Today’s report: Key Market Takeaways into Friday
Into Friday, it’s clear the US Dollar has continued to stumble this week. The only actively traded currency that trades lower against the Buck on the week is the Yen, though even here, setbacks in the Yen are marginal, especially when considering the massive run up in US equities to fresh record highs.
Wake-up call
- USD liquidation
- solid data
- Record stocks
- inflation forecasts
- risk sentiment
- Canada calendar
- added lift
- Fed model
- institutional demand
- bitcoin ETF
- Sentiment downturn
Peformance chart: Performance v. US dollar since weekly open
Suggested reading
- Crazy Rich Asians Are So Yesterday in China, S. Ren, Bloomberg (September 20, 2018)
- Bill Gates Weighs in on Africa and the US, V. Kortekaas, Financial Times (September 19, 2018)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
There has been a notable shift in the structure in recent days, with the market pushing back above the top of the daily Ichimoku cloud. This puts the major pair back in an uptrend for the first time since April. The latest close above the August high at 1.1734 strengthens the outlook and exposes next critical resistance at 1.1853 further up. Setbacks are now expected to be well supported ahead of 1.1500.
EURUSD – fundamental overview
An explosive session for the Euro on Thursday, with the single currency clearing through buy stops above the August high. Most of the activity has been attributed to this renewed wave of US Dollar weakness on the back of some softer US inflation data and ramped up US protectionism. There certainly wasn’t anything particularly Euro supportive going on in Thursday trade with Eurozone consumer confidence sliding by more than expected, ECB Weidmann not as hawkish, and Italian Deputy PM Di Maio threatening to disband the coalition. As far as Friday’s docket goes, we get German and Eurozone manufacturing PMIs and US manufacturing reads as well.
EURUSD – Technical charts in detail
GBPUSD – technical overview
The correction off the 2018 low has transformed into an uptrend following the recent break back above the daily Ichimoku cloud. It’s the first time the market has traded above the cloud since it was trading around 1.4000 back in April, and encourages the possibility for a more meaningful recovery ahead. Any setbacks should now hold up ahead of the 1.2800 area.
GBPUSD – fundamental overview
Thursday Brexit talk was a little less upbeat, though it all continued to mostly move in a direction that pointed to a deal. The Pound still managed to rocket higher however, rallying to a two month high and gaining the most in three weeks on the back of a combination of broad based selling of the US Dollar and well received UK economic data. While the Buck has been hit by softer inflation and US protectionism, the Pound has been getting a boost from hotter UK inflation readings and impressive UK retail sales. Looking at the Friday docket, we get UK public finance data and some US manufacturing PMIs.
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
Interestingly, there has been no Yen reaction to the news of the BOJ cutting super-long JGB purchases earlier today, despite rallying JGB yields. Overall, the FX market hasn’t really cared all that much about developments out of Japan, including this week’s BOJ decision and Abe’s victory in the LDP leadership election. Instead, the focus here continues to be on traditional drivers, with yet another surge in US equities to fresh record highs, helping to fuel the major pair. Still, with US equities continuing to look highly exposed at elevated levels in a world where central bank and government stimulus is no longer there in the way it was for a decade, there continues to be high risk for a capitulation that results in a sharp reversal lower in USDJPY. The broad based declines in the US Dollar have also intensified, which should be another force that keeps USDJPY from wanting to drive much higher. Looking at the Friday calendar, only US manufacturing data stand out.
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 didn’t offer up any surprises in the Thursday decision, though it was probably able to find some relief after downgrading its inflation outlook. 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 another record run in US stocks have added more to the run. Aussie has also benefited from this latest news of S&P’s adjustment, in which the rating agency raised the country’s AAA credit rating outlook from negative to stable. Looking ahead, Friday’s calendar is thin, with only US manufacturing data standing out.
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 bigger picture 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 better bid OIL market inspire additional Canadian Dollar demand (USDCAD selling) this week. Looking ahead, we get Canada CPI readings and retail sales, along with US manufacturing PMIs.
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 some more to the topside, though ultimately, the downtrend remains firmly intact, with only a clear break back above 0.6800 to force a reconsideration.
NZDUSD – fundamental overview
The New Zealand Dollar did a fabulous job shrugging off softer local data earlier in the week before getting a nice boost Thursday on the back of a better than expected GDP print. Kiwi is actually the strongest currency over the past week into Friday. Overall, most of the demand comes from broad based US Dollar selling on last week’s softer US inflation data and ramped up US protectionism, while a fresh record run in US equities has also factored into price action in the risk correlated commodity currency. Looking ahead, Friday’s calendar is thin, with only US manufacturing data standing out.
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 topping formation. Any rallies should now continue to be very well capped ahead of 3000, 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.