  • S2 1.3925 – 13Feb high – Strong

GBPUSD – fundamental overview

The Pound has come under some more pressure this week, with the pullback a carry over from last Friday’s round of broad based US Dollar demand. Renewed Brexit bumps have also worked their way into the picture, on chatter the UK plans to withhold billions of Pounds in Brexit divorce payments if it is unable to secure the trade deal it wants. Looking at the calendar for today, UK CBI trends data is the only notable standout.

USDJPY – technical overview

The major pair has just taken out the 2017 low, with the break a significant one, as it also compromises a range that has been in play for many months. This could now open the door for an accelerated decline in the days ahead, down towards the 102-103s, an area that coincides with a measured move extension target and the 78.6% fib retrace off the 2016 low to high move.

  • R2 108.90 – 12Feb high – Strong
  • R1 107.00 – Figure – Medium
  • S1 105.56 – 16Feb low – Strong
  • S2 105.00 – Psychological – Medium

USDJPY – fundamental overview

The combination of renewed demand for the US Dollar and recent warnings out of Japan that the government is closely watching FX developments, have been contributing to this latest bounce in the major pair. But overall, the Yen has been well bid in early 2018, with the Dollar taking a big hit from US administration soft Dollar policy and risk for a capitulation in global equities driving additional Yen demand. Though we have seen a risk recovery in recent sessions, there has also been a clear downturn in 2018, which could invite additional Yen demand if the market rolls over again. Stops were taken out below the 107.30 area 2017 low last week, with the market dropping to a fresh multi-month low into the 105s thus far.

EURCHF – technical overview

Despite this latest round of setbacks, overall, the market continues to trend higher, recently extending gains to a fresh multi-month high. The bullish price action has the market thinking about a retest of that major barrier at 1.2000 further up. In the interim, look for the current round setbacks to be very well supported, while only back below 1.1260 would delay the overall constructive tone.

  • R2 1.1834 – 15Jan/2018 high – Strong
  • R1 1.1640 – 5Feb high – Medium
  • S1 1.1450 – 8Feb low – Medium
  • S2 1.1390 – 2Oct low – Strong

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. Recent outperformance in the Swiss Franc despite flows which should have otherwise been supportive of a higher EURCHF, could already be offering up a red flag.

AUDUSD – technical overview

The market has been in the process of rolling over after failing to sustain a break above the 2017 high. The recent daily close back below 0.8000 strengthens this outlook and opens the door for a renewed wave of declines back towards 0.7500. At this point, the latest bounce is classified as corrective and only a daily close back above 0.8000 would delay.

  • R2 0.8000 – Psychological – Strong
  • R1 0.7989 – 16Feb high – Medium
  • S1 0.7893 – 15Feb low – Medium
  • S2 0.7877 – 13Feb high – Strong

AUDUSD – fundamental overview

Earlier today, the RBA Minutes came out and produced a mostly mixed message, in line with what was to be expected from the central bank. The RBA was upbeat on growth but balanced this out with concerns about inflation and wages. Overall, the Australian Dollar has managed to hold up on dips in recent months, with the supportive price action more a function of broad based US Dollar weakness than anything else. But this could soon come to an end. Risk sentiment is showing signs of deteriorating in 2018, while softer Aussie data has left room for the RBA to take a more cautious approach as reflected in its February decision. Soft US Dollar policy has been a drag but signs of rising inflation in the US could soon more than offset, especially if global risk sentiment deteriorates. Looking ahead, the economic calendar is super thin and the market will be focused on broader macro flow.

USDCAD – technical overview

Despite a recent round of setbacks, there are signs of basing in this pair. 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 above 1.2250.

  • R2 1.2689– 9Feb high – Strong
  • R1 1.2600 – Figure – Medium
  • S1 1.2451 – 16Feb low – Medium
  • S2 1.2398 – 5Feb low – Strong

USDCAD – fundamental overview

Overall, Canada’s recovery is already somewhat fragile, and this coupled with an unstable macro picture and plenty of uncertainty around the fate of NAFTA, should be keeping the Canadian Dollar pressured, especially after the Bank of Canada opted to go ahead with another rate hike last month, which will only add to the strain if the global sentiment picture deteriorates even further. Looking ahead, trading conditions will return to form as Canada and the US return from holidays, though the calendar is exceptionally thin, with only Canada wholesale sales due.

