Today’s report: Market Themes Reminiscent of Q1
Friday marks the end of November and as we look at markets into the final month of the year, we’re looking at the type of market environment that is reminiscent of Q1 2018. When the year got going, the US Dollar was under pressure and risk sentiment was shaky. Canada GDP data stands out as the big first tier data risk on Friday.
Wake-up call
- EUÂ Villeroy
- Liam Fox
- traditional drivers
- policy exposed
- China PMI
- OIL drop
- confidence up
- Fed model
- institutional demand
- Bitcoin vulnerable
- global downturn
Peformance chart: 5-Day Performance v. US dollar
Suggested reading
- Bull Case for Emerging Markets Has One Big Caveat, S. Ren, Bloomberg (November 29, 2018)
- Argentina - A Life of Boom and Bust, V. Kortekaas, Financial Times (November 29, 2018)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The Euro sits at a critical inflection point right now, trying to figure out whether it wants to hold up into dips for the start to a resumption of that bullish breakout from back in 2017 that led to a +3 year high earlier this year, or if it wants to keep extending this run of declines. A lot of this will hinge on how the market trades in the sessions ahead. If the major pair can hold up into this latest bounce and push through 1.1500, it sets the stage for a bigger bullish move ahead. If however the market breaks back down below 1.1300, it will open the door for a retest of the 2018 low, below which exposes the possibility for an extension all the way down to 1.0800.EURUSD – fundamental overview
The Euro continues to trade on bigger picture drivers that extend beyond its borders. A lot of the recent price action has been about the US Dollar and the outlook there has been supportive of the single currency whether it likes it or not. There has been a very clear turnaround in sentiment out from the Fed, with the Dollar reacting accordingly and selling off as the Fed's scaled back hawkishness works through the system. ECBÂ Villeroy did a good job outlining the critical risks to the EU economy, talking about US policy and rising debt in the emerging markets. The Italian saga lingers on, but the market isn't as bothered, while officials on the EU side of said Euro area banks are prepared for a disorderly Brexit. Looking ahead, key standouts on the calendar include German retail sales, Eurozone unemployment, Eurozone CPI and Chicago PMIs. Keep an eye out for developments out of the weekend G20, which could mean something for a change, given the influence of politics in markets in 2018.EURUSD - Technical charts in detail
GBPUSD – technical overview
On a medium to longer term basis, the outlook is still looking constructive off the +30 year low from 2016, with a higher low sought ahead of the next major upside extension back towards and through the current 2018 high. Shorter-term however, the market is threatening a possible break to another fresh 2018 low. If the market breaks down below the yearly low, it will open possibility for a measured move extension into the 1.2000s. Right now, a break back above the weekly high at 1.3000 would be required to alleviate immediate downside pressure.GBPUSD – fundamental overview
Theresa May hasn't been willing to budge on the path forward, warning that it's her deal or a no deal Brexit if her deal is rejected by UK lawmakers. The vote is set for December 11 and a lot can happen between now and then, which could continue to make for a bumpy ride for the Pound until some more certainty is offered. There have been signs of May gaining momentum as she holds ground and the latest news has Liam Fox endorsing Theresa May's deal in a speech later today. Looking ahead, absence of first tier data on the UK docket will leave the focus on Brexit. Chicago PMIs are due in the US later today. Keep an eye out for developments out of the weekend G20, which could mean something for a change, given the influence of politics in markets in 2018.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. Look for yet another topside failure ahead of 114.00, in favour of the next major downside extension towards key support around 109.75. Ultimately, only a break back above 114.75 would negate the bearish outlook.USDJPY – fundamental overview
A batch of Friday data out of Japan hasn't factored into price action. The only Friday data that has mattered somewhat to this major pair is the softer China PMIs, which have inspired some profit taking and mild Yen demand. The major pair has run into a selling wall yet again this week, up into 114.00, with the Yen rallying back on some less hawkish messages out from the Fed, narrowing those yield differentials out of the US Dollar's favour. Overall, risk sentiment is looking a lot shakier into year end and this in conjunction with a US administration still very much committed to soft Dollar protectionist measures, by way of tariffs, should inspire continued USDJPY offers into rallies, with risk for deeper setbacks that could extend back down towards the 2018 low.  Looking ahead, the Friday calendar is exceptionally thin, with only Chicago PMI data standing out. Keep an eye out for developments out of the weekend G20, which could mean something for a change, given the influence of politics in markets in 2018.EURCHF – technical overview
The market has been in the process of consolidating off the 2018 low, which coincided 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 1.1500 would get some bullish momentum going for a push to 1.2000, while back below 1.1200 would be quite bearish.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. Keep an eye out for developments out of the weekend G20, which could mean something for a change, given the influence of politics in markets in 2018.AUDUSD – technical overview
Technical studies have been turning back up from stretched medium term readings, with the latest break back above 0.7300 suggesting a meaningful base could be in the process of carving out. This puts the shorter-term pressure back on the topside, with the focus on a push to the psychological barrier at 0.7500. A drop below 0.7165 would be required to shift the focus back on the downside.AUDUSD – fundamental overview
