Special report: A Painful But Necessary Step
Today’s report: Heading for the Exit Doors
Into Thursday, all of the attention is on global sentiment and this latest collapse in the US equity market. All of this is coming from worry over the impact of rising US yields on the global economy. US CPI is the highlight release on today’s calendar.
- safe haven
- attractive currency
- sentiment correlations
- tough situation
- diverging flow
- OIL drop
- US equities
- US yields
- institutional demand
- Bitcoin outlook
- Sentiment downturn
Chart talk: Technical & fundamental highlights
EURUSD – technical overview
The Euro has struggled since breaking back above the Ichimoku cloud in September, with the latest round of setbacks compromising a bullish shift in the outlook. But if the market can establish a sustained break back above 1.1600, it will strengthen the prospect of a more meaningful higher low in August ahead of the next major upside extension back above the +3 year high from earlier this year up around 1.2550. Setbacks should not hold up ahead of 1.1433.
- R2 1.1652 – 28Sep high – Strong
- R1 1.1594 – 3Oct high – Strong
- S1 1.1481 – 10Oct low – Medium
- S2 1.1433 – 9Oct low – Strong
EURUSD – fundamental overview
All of the focus into Thursday is on the fallout from meltdown in US equities. The market is looking to rotate into safe haven assets and with the US Dollar not looking as attractive in a world where the US administration is pushing for a trade policy promoting a weaker Dollar, the Euro becomes a primary beneficiary of the flow. As far as today’s calendar goes, the Euro will continue to monitor developments on this front, while also taking in an important US CPI reading later in the day.
EURUSD – Technical charts in detail
GBPUSD – technical overview
The correction off the 2018 low transformed into an uptrend following the September break above the daily Ichimoku cloud. It was the first time the market had traded above the cloud since trading around 1.4000 back in April. This encourages the possibility for a more meaningful recovery ahead, with a break back above 1.3300 to strengthen the outlook. Any setbacks should now hold up ahead of the 1.2800.
- R2 1.3299 – 20Sep high – Strong
- R1 1.3245 – 11Oct high – Medium
- S1 1.3130 – 10Oct low – Medium
- S2 1.3003 – 5Oct low – Strong
GBPUSD – fundamental overview
Thursday’s round of UK data was mixed on the whole, though the market felt good enough about continuing to buy the Pound on the positives from 3 month GDP and upticks in industrial and manufacturing production. Meanwhile, the Pound continues to benefit from increasing optimism around a Brexit deal, as it emerges as an outperformer over the past week. The fallout in US equities is inviting additional demand, with the US Dollar less attractive in a world where the US administration is pushing a trade policy that is inviting of a weaker US Dollar. Looking ahead, we get an important US CPI reading.
GBPUSD – Technical charts in detail
USDJPY – technical overview
Rallies continue to be very well capped on a medium-term basis, with the outlook still favouring lower tops and lower lows. The latest breakdown back below 113.00 strengthens the outlook, with the door open for a drop towards the next major support around 110.00. Ultimately, only a close back above a previous lower top from the Fall of 2017 at 114.74 would compromise the bearish structure.
- R2 113.95 – 8Oct high – Very Strong
- R1 113.40 – 9Oct high – Medium
- S1 111.98 – 11Oct low – Medium
- S2 111.67 – 18Sep low – Strong
USDJPY – fundamental overview
Overall, the major pair looks increasingly vulnerable given the state of US equities threatening a major capitulation. We’re now living in a world where central bank and government stimulus is no longer there in the way it had been for a decade post 2008 crisis, which increases the probability for Yen demand, as negative shocks to the global economy surface, particularly in light of tension surrounding fallout from US protectionism. Looking ahead, US CPI is the major standout on the economic calendar, though the market will continue to fixate on global sentiment deterioration.
EURCHF – technical overview
Signs of recovery after the market had sunk to a fresh 2018 low in August. If the market can establish back above 1.1500 it will encourage the bullish prospect and set the stage for a rally back towards the yearly high, all the way up just over 1.2000. However, inability to establish above 1.1500, could invite another move to the downside.
- R2 1.1500– Psychological – Strong
- R1 1.1455 – 28Aug high – Medium
- S1 1.1313 – 27Sep low– Medium
- S2 1.1224– 18Sep low – Strong
EURCHF – fundamental overview
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
Technical studies are stretched on a medium term basis, and the market has been attempting to recover out from its lowest levels since February 2016. Still, it would take a break back above the September high at 0.7316 to alleviate immediate downside pressure and encourage the possibility for any possible shift in the trend.
