What’s Really Behind the US Dollar Selling?

Next 24 hours: Appeal of US Dollar Fading Away

Today’s report: What’s Really Behind the US Dollar Selling?

Dollar weakness has been a theme to start the week and is looking to gain some traction into Tuesday. Interestingly enough, a lot of this move has been attributed to the US-China trade truce, though it could easily be argued that the truce could actually be Dollar supportive. So what else is going on?

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Wake-up call

Chart talk: Technical & fundamental highlights

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.

  • R2 1.1435 – 22Nov high – Strong
  • R1 1.1402 - 29Nov high – Medium
  • S1 1.1300- Figure – Medium
  • S2 1.1268 – 28Nov low – Strong

EURUSD – fundamental overview

The Euro is getting a nice lift to start the week. The move comes on the back of some broad based US Dollar selling, rallying OIL prices and reassuring news out of Italy that has the 2019 budget deficit target dropping down to a more EU comfortable 1.9%-2.0% range. Market participants have attributed a lot of the US Dollar weakness to liquidation of flight to safety Dollar longs, though it seems with equity market still looking vulnerable, the more likely driver is the ongoing dovish shift in the Fed policy outlook. Looking at today's calendar, we get manufacturing PMIs out of Germany and the Eurozone, Eurozone Sentix investor confidence, the Eurozone unemployment rate, US manufacturing PMIs and US construction spending. Looking ahead, we get Eurozone producer prices, with no first tier US data on the Tuesday docket.

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.

  • R2 1.2928 – 22Nov high – Strong
  • R1 1.2850 – 29Nov high – Medium
  • S1 1.2699 – 3Dec low – Medium
  • S2 1.2662 – 15Aug low  – Strong

GBPUSD – fundamental overview

The Pound is the weakest currency amongst the developed currencies over the past week, and the only currency to be tracking lower against the Dollar over that period. The weakness comes from ongoing worry over the Brexit outcome and there will be some more colour today as the 5-day Brexit debates kick off, while BOE Governor Carney steps forward to testify on the matter yet again. Monday's round of better than expected UK manufacturing PMIs didn't do anything to help the Pound's cause and today we'll get UK construction PMI data. But clearly the focus will continue to be on developments from the Brexit front. There is no first tier data on the US docket.

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.

  • R2 114.22 – 12Nov high  – Strong
  • R1 114.04 – 28Nov high – Medium
  • S1 113.00 – Figure – Medium
  • S2 112.31 – 20Nov low – Strong

USDJPY – fundamental overview

The major pair has come back under pressure as the week gets going and the price action is making sense, with risk sentiment on the slide as investors worry about an inverted yield curve and the impact of monetary policy on the global economy. All of this comes at a time when yield differentials have been moving back out of the Dollar's favour, with the Fed adopting a less hawkish outlook, with a lot of talk making the rounds about a pause to the normalization process in the not so distant future. Looking ahead, the market will continue to focus on the bigger picture risk themes, with no first tier data on the docket.

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.
  • R2 1.1435– 16Nov high – Strong
  • R1 1.1359 – 22Nov high – Medium
  • S1 1.1254 – 24Sep 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 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.

  • R2 0.7485 – 9Jul high – Strong
  • R1 0.7394 – 3Dec high – Medium
  • S1 0.7285 – 30Nov low – Medium
  • S2 0.7203 – 20Nov low – Strong

AUDUSD – fundamental overview

The Australian Dollar is looking to extend its current recovery out from multi-month lows, with the weekend news of the US-Sino trade truce fueling more demand for the China correlated currency. At the same time, a less hawkish sentiment from the Fed is also helping to drive Aussie demand, as yield differentials move back out of the Dollar's favour. Still, with risk sentiment looking shaky, Aussie could start to find good offers into additional rallies. Earlier today, the RBA was out and delivered an as expected policy hold, with a cautious, but balanced outlook. On the data front, readings were mixed, with a weaker headline current account deficit offset by an upward revision. Looking ahead, absence of first tier data will leave the focus on the bigger picture themes.

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.

  • R2 1.3360 – 28Nov high – Strong
  • R1 1.3269 - 3Dec high – Medium
  • S1 1.3161 – 3Dec low – Medium
  • S2 1.3128 – 16Nov low – Strong

USDCAD – fundamental overview

The Canadian Dollar has been better bid of late, with the Loonie getting a boost from the broad based US Dollar weakness and a welcome recovery in the price of OIL after Saudi Arabia and Russia announced they would extend the OPEC pact to manage the OIL market into 2019. On Monday, Canada manufacturing PMIs ticked up from previous. Looking ahead, absence of first tier data will leave the market focused on the bigger picture drivers.

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.

  • R2 0.7000 – Psychological – Strong
  • R1 0.6950 – Mid-Figure – Medium
  • S1 0.6839 – 29Nov low – Medium
  • S2 0.6754 – 27Nov low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar is still going strong as it extends its recovery out from multi-month lows, mostly on the back of broad based US Dollar weakness. Kiwi did a good job shrugging off Monday's bigger than expected deterioration in terms of trade, though with risk sentiment looking shaky, we suspect there could be offers that step in as the market trades up towards that major psychological barrier at 0.7000. Looking ahead, the focus will be on today's GDT auction results and bigger picture market drivers.

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 2824 – 17Oct high – Strong
  • R1 2700 – Figure – Medium
  • S1 2603 – 29Oct low – Strong
  • S2 2594 – 3May low – Medium

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.

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.

  • R2 1266 – 9Jul high – Strong
  • R1 1244 – 26Oct high – Medium
  • S1 1196 – 13Nov 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

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.

  • R2 5,740 – 18Nov high – Strong
  • R1 4,780 – 21Nov high – Medium
  • S1 3,655– 25Nov/2018 low –Medium
  • S2 3,500 – Psychological  – Strong

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.

  • R2 155 – 20Nov high – Strong
  • R1 142 – 21Nov high – Medium
  • S1 103 – 25Nov/2018 low – Medium
  • S2 75 – Measured Move  – Strong

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.

Peformance chart: 5-Day Performance v. US dollar

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