NZDUSD – technical overview

An impressive run is showing signs of struggling into formidable internal resistance. Overall, despite the latest bounce, the risk is tilted to the downside and it will take a clear establishment back above 0.7500 to delay the bearish outlook and risk for another reversal. A daily close below 0.7364 will strengthen the case for the bearish outlook.

  • R2 0.7500 – Psychological – Strong
  • R1 0.7438 – 16Feb/2018 high – Strong
  • S1 0.7354 – 19Feb low – Strong
  • S2 0.7300 – Figure – Medium

NZDUSD – fundamental overview

The New Zealand Dollar has been bid up in recent weeks, on the back of broad based US Dollar declines. However, earlier this month, the RBNZ took on a more dovish outlook and this coupled with signs of rising inflation in the US and the possibility for equity market capitulation, could easily offset any of the recent demand, ushering in a wave of Kiwi underperformance. Looking ahead, the calendar is exceptionally thin and the New Zealand GDT auction will be the main focus.

US SPX 500 – technical overview

A severely overbought market has finally at long last relented, allowing for stretched readings to unwind. There’s plenty of room for these setbacks to extend following the break back below the 2675 area January low, with the market at risk for a further intensification of declines. Any rallies should now be very well capped ahead of 2800.

  • R2 2882 – 29Jan/Record high – Strong
  • R1 2765 – 5Feb high – Strong
  • S1 2624 – 12Feb low – Medium
  • S2 2534 – 6Feb low – Strong

US SPX 500 – fundamental overview

Investor immunity to downside risk is not looking as strong these days and there’s a clear tension out there as the VIX starts to rise from 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. Certainly, the more hawkish tone from the latest otherwise uneventful Fed meeting and subsequent jump in hourly earnings and CPI, are the types of things that could weigh more heavily on sentiment in the sessions ahead.

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 the current run to break through and establish above massive resistance in the form of the 2016 high at 1375, with the push to suggest a major bottom has formed, opening the door for a much larger recovery in the months ahead. Any setbacks should now be well supported ahead of 1300.

  • R2 1375 – 2016 high – Very Strong
  • R1 1367 – 25Jan high – Medium
  • S1 1306 – 4Jan low – Strong
  • S2 1294 – 29Dec low  – Medium

GOLD (SPOT) – fundamental overview

Solid demand from medium and longer-term players persists, 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 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. The 2016 high at 1375 is a massive level that if broken and closed above, could be something that triggers a widespread panic and rush to accumulate more of the hard asset.

Feature – technical overview

Bitcoin has come under intense pressure since topping out at a record high just shy of 20,000 in December. The market has now exceeded a measured move downside objective that had targeted a drop to $7,000, with deeper setbacks now on the cards for a move to retest the September 2017 peak around $5,000. At this point, it will take a daily close back above $13,000 at a minimum, to take the pressure off the downside.

  • R2 13,000 – 20Jan high – Strong
  • R1 12,000 – Figure – Medium
  • S1 9,000 – Figure – Strong
  • S2 6,000 – 6Feb/2018 low – Strong

Feature – fundamental overview

The crypto asset has come under pressure in 2018, with ramped up regulatory oversight and potential government crackdowns forcing many holders to exit positions. The market has also been on a euphoric ride, with the run gaining too much momentum as latecomers looked to get in on the action, often a sign of a bubbling asset. Bitcoin has struggled on the transaction side as well, with transactions per second a major drawback, along with a mining community that has been less willing to process transactions due to the lower fees. The Lightning network is expected to ramp up transaction speed, which could be a big help to Bitcoin, though it seems the combination of a massive bubble, more regulatory oversight and a market that is still trying to convince of its proof of concept, could all suggest even deeper setbacks ahead. We have seen some demand out from the 2018 low, but at this point, it would be premature to chalk it up to anything more than a corrective bounce.

Peformance chart: Five day performance v. US dollar

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