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Today’s report: Currencies Still Supported Against US Dollar
There hasn’t been a whole lot of activity in markets this week, though what we have seen into Thursday is a US Dollar that continues to remain under pressure. With the exception of the Yen and Swiss Franc, both trading around unchanged since the weekly open, the developed currencies are all higher against the Buck.
Wake-up call
- Quiet calendar
- hotter CPI
- Abe reelection
- SNB decision
- risk sentiment
- OIL run
- Kiwi GDP
- Fed model
- institutional demand
- bitcoin ETF
- Sentiment downturn
Peformance chart: Performance v. US dollar since weekly open
Suggested reading
- Saving the Planet Doesn’t Mean Killing Economic Growth, N. Smith, Bloomberg (September 19, 2018)
- Foreign Investors Give Up on Indian Stocks, S. Mundy, Financial Times (September 19, 2018)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
A market correction out from the 2018 low in August could be on the verge of becoming an uptrend, with the price poking back above the Ichimoku cloud for the first time since it broke down in April. This is a significant development and could get the major pair thinking back to earlier this year when it was making +3 year highs in the 1.2550 area. Look for a break above the August high at 1.1734 to strengthen the outlook. Meanwhile, only back below 1.1500 would negate.
EURUSD – fundamental overview
The Euro kept to a tight trading range on Wednesday and there wasn’t much activity in the mid-week session. Eurozone construction output came in less than expected, while EU car registrations gained. Elsewhere, Italian Deputy PM Di Maio was out talking about raising the deficit to GDP ratio to 2.5%. US economic data wasn’t really much of a factor, with the readings producing a mixed result. Looking ahead, key standouts on Thursday are all in the US session, with initial jobless claims, the Philly Fed and existing home sales all due.
EURUSD – Technical charts in detail
GBPUSD – technical overview
The correction off the 2018 low has turned into an uptrend following the recent break back above the daily Ichimoku cloud. This is the first time the market has traded above the cloud since it was trading around 1.4000 back in April. This encourages the possibility for a more meaningful recovery ahead. Any setbacks should not hold up ahead of the 1.2800 area.
GBPUSD – fundamental overview
The Pound continues to do a good job holding up on dips of late and was able to do this again on Wednesday, with hotter than expected UK CPI readings and some reassuring words from Theresa May about a disorderly Brexit scenario being averted, helping to prop the currency. Still, it wasn’t all roses for the UK currency, with the Times reporting May had rejected Barnier’s revised offer to solve the Irish border issue and EU Juncker saying the two sides were still far away from a deal. Looking ahead, absence of first tier data out of the UK will leave the focus on Brexit updates and some US data that includes initial jobless claims, the Philly Fed and existing home sales.
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 109.78 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. Only back above 113.20 would compromise the bearish structure.
USDJPY – fundamental overview
Abe’s reelection as LDP leader hasn’t inspired much in the way of any reaction in the Yen. On Wednesday the Bank of Japan came out leaving rates on hold, while voting 7-2 on forward guidance, with dissents from Kataoka and Harada. There weren’t any surprises from Governor Kuroda, who said the central bank would ‘maintain the low yield environment for an extended period,’ while adding ‘ETF purchases were made to affect risk premiums and that fewer purchases in August didn’t mean the bank’s policy had shifted.’ On the data front, Japan’s deficit came in narrower than expected. Overall, the Yen has been offered, though there remains healthy demand for the Japanese currency into dips, with USDJPY well capped ahead of 113.00. The combination of exhausted monetary policy accommodation and escalating tension on the global trade front have contributed to keeping the major pair capped into its latest run up. Looking ahead, we get some readings out of the US that include initial jobless claims, the Philly Fed and existing home sales, though risk sentiment will continue to be the primary driver.
EURCHF – technical overview
A recent breakdown to a fresh 2018 low has intensified downside pressure, exposing the possibility for a more significant bearish structural shift. Look for a daily close below 1.1200 to strengthen this outlook. Back above 1.1455 would be required to take the pressure off the downside.
EURCHF – fundamental overview
The SNB is out with its latest decision today, though no change is expected on policy. Meanwhile, the Swiss government raised its 2018 GDP forecast, but was quick to offset with the more worrying comment that a strong Franc could derail ‘Switzerland’s booming economy.’ Overall, the SNB remains uncomfortable with Franc appreciation and continues to remind 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 between now and year end, 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, that ultimately, may not prove to be as effective as it once was given where we’re at in the monetary policy cycle.
AUDUSD – technical overview
The market has entered a period of correction after sinking to fresh multi-month lows. There is room for the correction to extend to the topside, though ultimately, the downtrend remains firmly intact, with only a break back above the 0.7500 handle forcing a reconsideration.
AUDUSD – fundamental overview
The Australian Dollar is trying to work its way out from multi-month lows, with some broad based selling in the US Dollar helping to spur on an overdue correction. Last week’s softer round of US inflation data got things going, while weak Dollar implications from US protectionism and well supported stocks added more to the run. Looking ahead, we get some readings out of the US that include initial jobless claims, the Philly Fed and existing home sales.
USDCAD – technical overview
The uptrend has entered a corrective phase since topping out in June, 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 1.2500 with only a break back below this psychological barrier to negate the constructive outlook.
USDCAD – fundamental overview
The Canadian Dollar has been looking forward to a NAFTA deal getting done sooner than later, though talks continue to drag on and this latest news of the US administration pushing forward with another round of China tariffs has not helped matters. Still, the Loonie remains bid at the moment, with the currency absorbing fallout from renewed broad based US Dollar weakness on softer US inflation readings and US protectionism. We’ve also seen a well bid OIL market inspire additional Canadian Dollar demand (USDCAD selling). Looking ahead, we get some second tier Canada releases and a US batch of readings that include initial jobless claims, the Philly Fed and existing home sales.
NZDUSD – technical overview
The market has entered a period of correction after sinking to a 2.5 year low. There is room for the correction to extend to the topside, though ultimately, the downtrend remains firmly intact, with only a break back above 0.6750 to force a reconsideration.
NZDUSD – fundamental overview
The New Zealand Dollar was able to shrug off some softer local data earlier in the week before getting a nice boost Thursday on the back of a better than expected GDP print. Overall however, Kiwi has been more caught up with bigger picture themes of US administration soft Dollar policy and global risk sentiment. As far as today’s docket goes for the remainder of the day, the market will look ahead to US readings that include initial jobless claims, the Philly Fed and existing home sales.
US SPX 500 – technical overview
A market that has been extended on the monthly chart is at risk for a major correction, 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.
US SPX 500 – fundamental overview
Stocks have been bid right back to record highs in recent weeks, 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.
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, with the next lower top now sought out around $7,000 ahead of a retest and break below the current yearly low. Only a push back above $8,500 would ultimately negate and force a bullish structural shift, while below the yearly low could open a more intensified decline towards the September 2017 low around $2,975.
BTCUSD – fundamental overview
Overall, bitcoin is doing its best to try and hold up above $6,000 in 2018 after undergoing a massive decline off the record high from December 2017. At the moment, the market has found some stability around the $6,000 barrier, with buyers stepping in on the view that the regulatory challenges will eventually work themselves out, leaving a very bullish picture for a technology with tremendous potential. Still there has been concern in the shorter-term. This latest downbeat report from the New York Office of the Attorney General is an example after the report soured hopes for a bitcoin ETF in 2018.
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 oversold, 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.
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 challenges and a global macro backdrop exposing risk correlated projects on the Ethereum blockchain. 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.