Where We’re at in this US Dollar Rally

GBPUSD – technical overview

Extended studies have opened the door for a much needed corrective decline. Still, overall, the structure remains highly constructive on a medium to longer term basis and a higher low is sought out ahead of 1.3300 in favour of a bullish continuation. Only back below 1.3000 however would compromise the medium to longer term constructive outlook.

• R2 1.3667 – 2May high – Strong
• R1 1.3608 – 9May high – Medium
• S1 1.3485 – 8May low – Medium
• S2 1.3459 – 11Jan/2018 low – Strong

GBPUSD – fundamental overview

Overall, the Pound has been cooling off from a run of outperformance in 2018, with the currency taking some big hits on the back of less hawkish Carney speak, a softer run of UK data, and renewed tension surrounding UK politics and the Brexit overhang. This has resulted in a dramatic repricing of BOE rate hike odds at tomorrow’s meeting, dropping from a near certain +90% chance for a rate rise in mid April to the 12%. Of course, the US Dollar has also been a monster in recent weeks, with the market focusing back on the favourable US Dollar yield differentials. Last week’s Fed decision has encouraged more Dollar demand after the Fed acknowledged inflation was no longer running below target. Meanwhile, the US decision to pull out of the Iran deal and and Fed Powell dismissing the impact of policy normalization on financial markets have inspired more Dollar demand. Looking ahead, it is going to be a busy day for the Pound. Initially we get UK industrial production and trade, before the market takes in the highly anticipated BOE decision. This is followed by an important US CPI release.

GBPUSD – Technical charts in detail

USDJPY – technical overview

The major pair has been attempting to bottom out after trading down to a 2018 low in the 104s. Still, the medium term trend continues to point lower after the latest rally effort stalled out into the weekly Ichimoku cloud bottom, keeping the market capped into the 110.00 area. Look for a break back below 108.00 to reinforce the bearish case.

• R2 110.49 – 2Feb high – Strong
• R1 110.04 – 2May high – Medium
• S1 108.65 – 4May low – Medium
• S2 107.91 – 21Feb low – Strong

USDJPY – fundamental overview

The Yen has come under pressure in recent weeks (USDJPY higher), with the currency falling victim to broad based US Dollar demand as the focus shifts to yield differentials. Last Wednesday’s tweak in the Fed statement acknowledging inflation no longer below target has backed up this view. However, the major pair is still very much correlated to risk sentiment and the negative risk implications of policy normalization, trade wars, and any renewed signs of tension on the geopolitical front after the US pulled out of the Iran deal, could inspire a sudden move back into the Yen (USDJPY lower). Looking at the calendar, US CPI will be important to keep and eye on.

USDJPY – Technical charts in detail

EURCHF – technical overview

The market has entered an overdue corrective phase after trading back above 1.2000 for the first time since January 2015. Technical studies were highly extended when the market crossed through the barrier and this has led to a necessary corrective decline to allow for the extended readings to unwind. Ultimately, the next meaningful higher low is now sought out into this dip, ideally above 1.1600.

• R2 1.2006 – 20Apr/2018 high – Strong
• R1 1.1961 – 8May high – Medium
• S1 1.1877 – 8May low – Medium
• S2 1.1842 – 12Apr 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. 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 in 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.

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 setbacks extending below the 0.7500 barrier and exposing a possible retest of the 2017 low at 0.7330 further down. Back above 0.7700 would now be required to take the immediate pressure off the downside.

• R2 0.7561 – 4May high – Strong
• R1 0.7500 – Psychological – Medium
• S1 0.7413 –9May/2018 low – Medium
• S2 0.7330– 9May/2017 low – Strong

AUDUSD – fundamental overview

The Australian Dollar remains under pressure into the mid-week, extending its run of 2018 declines. Last week’s hawkish acknowledgment in the Fed statement that inflation was no longer trending below target already send Aussie much lower, while the news of the US pulling out of the Iran deal and Fed Powell dismissing the impact of policy normalization on financial markets have opened a more intensified decline. Looking ahead, the focus will be on US CPI and broader risk sentiment.

USDCAD – technical overview

Overall, there are signs of basing after months of downside pressure. Look for any setbacks to now be well supported ahead of 1.2500, in favour of the next major upside extension through 1.3125 and towards 1.3500 further up. Ultimately, a break back below 1.2500 would be required to negate the medium term constructive outlook.

