Where Things Stand into Friday

Today’s report: Where Things Stand into Friday

The US Dollar has enjoyed a nice run over the past few sessions and will be looking to see if it can extend the run into the Friday close. The Dollar is sitting in a unique position these days, as it’s capable of rallying on both yield differentials and flight to safety.

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Chart talk: Technical & fundamental highlights

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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 1.1622 – 16Oct high – Strong
  • R1 1.1528 - 18Oct high – Strong
  • S1 1.1433 - 9Oct low – Strong
  • S2 1.1395 – 20Aug low – Medium

EURUSD – fundamental overview

The Euro has come back under pressure into the latter half of the week, with the single currency initially weighed down by the more hawkish leaning Fed Minutes and then extending declines on additional stress from protectionist rhetoric out of the White House and this latest saga involving Saudi Arabi and the disappearance of Jamal Khashoggi. It's worth noting the fact that structural risk in Italy and some political uncertainty in Germany hadn't bothered the Euro earlier in the week and it will be interesting to see if this becomes more of an issue with the Euro pulling back. As far as Italian risk goes, EU commissioners Dombrovskis and Moscovici said Italy's Draft Budgetary plan for 2019 was 'an obvious significant deviation' from EU rules. Dealers cite good demand into the dip, though also now talk of stops built up below 1.1400. Looking ahead, US existing home sales is the only notable release on the Friday calendar, though with risk markets as sensitive as they are right now, the market will have plenty to keep an eye on.

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. Setbacks should now hold up ahead of the 1.2800.

  • R2 1.3193 – 17Oct high – Medium
  • R1 1.3132 – 18Oct high – Medium
  • S1 1.3000 – Psychological – Medium
  • S2 1.2923 – 4Oct low  – Strong

GBPUSD – fundamental overview

It's all been a lot shakier for the Pound into the end of the week. Economic data has been less supportive of the Pound after CPI was soft and retail sales missed, while progress on the Brexit deal front has been discouraging. There have been reports of Theresa May being willing to extend the Brexit transition period in an effort to reengage EU Barnier, though though there has been no real clarity offered as far as next steps go, which has only added to the Thursday decline. Meanwhile, the US Dollar has come racing back in the aftermath of the more hawkish leaning FOMC Minutes and another wave of safe haven demand. As far as the Friday calendar goes, we get UK public finances, an appearance from Governor Carney and US existing home sales.

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 109.75. Ultimately, only a close back above a previous lower top from the Fall of 2017 at 114.74 would compromise the bearish structure.

  • R2 113.40 – 9Oct high  – Very Strong
  • R1 112.73 – 18Oct high – Medium
  • S1 111.63 – 15Oct low – Strong
  • S2 111.00 – Figure – Medium

USDJPY – fundamental overview

Governor Kuroda has said the BOJ will be keeping rates very low for an extended period, with the comments in sharp contrast to Fed policy that is moving the other way, as reflected in the latest Fed Minutes. 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, we get US existing home sales.

EURCHF – technical overview

The market has been in the process of recovering out from a 2018 low coinciding with critical support in the 1.1200 area. However, at this stage, there is no clear directional bias, with the price action deferring to a neutral state. Back above 1.1560 would get some bullish momentum going for a push to 1.2000, while back below 1.1200 would be quite bearish.
  • R2 1.1560– 8Aug high – Strong
  • R1 1.1494 – 12Oct 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 0.7160– 17Oct high – Medium
  • S1 0.7100 – 15Oct low – Medium
  • S2 0.7042 – 8Oct/2018 low – Strong

AUDUSD – fundamental overview

Thursday's Aussie data was less encouraging than the story told. While the unemployment rate dropped down by more than expected, to a 6.5 year low, the participation rate and employment change components moved in the other direction. Meanwhile, US equities were under pressure again on Thursday, as the market worried about the Fed's trajectory and fallout from another bout of risk off flow. Friday's China data was mixed, however, Aussie has been finding support after the PBOC pledged to support banks providing credit to non-state firms and the CBIRC issued a statement that the recent slide in Chinese equities was not reflecting China's economic fundamentals and stable financial system. Looking ahead, US existing home sales is the only data of note on the US docket, though most of the economic data attention will be placed on reaction to some China industrial production. retail sales and GDP.

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 1.3175 – 11Sep high – Medium
  • R1 1.3100 - 1Figure – Medium
  • S1 1.3000– Psychological – Medium
  • S2 1.2917 – 16Oct low – Strong

USDCAD – fundamental overview

The Canadian Dollar has come under pressure into the end of week on the back of a hawkish Fed Minutes, falling OIL prices and comments from Senate Majority Leader McConnell that Congress won't vote on the revised USMCA deal until 2019. Looking ahead, we get Canada retail sales and CPI, along with US existing home sales.

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 0.6700 – 16Sep high – Strong
  • R1 0.6602 – 17Oct high – Medium
  • S1 0.6500 – Psychological – Medium
  • S2 0.6425 – 8Oct/2018 low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar is trying to work its way off of +2.5 year lows and got some help this week from the hotter Kiwi CPI and some Friday optimism in China after the PBOC pledged to support banks providing credit to non-state firms and the CBIRC issued a statement that the recent slide in Chinese equities was not reflecting China's economic fundamentals and stable financial system. Still, even with this, any meaningful upside could be an unrealistic expectation as global markets contend with hawkish leaning Fed policy and what could be a bigger fallout in US stocks. Looking ahead, US existing home sales is the only data of note on the US docket, though most of the economic data attention will be placed on reaction to some China industrial production. retail sales and GDP.

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 2865 – 7Sep low – Medium
  • S1 2711 – 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 1266 – 9Jul high – Strong
  • R1 1236 – 26Jul high – Strong
  • S1 1200 – Psychological – 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 July lower top at around 8,500 for confirmation. Until then, a bearish continuation back towards the September 2017 low around 2,975 can not be ruled out.

  • R2 8,490 – 22Jul high – Strong
  • R1 7,695 – 14Oct high – Medium
  • S1 6,418– 3Oct low –Medium
  • S2 6,213 – 12Oct low  – Strong

BTCUSD – fundamental overview

Bitcoin has since retraced after a deceptive rally to start week. The rally was anything but positive, with the market forced to buy back into Bitcoin on a liquidation of Tether positions, as the credibility of the stable coin has been called into question. 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 188 – 12Oct low – Medium
  • S2 167 – 12Sep/2018 low  – Strong

ETHUSD – fundamental overview

Ether has moved up since the weekly open, though the price action is deceptive, with a lot of the rally attributed to liquidation of Tether positions as the credibility of the stable coin is called into question. Overall, 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.

Peformance chart: Performance v. US dollar since weekly open

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