Month End Flow Adds to Friday Volatility Risk

GBPUSD – technical overview

The correction out from the 2018 low has accelerated, with the market pushing through critical shorter term resistance at 1.3010, while confirming a higher low at 1.2800 along the way. This opens the door for a bigger push towards the next major level of resistance which comes in at 1.3214, also happening to coincide with the top of the daily Ichimoku cloud. At this point, the move to the topside is still classed as corrective, though a break and close back above the top of the Ichimoku cloud, would officially put the market back in an uptrend for the first time since breaking down in April.

• R2 1.3214 – 26Jul high – Strong
• R1 1.3083 – 27Jul low – Medium
• S1 1.2937 – 22Aug high – Medium
• S2 1.2846 – 29Aug low  – Strong

GBPUSD – fundamental overview

The Pound held up surprisingly well on Thursday, despite renewed demand for the US Dollar and some attempts to play down the optimism for a Brexit deal that had propelled the major pair back through 1.3000 on Wednesday. There has been a notable improvement in UK economic data over the past couple of weeks and while there remains a nice amount of uncertainty relating to the fate of Brexit, there has been a decent boost in optimism that had been very much absent through an intense decline from April through early August. Looking ahead, on Friday, the market will continue to monitor Brexit, while contending with month end flow and economic data out of the US in the form of Chicago PMIs and Michigan confidence.

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 112.00 – Figure – Medium
• S1 110.94 – 27Aug low – Medium
• S2 109.78 – 21Aug low – Strong

USDJPY – fundamental overview

Overall, the Yen hasn’t really been moving on domestic fundamentals, instead consumed with traditional drivers of global sentiment and positioning in the US Dollar. Overall, with US stocks looking a lot less comfortable at record highs in a world of exhausted central bank stimulus and accommodation, the risk seems to be tilted more to the downside for the major pair. We got a flavour of this on Thursday and dealers are reporting a nice amount of sell-stops built up below 110.00. On Friday, the focus will be on month end flow and risk appetite. Not much is expected as far as reaction goes from Chicago PMIs and Michigan confidence.

EURCHF – technical overview

A recent breakdown to a fresh 2018 low has put the pressure back on the downside, exposing the possibility for deeper setbacks towards next key support which comes in the form of the 2016 high at 1.1200. However, if tested, the barrier should prove to a very strong support zone that encourages a healthy push back to the topside. Ultimately, it would take a weekly close back below 1.1200 to negate what is a more constructive outlook.

• R2 1.1500– Psychological – Strong
• R1 1.1455 – 28Aug high – Medium
• S1 1.1300 – Figure – Medium
• S2 1.1245– 15Aug/2018 low – Strong

EURCHF – fundamental overview

The SNB remains uncomfortable with Franc appreciation and has recently reminded the market it will need to be careful about any attempts at trying to force an appreciation in the currency. But the SNB will also 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 that will put the SNB in the more challenging position of needing to back up its talk with action it may fall short on at this point in the monetary policy cycle. Red flags have been flying of late, with the run up in US stocks to record highs doing nothing to weaken the Franc. Instead, there seems to be a whole lot of demand, which should be very worrying for the central bank….and the global economy by extension.

AUDUSD – technical overview

The market is in the process of correcting out from a 2018 and multi-month low down around 0.7200. Overall however, rallies should be well capped, with only a break back above 0.7500 to suggest otherwise.

• R2 0.7400 – Figure – Medium
• R1 0.7382– 21Aug high – Medium
• S1 0.7250 – Mid-Figure – Medium
• S2 0.7238– 24Aug low – Strong

AUDUSD – fundamental overview

The Australian Dollar has taken a turn for the worse as we get set to close out the month. On Wednesday it was the double whammy of the Westpac news and delayed China talks with the US, and then on Thursday it was discouraging local readings, with Aussie private capex and building approvals both disappointing. We’ve also seen some renewed safe haven currency demand into Friday, which hasn’t helped to prop up the Australian Dollar either. As we look at the calendar for the remainder of the day, there’s only Chicago PMIs and Michigan confidence to speak of. Instead, the day will be about how risk markets are feeling, what that sentiment towards the US Dollar is looking like and month end flow.

