Next 24 hours: Dollar Boosted on Early Quarter-End Flow
Today’s report: Into Tuesday with Risk On, Dollar Off
Risk markets have managed to recover nicely into the new week, with trade tension easing on the back of some toned down rhetoric. On the currency front, with the exception of the Yen, which has fallen off on the risk rally, the Dollar has been under pressure across the board.
Wake-up call
Chart talk: Major markets technical overview video
- Eurozone confidence
- May odds
- North Korea
- SNB policy
- Aussie struggles
- NAFTA
- Adrian Orr
- Investor optimism
- Metal demand
- Crypto headwinds
- Ethereum exposed
Peformance chart: Five day performance v. US dollar
Suggested reading
- Donald Trump, Man of Steel, R. Armstrong, Financial Times (March 26, 2018)
- The Bear Market in Bonds is Just Getting Started, S. Dorf, Bloomberg (March 26, 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, with setbacks exceptionally well supported into dips. Look for this latest break back above 1.2400 to open a continuation of the trend, back through the 2018 high and towards the next major level of resistance in the form of falling trendline resistance off the record high from 2018, which comes in just over 1.2600. Only back below 1.2155 will negate and take the pressure off the topside.
EURUSD – fundamental overview
Yesterday’s hawkish comments from ECB Weidmann have helped to drive this latest surge in the Euro after the central banker said expectations for a mid-2019 rate hike were not unrealistic. Adding to the Euro demand was the well received news of the EU joining in efforts to expel Russian diplomats. Still, global trade has become the biggest driver of financial markets right now, with monetary policy updates mostly taking a backseat. Looking at today’s calendar, we get German import prices, Eurozone confidence and sentiment readings, US Case Shiller, the Richmond fed manufacturing index, US consumer confidence and some scattered central bank speak from various ECB and Fed officials.
GBPUSD – technical overview
Setbacks have been very well supported in 2018, with the market confined to a well defined uptrend, already looking to extend the run. A break above the 2018 high at 1.4346 will confirm the next meaningful higher low at 1.3712, opening a measured move upside extension to the 1.5000 area. In the interim, any setbacks are expected to be very well supported, with only a drop back below 1.3712 to take the pressure off the topside.
GBPUSD – fundamental overview
Last Friday’s hawkish comments from BOE Vlieghe continue to support the Pound, while Monday’s wave of broad based US Dollar weakness has also been a factor. There have been some desks talking about Pound demand on the story that the pro-Brexit campaign may have violated spending laws which could open another referendum, though it would be premature to give this too much attention. For the most part, Brexit updates have been in the background, with global trade headlines commanding most of the attention. As far as today goes, absence of first tier data in the UK will put the attention on US Case Shiller, the Richmond fed manufacturing index, US consumer confidence and some Fed speak.
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 had given the major pair a big boost to kick off the week, and we have since seen more optimism in risk markets on the news of North Korea’s visit to China. 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. PM Abe’s slumping approval rating on the land sale scandal has not been any help to local sentiment, yet another story capable of inspiring renewed Yen demand. Looking ahead, we get US Case Shiller, the Richmond fed manufacturing index, US consumer confidence and some Fed speak.
EURCHF – technical overview
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 1.1652 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 a more intensified liquidation on that front into Q2 2018, 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.
AUDUSD – technical overview
The market has been in the process of rolling over after failing to sustain a break above 0.8100 earlier this year. This has set up a sequence of lower tops and lower lows on the daily chart, with deeper setbacks seen towards the 0.7500 barrier over the coming sessions. A break back above 0.7917 would be required to negate the structure and force a shift in the outlook.
AUDUSD – fundamental overview
While the Australian Dollar has found some demand from Monday’s broad USD selling and recovery in risk sentiment, rallies continue to find solid offers. Overall, the currency faces resistance from an escalation in global trade tension and White House drama. Ultimately, any signs of continued capitulation in risk assets, will be what drives this market, with the Australian Dollar at risk for additional declines. Looking ahead, we get US Case Shiller, the Richmond fed manufacturing index, US consumer confidence and some Fed speak.
USDCAD – technical overview
There are signs of basing after months of downside pressure, with the market recently pushing back above critical psychological resistance at 1.3000. Look for any setbacks to now be well supported ahead of 1.2500, with a higher low sought out in favour of the next major upside extension through 1.3125 and towards 1.3500 further up.
USDCAD – fundamental overview
The Canadian Dollar was already able to benefit from last Friday’s hotter Canada inflation readings and has now found additional demand into Tuesday on the back of Treasury Secretary Mnuchin’s comments about a possible US-China trade deal, optimism surrounding North Korea’s visit to China and renewed concerns about the US trade deficit after President Trump signed this latest $1.3 billion spending bill into law. Still, NAFTA risk remains a major concern for the Loonie, while there is plenty of instability on the global front that could easily invite renewed downside pressure on risk sentiment at any moment, which would hurt the Canadian Dollar. As far as today’s calendar goes, absence of first tier data out of Canada will leave the focus on US Case Shiller, the Richmond fed manufacturing index, US consumer confidence and some Fed speak.
NZDUSD – technical overview
The market looks to be in the process of topping out, with the daily chart slowly rolling over in 2018. Rallies are now expected to be very well capped below 0.7400, with only a break back above the figure to negate. Look for deeper setbacks in the sessions ahead, with a break back below 0.7154 to strengthen the outlook and accelerate declines towards 0.7000.
NZDUSD – fundamental overview
Adrian Orr has officially stepped in as RBNZ Governor today and the central banker will be faced with the updated dual mandate of inflation targeting and maximum sustainable employment. Overall, the Kiwi rate is holding up well, getting help from a resurgence in risk appetite. Treasury Secretary Mnuchin’s comments about a possible US-China trade deal and North Korea’s visit to China have been driving things on this front, while Kiwi is getting an added boost on this latest wave of broad based US Dollar selling. Renewed concerns about the US trade deficit after President Trump signed this latest $1.3 billion spending bill into law have been a knock on the Buck. Dealers do however cite solid offers in the 0.7350-0.7400 area. Looking ahead, we get US Case Shiller, the Richmond fed manufacturing index, US consumer confidence and some Fed speak.
US SPX 500 – technical overview
A severely overbought market is finally showing signs of rolling over off the January record high, allowing for stretched monthly readings to unwind. Any rallies should now be very well capped ahead of 2800 in favour of continued weakness towards the 2015 high at 2138.
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 the new week, though there is chatter of decent sell interest now building into rallies.
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.
BTCUSD – 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.
BTCUSD – 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.
ETHUSD – technical overview
Ether continues to extend declines since topping out at a record high back in January, with setbacks extending below 500. Short term resistance comes in at 590 and a break back above this level will be required at a minimum to take the immediate pressure off the downside. Until then, the market will consider another extension, with a daily close below 450 to expose a measured move decline into 300.
ETHUSD – fundamental overview
Setbacks in the price of ETH have been more intense than those of Bitcoin in 2018. Though both markets are going through a period of shakeup following bubble activity in 2017, there has been a bigger exodus from ETH with this cryptocurrency more heavily correlated to risk in global markets. The reduction in global risk appetite has put a strain on the investment in projects on the blockchain and with most of the blockchain projects built on the Ethereum protocol, it makes sense to see this market more negatively impacted than bitcoin, which is considered to be the store of value digital currency.