FX Market Reaches Inflection Point

GBPUSD – technical overview

The breakdown has extended into the 1.2600s, which roughly coincides with a massive previous resistance zone from back in 2016 off the +30 year low. Technical studies are highly extended and warn of an imminent reversal, with any additional weakness expected to be well supported above 1.2500. Look for a break and close back above 1.3010 to strengthen the case for a meaningful low and start to a much bigger recovery back towards the 2018 high up in the 1.4300s.

• R2 1.2828 – 14Aug high – Strong
• R1 1.2800 – Figure – Medium
• S1 1.2700 – Figure – Medium
• S2 1.2662 – 15Aug/2018 low  – Strong

GBPUSD – fundamental overview

The Pound has struggled mightily with Brexit risk over the past few months and this coupled with broad based US Dollar demand, has resulted in a massive decline in the UK currency since topping out at a post EU referendum high in April. But on the brighter side, the Pound was relatively flat against the Buck in the previous week, recovering Thursday and Friday from a fresh 2018 low. A lot of this recovery was helped along by broad based profit taking on USD longs and a solid week of economic data in the UK. Looking at Monday’s calendar, things are very light, with no first tier data in the UK and only a Fed Bostic speech standing out in the US. Brexit headlines will be important to watch.

GBPUSD – Technical charts in detail

USDJPY – technical overview

Rallies continue to be very well capped, with the medium-term outlook still favouring lower tops and lower lows. Look for a daily close back below 110.00 to strengthen the bearish outlook, opening the door for the start to a move back down towards 108.00 which guards against the 104.60 area 2018 low.

• R2 112.16 – 1Aug high  – Strong
• R1 111.44 – 15Aug high – Medium
• S1 110.12 – 13Aug low – Medium
• S2 109.37 – 25Jun low – Strong

USDJPY – fundamental overview

Overall, the Yen hasn’t really been moving on domestic fundamentals and has instead been consumed with traditional drivers of global sentiment and positioning in the US Dollar. The US Dollar has been strong on a broad basis in recent months, though signs of profit taking across the board after the Buck ran to 2018 highs against many of the major currencies and a less certain global outlook with plenty of uncertainty around trade wars and policy normalisations, could make for a pickup in Yen demand on Dollar selling and risk reduction, with USDJPY setbacks capable of intensifying. Looking at Monday’s calendar, there is no first tier data due, with only a Fed Bostic speech standing out.

EURCHF – technical overview

The latest breakdown to a fresh 2018 low puts the pressure back on the downside and now exposes deeper setbacks towards next key support which comes in the form of the 2016 high at 1.1200. Daily studies are starting to look stretched however, which could warn of a bigger bounce in the sessions ahead.

• R2 1.1462– 10Aug high – Strong
• R1 1.1400 – Figure – Medium
• S1 1.1245 – 15Aug/2018 low – Medium
• S2 1.1200– 2016 High – Strong

EURCHF – fundamental overview

The SNB hasn’t been too pleased with the recent appreciation in the Franc and made a point of letting the market know last week, through the words of Fritz Zurbruegg. The central banker made it a point to remind the market that negative interest rate policy and intervention tools were still justified, which helped to put a stop to the Franc’s run against the Euro to a fresh 2018 high (EURCHF low). The SNB will need to be careful right now, as its strategy to weaken the Franc is facing headwinds from a less certain global outlook. Any signs of sustained risk liquidation in the second half of this year, will likely invite a very large wave of demand for the Franc, which will put the SNB in the more challenging position of needing to back up its talk with action it may not have as much luxury to implement at this point in the monetary policy cycle.

AUDUSD – technical overview

A period of multiday consolidation has come to an end, with the market breaking down to fresh 2018 lows and now at risk for deeper setbacks towards the December 2016 low at 0.7160. At this point, it would take a break back above 0.7485 to take the immediate pressure off the downside, with any rallies ahead of the level seen as corrective.

• R2 0.7400 – Figure – Medium
• R1 0.7381– 10Aug high – Medium
• S1 0.7253 – 17Aug low – Medium
• S2 0.7203– 15Aug/2018 low – Strong

AUDUSD – fundamental overview

The Australian Dollar was able to shrug off some disconcerting components in last Thursday’s employment data which showed a net loss of jobs after the market was looking for a healthy increase. The fact that the unemployment rate came in below forecast and at its lowest levels in nearly 6 years helped to mitigate fallout in the aftermath of the data. This, and the news of China’s trade delegation to the US this week, along with broad based profit taking on Dollar longs, have been more than enough to inspire a healthy Aussie recovery. Friday’s comments from RBA Governor Lowe didn’t surprise the market much, after the central bank said he expected rates to remain on hold for a while, while welcoming a lower Aussie rate as a means of helping the economy. Looking ahead, Monday’s calendar is thin, with only a Fed Bostic speech standing out.

USDCAD – technical overview

The market has been trending up in 2018, extending its run of gains and thinking about a push to retest of the 2017 high around 1.3800. The uptrend has however entered a corrective phase, which could still invite a deeper corrective decline before the next upside extension gets underway. Still, look for any weakness to be well supported ahead of 1.2700, with only a break back below this level to negate the constructive outlook.