• R2 1.3125– 19Mar/2018 high – Strong
• R1 1.3000 – Psychological – Medium
• S1 1.2823 – 9May low – Medium
• S2 1.2804 – 2May low – Strong

USDCAD – fundamental overview

A nice recovery in the Canadian Dollar on Wednesday, with the Loonie outperforming. The relative strength came from the news of the US pulling out of the Iran deal, with OIL prices surging as a consequence. Overall however, the US Dollar recovery will be tough to fight against, especially with the Fed hawkishly tweaking its statement to acknowledge inflation no longer running below target. Moreover, with NAFTA risk still very much alive given White House unpredictability, there continues to be downside risk attached to the Canadian Dollar’s fate. Looking ahead, the market will be focused on US CPI and any broader risk sentiment. Second tier Canada housing data is unlikely to factor.

NZDUSD – technical overview

Setbacks have intensified in recent days, leaving daily studies oversold and at risk for a corrective bounce. But any rallies are now expected to be very well capped ahead of 0.7200, with only a break back above the psychological barrier to negate the bearish outlook. The market decline has now extended below the critical psychological barrier at 0.7000, resulting in fresh 2018 lows as well, with the next key level of support coming in down at the 2017 low in the 0.6700s.

• R2 0.7054 – 4May high high – Strong
• R1 0.7000 – Psychological – Medium
• S1 0.6910 – 9May/2018 low – Strong
• S2 0.6781 – 17Nov/2017 low – Medium

NZDUSD – fundamental overview

The New Zealand Dollar has taken an added hit on Thursday and has been a clear underperformer. The catalyst for the latest slide has come from the RBNZ decision, with the central bank leaving policy on hold as expected, but also catching the market a little off guard, with a more dovish tone. The attention getter was the pushing back of its forecast for the next OCR hike, with the central bank also tweaking its statement language to show rates would “remain at 1.75% for some time to come.” Overall, the combination broad based US Dollar demand, worry about a possible capitulation in risk assets and less than stellar economic data out of New Zealand in recent weeks have weighed heavily on the Kiwi rate. Last week’s hawkish tweak in the Fed statement acknowledging inflation no longer running below target, has only further encouraged USD upside. Looking ahead, the focus will be on US CPI and broader risk sentiment.

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 2718 – 18Apr high – Medium
• S1 2553 – 2Apr 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 combination of Fed policy normalisation, ramped up US protectionism, and geopolitical tension have been capping the market into rallies, with any renewed setbacks at risk of intensifying on the prospect for the reemergence of inflationary pressure. Overall, we expect the bigger picture theme of policy normalisation to continue to weigh on investor sentiment into rallies. This latest Fed decision emboldens our view, with the central bank acknowledging inflation no longer running below target, something that makes equity market valuations far less attractive at current levels. We also recommend keeping a much closer eye on the equities to ten year yield comparative going forward as this could be something that inspires a more aggressive decline.

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 1302 – 1May low – Medium
• S2 1300 – Psychological  – 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

A recent break back above short term resistance at 9,200 has strengthened the recovery outlook, with scope for a correction further up towards 10,000. Still, the overall pressure remains on the downside and it is going to take a recovery back above 12,000 to suggest otherwise.

• R2 12,000 – Feb/Mar highs – Strong
• R1 9,980 – 5May high – Medium
• S1 8,640 – 26Apr low – Medium
• S2 7,820 – 17Apr 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 once the current correction fades away.

BTCUSD – Technical charts in detail

ETHUSD – technical overview

Signs of recovery, with the market rallying out from the 2018 low and trading back above the daily Ichimoku cloud for the first time since February. This opens the door for additional upside in the days ahead, with the next major obstacle coming in around 980. Setbacks should be well supported ahead of 600, with only a break back below to negate the constructive outlook.

• R2 895 – 27Feb high – Medium
• R1 800 – Figure – Strong
• S1 575 – 21Apr low– Medium
• S2 537 – 16Apr high  – Strong

ETHUSD – fundamental overview

The market has been watching the price of Ether with added interest as reports swirl of US deliberations regarding its status and designation. Overall, despite a recent recovery, the cryptocurrency remains under pressure in 2018 and setbacks have been more intense than those of Bitcoin. 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.