USDCAD – technical overview

The uptrend has entered a corrective phase, which could still invite a deeper corrective decline towards 1.2700 before the next upside extension gets underway. Still, look for any weakness to be well supported ahead of 1.2500 with only a break back below this psychological barrier to negate the constructive outlook.

• R2 1.3104 – 24Aug high – Strong
• R1 1.2988 – 28Aug high – Medium
• S1 1.2888 – 28Aug low – Medium
• S2 1.2819 – 31My low – Strong

USDCAD – fundamental overview

If it weren’t for the nice recovery run in the price of OIL that continued on Thursday, the Canadian Dollar could have been a whole lot lower than where it ended settling into Friday. Canada GDP came in softer than expected, while all of the optimism around NAFTA that swirled earlier in the week, had some cold water thrown on it. Currencies were broadly sold on Thursday as the US Dollar tried to recover across the board, with safe haven demand rushing in to prop the Buck, Swiss Franc and Yen. Looking ahead, Friday’s calendar features Canada industrial product and raw materials prices, along with Chicago PMIs and Michigan confidence. The market will likely spend more time watching for additional updates on NAFTA, the price of OIL and month end flow.

NZDUSD – technical overview

The market is in the process of correcting out from a 2018 and +2.5 year low down at 0.6545. Overall however, rallies should be well capped, with only a break back above 0.6860 to suggest otherwise.

• R2 0.6767 – 3Aug high – Strong
• R1 0.6728 – 28Aug high – Medium
• S1 0.6620 – 24Aug low – Medium
• S2 0.6545 – 15Aug/2018 low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has managed to hold up off the recent +2.5 year low, with broad based selling in the US Dollar and ongoing support for US equities to fresh record highs fueling the demand. Still, Kiwi data hasn’t been great as reflected in the latest building permits and business confidence readings, the RBNZ has welcomed a weaker currency, and risk for a capitulation in US equities is growing, all things that could expose Kiwi to deeper setbacks in the weeks ahead. As far as Friday’s calendar goes, there’s only Chicago PMIs and Michigan confidence to speak of. Instead, the day will be about how risk markets are feeling, what that sentiment towards the US Dollar is looking like and month end flow.

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. Only a weekly close above 3000 would negate the outlook.

• R2 2950 – Psychological – Strong
• R1 2918 – 29Aug/Record – Medium
• S1 2846 – 22Aug low – Medium
• S2 2790 – 17Jul low – Strong

US SPX 500 – fundamental overview

Stocks have been bid right back to record highs in August, though investor immunity to downside risk is not as strong these days. The combination of Fed policy normalisation, US protectionism, ongoing White House drama and geopolitical tension 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 1236, 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

The yellow metal continues to be well supported on dips with solid demand from medium and longer-term accounts. These players are 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 downtrend remains firmly intact despite the recent recovery back above $7,000, with the next lower top now sought out below $8,500 ahead of a retest and break below the current yearly low. Only a push back above $8,500 would negate and force a bullish structural shift, while below the yearly low could open a more intensified decline towards $3,000.

• R2 7,480 – 4Aug high – Strong
• R1 7,143 – 6Aug high – Medium
• S1 6,550– 26Aug low –Medium
• S2 5,860 – 14Aug 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 has found some stability as it hangs onto the positives of wider market adoption, but also waits for additional clarity on the regulatory front. The recent news of the SEC delaying its decision on a cryptocurrency ETF and the latest bans out of China on all crypto related commercial activities, have been the latest thorns Bitcoin has needed to wrestle away from. Overall, while it certainly looks like there’s plenty of light at the end of the tunnel, we suspect the market will need to get back above $8,500 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 earlier in August. The next level of major support comes in around $160, which goes back to the low from July 2017. Daily studies are however unwinding from stretched readings, which could warn of a bigger corrective bounce before the next downside extension and bearish continuation. It would take a break back above $321 to officially take the pressure off the downside.

• R2 370 – 10Aug high – Strong
• R1 321 – 18Aug 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. This latest news of China banning all crypto related commercial activities has been yet another negative driver. Meanwhile, monetary policy normalisations around the globe and an anticipated reduction in global risk appetite are placing a tremendous strain on ERC20 projects that have yet to even produce proper use cases and proof of concept.