• R2 1.3192 – 24Jul high – Strong
• R1 1.3175 – 15Aug high – Medium
• S1 1.3040 – 10Aug low – Medium
• S2 1.2963 – 7Jun low – Strong

USDCAD – fundamental overview

Thursday’s above forecast Canada manufacturing sales and reports from ADP of an increase in July Canada employment, was followed up on Friday with a hotter Canada CPI print. This fueled Canadian Dollar demand into the end of the week, with the Loonie also able to benefit from some broad based US Dollar selling. Looking ahead, the calendar is light on Monday, with only speeches from Bank of Canada Wilkins and Fed Bostic standing out.

NZDUSD – technical overview

A period of multi-day consolidation has come to an end, with the market extending its run of 2018 declines, sinking to its lowest levels since February 2016. Daily studies are however in the process of unwinding from oversold readings, which could open a larger correction. Still, it would take a break back above 0.6860 to force a bullish shift in the outlook. .

• R2 0.6767 – 3Aug high – Strong
• R1 0.6689 – Previous 2018 low – Medium
• S1 0.6580 – 17Aug low – Medium
• S2 0.6545 – 15Aug/2018 low – Strong

NZDUSD – fundamental overview

Improved risk sentiment into the end of last week, along with broad based profit taking on US Dollar longs and hotter than expected Kiwi inflation data, all helped to inspire an overdue recovery in the New Zealand Dollar from two and a half year lows against the Buck. Looking ahead, Wednesday’s calendar is lacking in first tier data risk, with only US Michigan confidence readings standing out. Instead, look for Kiwi to take its cues from the bigger picture macro themes. Looking ahead, Monday’s calendar is thin, with only a Fed Bostic speech standing out.

US SPX 500 – technical overview

A market that has been extended on the monthly chart is showing signs of potentially starting to top out, with the possibility for a massive double top formation. Any rallies should now continue to be very well capped around the record high from January, in favour of renewed weakness back below the 2530 area yearly low (double top neckline) and towards a retest of strong longer-term resistance turned support in the form of the 2015 high at 2140.

• R2 2882 – 29Jan/Record high – Strong
• R1 2865 – 7Aug high – Medium
• S1 2790 – 17Jul low – Medium
• S2 2765 – 11Jul low – Strong

US SPX 500 – fundamental overview

Stocks have been bid right back towards the record highs in August, though investor immunity to downside risk is not as strong these days given the shift to policy normalisation. The combination of Fed policy normalisation (four rate hikes now signaled in 2018), US protectionism, geopolitical tension and unnervingly high levels of share buybacks are all warning of capitulation ahead, despite this latest run. The Fed has also finally acknowledged inflation no longer running below target in 2018, something that could very well result in less attractive equity market valuations given the implication on rates. We 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 in this second half of 2018.

GOLD (SPOT) – technical overview

Despite a recent run of of declines, the overall outlook remains constructive, with the market in the process of carving out a longer term base off the 2015 low. Look for any additional weakness to be well supported above 1150 on a daily close basis, in favour of the next major upside extension back towards critical resistance in the form of the 2016 high at 1375. Key resistance comes in at 1235, with a push back above to strengthen the outlook.

• R2 1266 – 9Jul high – Strong
• R1 1236 – 26Jul high – Strong
• S1 1160 – 16Aug/2018 low – Medium
• S2 1150 – Psychological  – Strong

GOLD (SPOT) – fundamental overview

Despite intense setbacks in the yellow metal over the past several days, there continues to be solid demand from medium and longer-term accounts. These players more concerned about exhausted monetary policy, extended global equities, political uncertainty, systemic risk and trade war threats. All of this should 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.

BTCUSD – technical overview

The latest topside failure keeps the downtrend firmly intact and puts the pressure back on the downside, with a fresh lower top sought out around $8,490, to be confirmed on a bearish continuation below the 2018 low. Only a break back above $8,490 would negate and force a bullish structural shift, while back below the yearly low could open a more intensified decline towards $3,000.

• R2 7,145 – 6Aug high – Strong
• R1 6,635 – 15Aug high – Medium
• S1 5,860– 14Aug low –Medium
• S2 5,755 – 24Jun/2018 low  – Strong

BTCUSD – fundamental overview

Bitcoin is doing its best to try and hold up above $6,000 after undergoing a massive decline in 2018. At the moment, the market is trying to find some stability, while also looking for additional clarity on the regulatory front. Ultimately, while it looks like there will be lots of light at the end of the tunnel, we suspect the market will need to get back above $8.5k now to really turn heads.

BTCUSD – Technical charts in detail

ETHUSD – technical overview

The market remains under pressure in 2018, extending its run of intense declines to fresh 2018 lows. The next level of major support comes in around $160, which goes back to the low from July 2017. Daily studies are however extended, which could warn of a corrective bounce ahead, though it would take a break back above $370 to officially take the pressure off the downside.

• R2 370 – 10Aug high – Medium
• R1 323 – 13Aug high – Strong
• S1 250 – 14Aug/2018 low – Medium
• S2 230 – September 2017 low  – Strong

ETHUSD – fundamental overview

We’ve been seeing quite a bit of weakness in the price of Ether in 2018 and there is still legitimate risk for deeper setbacks, given technical hurdles within the Ethereum protocol, ongoing regulatory oversight and a global macro backdrop exposing risk correlated projects on the Ethereum blockchain. Monetary policy normalisation and an anticipated reduction in global risk appetite is placing a tremendous strain on ERC20 projects that have yet to even produce proper use cases and proof of concept.