- R2 0.7198 – 3Oct high – Strong
- R1 0.7150– Mid-Figure – Medium
- S1 0.7100 – Figure – Medium
- S2 0.7042 – 8Oct/2018 low – Strong
AUDUSD – fundamental overview
The Australian Dollar is struggling to figure out its next move, as it gets pulled in both directions. On the one side, this latest collapse in US equities is adding to strain on the global economy, which is weighing on the correlated currency. On the other side, US trade policy is inviting a weaker Dollar across the board and the administration continues to push forward with this agenda. Aussie data has also been supportive over the past week, with NAB business conditions, business confidence and consumer confidence readings all upbeat. Looking ahead, US CPI is the major standout for the remainder of the day.
USDCAD – technical overview
The market has been under pressure since topping out in June, which could still invite a deeper 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.
- R2 1.3083 – 27Sep high – Medium
- R1 1.3070 – 10Oct high – Medium
- S1 1.2927– 10Oct low – Medium
- S2 1.2858 – 4Oct low – Strong
USDCAD – fundamental overview
The Canadian Dollar hasn’t been doing much trading on its own fundamentals this week and has instead deferred to broader price action, which has been about fallout from the collapse in US equities and negative impact on correlated commodity currencies like the Canadian Dollar. The plunge in the price of OIL has been an added drag on the Loonie over the past few sessions. Looking ahead, the Canada new housing price index will be taken in, but the big data focus will be on US CPI.
NZDUSD – technical overview
Kiwi setbacks have extended to another 2018 low, with the market also back to its lowest levels since January 2016. This leaves the door open for declines down towards massive support just ahead of 0.6100, in the form of the 2015 low. At the same time, technical studies are looking stretched on a medium term basis, which could warn of a meaningful low ahead of such a retest. Still, at this point, it would take a break back above the September high at 0.6700 to take the immediate pressure off the downside.
- R2 0.6594 – 3Oct high – Strong
- R1 0.6520 – 4Oct high – Medium
- S1 0.6425 – 8Oct/2018 low – Medium
- S2 0.6400 – Figure – Strong
NZDUSD – fundamental overview
A beaten down New Zealand Dollar, sitting at 2.5 year lows, is doing its best to try and recover this week, though this has been a difficult assignment for a risk correlated currency that is contending with a fallout in the US equities market. Nevertheless Kiwi is getting help from US trade policy promoting a softer US Dollar, while on the local front, Tuesday’s news of a 2018 budget surplus followed and Wednesday’s upbeat retail credit card spending have perhaps helped a little as well. Looking ahead, all eyes on US CPI.
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 (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 2943 – 21Sep/Record – Strong
- R1 2863 – 8Oct low – Medium
- S1 2747 – 11Oct low – Medium
- S2 2692 – 28Jun low – Strong
US SPX 500 – fundamental overview
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 to record highs. 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 1236 – 26Jul high – Strong
- R1 1215 – 28Aug high – Strong
- S1 1181 – 28Sep low – Medium
- S2 1160 – 16Aug/2018 low – 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
Considering the intensity of declines already seen this year, if the market does break to the topside, it could be a bullish signal that gets the trend moving up again. But we would need to see a break above the August lower top for confirmation. Until then, a bearish continuation back towards the September 2017 low around 2,975 can not be ruled out.
- R2 7,405 – 4Sep high – Strong
- R1 6,833 – 22Sep high – Medium
- S1 6,093– 19Sep low –Medium
- S2 5,862 – 14Aug low – Strong
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 and increased adoption. Still, there has been concern in the shorter-term on account of regulatory challenges in the space.
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.
- R2 321 – 18Aug high – Strong
- R1 255 – 22Sep high – Medium
- S1 192 – 17Sep low – Medium
- S2 167 – 12Sep/2018 low – Strong
ETHUSD – fundamental overview
We’ve seen quite a bit of weakness in the price of Ether in 2018 and there’s still legitimate risk for deeper setbacks, given technical hurdles within the protocol, ongoing regulatory challenges and a global macro backdrop exposing risk correlated projects on the Ethereum blockchain. 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.