Next 24 hours: No Love for the Dollar
Today’s report: Global Trade Updates Driving Market Direction
The economic calendar is quite light this week and Monday is no exception, with the highlights coming in the form of scattered central bank speak. This will leave most of the focus on headlines out of the global trade scene where tensions have been heating up.
Wake-up call
Chart talk: Major markets technical overview video
- ECB speak
- BOE Vlieghe
- risk appetite
- SNB decision
- US-China deal
- Canada inflation
- RBNZ mandate
- Mnuchin comments
- Metal demand
- BITCOINÂ
Suggested reading
- How the Fed Will Trigger the Next Crash, L. Norton, Barron’s (March 22, 2018)
- As Long As There Are Humans, There Will be Jobs, N. Smith, Bloomberg (March 23, 2018)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The major pair has stalled out after trading up to a +3 year high above 1.2500. Daily studies have been in the process of consolidating off stretched readings, though setbacks continue to be exceptionally well supported into dips. A daily close back above 1.2400 will suggest the market wants to extend the run up through the 2018 high and towards a massive falling trend-line off the record high, which comes in around 1.2650. But if the market can’t hold above 1.2400 and rolls back over, look out for a drop below 1.2155 to accelerate setbacks towards an initial retest of the 2018 low around 1.1915.EURUSD – fundamental overview
Absence of first tier data on today’s calendar will leave the single currency trading on broader market themes and central bank speak. Global trade has become the biggest driver of financial markets right now, with monetary policy updates taking a backseat. Today in Europe, we get speeches from ECB’s Weidmann and Nuoy, along with France’s Q4 final GDP read. In the US, the Chicago Fed national activity index, Dallas Fed manufacturing and speeches from Fed’s Dudley, Quarles and Mester are the only notable standouts.GBPUSD – technical overview
The market has entered a consolidative 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 1.3600 area, though setbacks should then be very well supported in favour of that next meaningful higher low and bullish continuation.GBPUSD – fundamental overview
Friday’s comments from BOE Vlieghe have propped up the Pound some more, with the generally more dovish central banker out talking the possibility for 1-2 rate hikes from the Bank of England this year. Other than that, all has been relatively quiet as the week kicks off, with Brexit updates in the background and global trade headlines commanding most of the attention. As far as today goes, absence of UK releases leaves the focus on the US calendar, which features the Chicago Fed national activity index, Dallas Fed manufacturing and speeches from Fed’s Dudley, Quarles and Mester.USDJPY – technical overview
A multi-month range trade was broken in February after the market sunk below 107.30. This has opened the door for deeper setbacks in the days ahead, possibly down towards a measured move extension target of 100.00 after the market had consolidated for much of 2017 between 107.00 and 114.00. At this point, a daily close back above 107.91 would be required at a minimum to take the immediate pressure off the downside.USDJPY – fundamental overview
US Treasury Secretary Mnuchin’s talk of a US-China trade deal that would negate the need for US imposed tariffs has been helping to prop sentiment into Monday, with the major pair rallying back up as a result and recovering from a fresh 2018 low. Overall however, it is still too early to get overly optimistic and the US agenda warns of additional strain on the global trade front that should ultimately continue to weigh on risk appetite. Meanwhile, PM Abe’s slumping approval rating on this land sale scandal has not been any help to local sentiment, with Japanese equities taking an additional hit on this story, resulting in downside pressure on the USDJPY rate. Looking ahead, we get the Chicago Fed national activity index, Dallas Fed manufacturing and speeches from Fed’s Dudley, Quarles and Mester.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 1.1448 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
The market has been in the process of rolling over after failing to sustain a break above the 2017 high. The recent daily close below 0.8000 strengthens this outlook and opens the door for a renewed wave of declines towards 0.7500. At this point, only a daily close back above 0.8000 would delay.AUDUSD – fundamental overview
Overall, the Australian Dollar has been very well offered into rallies, with the currency weighed back down on an escalation in global trade tension and White House drama. US protectionism, tariffs and soft Dollar policy are additional variables in the equation and ultimately, any signs of continued capitulation in risk assets, will be what drives this market, with the Australian Dollar at risk for additional declines. There has been some relief for the Australian Dollar into Monday, with Treasury Secretary Mnuchin’s optimistic comments about a trade deal with China and renewed concern over the US deficits propping Aussie off recent lows. Looking ahead, we get the Chicago Fed national activity index, Dallas Fed manufacturing and speeches from Fed’s Dudley, Quarles and Mester.USDCAD – technical overview
There are signs of basing after months of downside pressure, with the market racing back above critical resistance at 1.2921. A fresh higher low has been confirmed, with the market extending its 2018 run and now open for a push into a measured move extension objective around 1.3200. At this point, setbacks should be well supported above 1.2800.USDCAD – fundamental overview
The Canadian Dollar was already able to benefit from Friday’s hotter Canada inflation readings and has now found additional demand into Monday on the back of Treasury Secretary Mnuchin’s comments about a possible US-China trade deal and on renewed concerns about the US trade deficit after President Trump signed this latest $1.3 billion spending bill into law. Looking ahead, absence of Canada data will leave the focus on the US calendar which features the Chicago Fed national activity index, Dallas Fed manufacturing and speeches from Fed’s Dudley, Quarles and Mester.NZDUSD – technical overview
The market looks to be in the process of rolling over, with the daily chart showing a possible topping formation. Right now, it will take a clear break above 0.7400 to take the pressure off the downside. Until then, there is risk for continued weakness back towards 0.6900, with a break below 0.7154 to trigger the bearish formation and strengthen the outlook.NZDUSD – fundamental overview
Not much reaction to a mixed Monday New Zealand trade data showing or to this latest announcement of the new RBNZ PTA which sets in place what had been an anticipated dual mandate of inflation targeting and maximum sustainable employment. But into Monday, the Kiwi rate is holding up well, getting help from Treasury Secretary Mnuchin’s comments about a possible US-China trade deal and getting help from renewed concerns about the US trade deficit after President Trump signed this latest $1.3 billion spending bill into law. Dealers do however cite solid offers in the 0.7350-0.7400 area. Looking ahead, we get the Chicago Fed national activity index, Dallas Fed manufacturing and speeches from Fed’s Dudley, Quarles and Mester.US SPX 500 – technical overview
A severely overbought market is finally showing signs of relenting, 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.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 combination of Fed policy normalisation and White House drama featuring a revolving door of personnel and ramped up US protectionism, have been driving the market lower. Setbacks are now at risk of intensifying on the prospect of added rate hikes and trade wars. Treasury Secretary Mnuchin’s weekend comments about a possible trade deal with China have helped to calm the market a little into Monday.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 some more chop followed by an eventual push above massive resistance in the form of the 2016 high at 1375. This will then open the door for a much larger recovery in the months ahead. In the interim, setbacks are expected to be well supported around 1300.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 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 recent highs at $12,000, which also coincide with the top of the Ichimoku cloud, to take the pressure off the downside.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 is also coming back to earth after a euphoric 2017 run that had bubble written all over. 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 has been a welcome development and is helping to ramp up transaction speed, which has been behind some of the recovery off the 2018 low, though it seems the combination of a massive bubble, more regulatory oversight, a market that is still trying to convince of its proof of concept, and the threat of a reduction in global risk appetite, could all result in even deeper setbacks ahead.