Aussie has done a good job holding up this week, despite more fire around global trade and this latest round of softer China PMI data. Most of the Aussie demand has come from a scaled back Fed policy outlook, that has rates a lot closer to neutral than previous communications. This has inspired profit taking on US Dollar longs, encouraging the equity markets at the same time. Still, it could be a tougher go for Aussie sooner than later, as more pressure on the trade front will get investors thinking about risk off again. This will not be a positive for China and the highly correlated Australian Dollar by extension. Looking ahead, the Friday calendar is exceptionally thin, with only Chicago PMI data standing out. Keep an eye out for developments out of the weekend G20, which could mean something for a change, given the influence of politics in markets in 2018.USDCAD – technical overview
The market has been consistently sold into rallies 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, with only a break back below 1.2700 to negate the bigger picture constructive outlook.USDCAD – fundamental overview
The price of OIL has fallen some 35% after rallying to its highest levels since 2014 back in October. This has weighed on the Loonie quite a bit, though things could have been a lot worse for the underperforming Canadian Dollar this week if it didn't get that help from last week's hotter Canada inflation readings and solid Canada retail sales showing. Setbacks in the Loonie have also been contained given offsetting broad based US Dollar bearish flow in the market, on the back of less hawkish Fed speak and reports the Fed may be considering a pause. Looking ahead, the market will be keeping an eye on OIL prices, while taking in Canada GDP and some Chicago PMIs. Keep an eye out for developments out of the weekend G20, which could mean something for a change, given the influence of politics in markets in 2018.NZDUSD – technical overview
The market has been in the process of recovering out from +2.5 year lows and is looking to extend the correction following the latest break back above consolidation resistance around 0.6725. This sets the stage for a push that could extend back towards the psychological barrier at 0.7000 before the market considers the legitimacy of the recovery and prospect for a more significant bullish structural shift or bearish resumption.NZDUSD – fundamental overview
The New Zealand Dollar has done a good job trading up in recent weeks, with a lot of the price action coming from a reconsideration of long US Dollar exposure as the Fed sends out less hawkish messages. This has shifted yield differentials in Kiwi's favour, with the risk correlated currency getting an added boost from a concurrent round of demand in US equities. Still, with the US administration looking fully prepared to march ahead with additional tariffs on China, the risk of deterioration in global sentiment runs high, which should once again offset positive flow. On Friday, there has been some offsetting data for Kiwi, with consumer confidence coming in healthy, but failing to inspire much upside momentum with China PMI data coming in soft. Looking ahead, the Friday calendar is exceptionally thin, with only Chicago PMI data standing out. Keep an eye out for developments out of the weekend G20, which could mean something for a change, given the influence of politics in markets in 2018.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.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 even 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 the fourth quarter. Keep an eye out for developments out of the weekend G20, which could mean something for a change, given the influence of politics in markets in 2018.GOLD (SPOT) – technical overview
The market has been showing signs of wanting to turn back up after establishing back above the daily Ichimoku chart. There are also signs that we could be seeing the formation of a more significant medium to longer-term structural shift that would be confirmed if this latest recovery can extend back through big resistance in the form of the 2016 high at 1375. Look for setbacks to be well supported ahead of 1200, with only a close back below 1150 to compromise the constructive outlook. A daily close above 1250 will 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. Keep an eye out for developments out of the weekend G20, which could mean something for a change, given the influence of politics in markets in 2018.BTCUSD – technical overview
An extended period of range contraction has come to an end, with the market breaking down below the apex of a massive triangle formation in 2018. The decline has resulted in fresh yearly lows and warns of a deeper setbacks that could accelerate to the September 2017 low at 2,975. At this stage, it would take a break back above the October peak around 7,700 to take the pressure off the downside. However, daily studies are violently extended and a period of correction or consolidation is expected before the market extends lower towards that September 2017 low. Rallies should be well capped below 6,000.BTCUSD – fundamental overview
Bitcoin is facing intense headwinds from broader risk liquidation themes and has sunk to fresh 2018 lows. The cryptocurrency has already been struggling to find its place in 2018, with the decentralised technology space still very young and yet to fully prove concept. The current backdrop of global sentiment deterioration only makes things more challenging in the space and we are seeing investors head for the exits as a result. This could open a bigger drop below $3,000 before the market looks for stability. Still, overall, the cryptocurrency and the technology it rests on continue to show a lot of potential looking out and we expect the market will regain composure once this sell-off plays out.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 into the 100 area. Medium term studies are however stretched, which could warn of the start to a correction. Still, it would take a break back above 200 right now to take the pressure off the downside. The next major downside extension target comes in at a 75, a measured move extension target following a recent $90 consolidation between 165 and 255.ETHUSD – fundamental overview
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 below $100, 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. At the same time, longer term prospects are looking quite bright and we expect significant demand will emerge well ahead of $50.