Q1 Reflections: US Dollar, Stocks, Bitcoin

GBPUSD – technical overview

Setbacks have been very well supported in 2018, with the market confined to a well defined uptrend. 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. However, the major pair may not be ready to extend the run just yet in 2018, with a bearish reversal ahead of the high opening the door for another round of setbacks, possibly towards some rising bull channel trendline support in the 1.3600s.

• R2 1.4245– 27Mar high – Strong
• R1 1.4201 – 28Mar high – Medium
• S1 1.4000 – Psychological – Medium
• S2 1.3983 – 20Mar low – Strong

GBPUSD – fundamental overview

The market had sold the Pound this week, with profit taking kicking in after the Cable rate stalled out ahead of the January, post EU referendum high. US Dollar demand into quarter end and worry that the market may have gotten a little ahead of itself with its Sterling bullishness are the driving forces behind the pullback. While there has been optimism around the Brexit transition, including chatter of progress on the Irish border, a BOE May hike is still not guaranteed, inflation has cooled off a bit and the world post Brexit is still very much up in the air. There is no first tier data scheduled on this Good Friday and the market will be trading much thinner through next Tuesday.

GBPUSD – Technical charts in detail

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.

• R2 107.30 – 13Mar high – Strong
• R1 107.02 – 28Mar high – Medium
• S1 105.91 – 27Mar high – Medium
• S2 105.33 – 27Mar low – Strong

USDJPY – fundamental overview

The Yen has managed to come under some pressure this week, after squeaking out a fresh yearly high early on (USDJPY low). Defused geopolitical tension and optimism surrounding US trade progress has inspired some of the profit taking on Yen longs, while month-end, quarter-end flow has been supportive of the US Dollar. But overall, there is still a lot up in the air right now. Ramped up monetary policy normalisations at the major central banks, leave risk assets exposed, something that for the time being, will inspire additional demand for the Japanese funding currency. Meanwhile, the Abe scandal only contributed to the Yen demand given the traditional correlation with risk. Dealers have been reporting decent USDJPY selling, with no meaningful buy-stops seen until back above 108.00. Looking ahead, market conditions will be thin through Monday end on account of the Easter weekend.

USDJPY – Technical charts in detail

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.

• R2 1.1834 – 15Jan/2018 high – Strong
• R1 1.1805 – 28Mar high – Medium
• S1 1.1652 – 22Mar low – Strong
• S2 1.1448 – 8Feb/2018 low – Strong

EURCHF – fundamental overview

The SNB will need to be careful right now, as its strategy to weaken the Franc faces 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 local currency.  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 challenging period.

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.

• R2 0.7886 – 15Mar high – Strong
• R1 0.7786 – 22Mar high – Medium
• S1 0.7644 – 29Mar low – Medium
• S2 0.7628 – 14Dec low – Strong

AUDUSD – fundamental overview

Overall, the currency faces resistance from sliding base metals, quarter end US Dollar demand and a deterioration in global sentiment. Interestingly, optimism around possible China trade deals with the US and North Korea’s willingness to sit down and talk have had very little positive impact this week. Looking ahead, the market will continue to trade on thin ground in the absence of many market participants out for the long Easter weekend.

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.

• R2 1.3002– 7Mar high – Strong
• R1 1.2949 – 22Mar high – Medium
• S1 1.2816 – 27Mar low – Medium
• S2 1.2804 – 12Mar low – Strong

USDCAD – fundamental overview

The Canadian Dollar has done a good job holding up this week, in the face of broad US Dollar demand into month-end, quarter-end. Still, the Loonie’s recovery follows a period of underperformance. This week’s economic data was mixed, highlighted by a softer headline GDP print out of Canada, offset by an upward revision. At the same time, US data was supportive of the US Dollar, as growth impressed and core PCE nudged up. While there has been some optimism on the trade front, which has contributed to the Canadian Dollar’s recovery, the fate of NAFTA lingers into the second quarter, while deteriorating global sentiment, on the back of central bank policy normalisations and this added strain of US protectionism, should continue to invite Canadian Dollar selling. For now, trading conditions will be exceptionally thin through next Tuesday, on account of the Easter weekend.

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.

• R2 0.7355 – 13Mar high – Strong
• R1 0.7304 – 27Mar high – Medium
• S1 0.7189 – 29Mar low – Medium
• S2 0.7154 – 21Mar low – Strong

NZDUSD – fundamental overview

Adrian Orr stepped in as RBNZ Governor this week and the central banker will now be faced with the updated dual mandate of inflation targeting and maximum sustainable employment. The New Zealand Dollar has come under pressure this week on quarter end demand for the US Dollar, while a deterioration in global risk sentiment is also starting to weigh on the correlated commodity currency. Local data has also not been Kiwi supportive over the past couple of weeks, highlighted by a discouraging GDP print and third consecutive negative reading at the GDT auction. Looking ahead, the market will continue to trade on thin ground in the absence of many market participants out for the long Easter weekend.

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.

• R2 2743 – 21Mar high – Strong
• R1 2680 – 27Mar high – Medium
• S1 2586 – 23Mar low – Medium
• S2 2533 – 6Feb/2018 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 reversal of monetary policy is the central theme driving this downturn in sentiment, with geopolitical risk and the threat of global trade wars nothing more than one of many stories that will be used to reconcile weakness in a market doing what it is already fated to do, as policy normalisations ramp up in 2018 after a near decade of unprecedented accommodation to artificially prop the global economy. Listen in to our latest special report.

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.

• R2 1375 – 2016 high – Very Strong
• R1 1366 – 25Jan/2018 high – Medium
• S1 1321 – 29Mar low – Strong
• S2 1303 – 2Mar low  – Strong

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.

• R2 12,000 – Ichimoku Top – Strong
• R1 9,200 – 21Mar high – Medium
• S1 7,000 – Round Number – Medium
• S2 6,000 – 6Feb/2018 low  – Strong

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.

BTCUSD – Technical charts in detail

ETHUSD – technical overview

Ether continues to extend declines since topping out at a record high back in January, with setbacks extending to fresh 2018 lows below 400. Key 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 the recent daily close below 450 exposing a measured move decline targeting 310.

• R2 590 – 21Mar high – Strong
• R1 496 – 27Mar high – Medium
• S1 394 – 29Mar/2018 low – Strong
• S2 310 – Measured Move  – Strong

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 global sentiment. The reduction in 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.