Special report: Why investors are praying for an awful jobs report
Next 24 hours: Market Finds Stability as Liquidity Returns
Today’s report: Flash Crash Moves and Worrying Implications
Market volumes still aren’t back to full form and won’t be there until next week. One of the products of thinner trade can be violent moves and that’s exactly what we’ve seen into Thursday, with a flash crash in USDJPY during the twilight zone trading hours, shaking up the FX market in a big way. What does it all mean?
Wake-up call
- increasingly attractive
- Brexit clarity
- Flash crash
- SNB headache
- Apple news
- OIL collapse
- Yield differentials
- Fed model
- Hard asset
- Bitcoin outlook
- Demand emerges
Peformance chart: 5-Day Performance v. US dollar
Suggested reading
- History Doesn’t Favor the Bulls After Selloff, A. Brown, Bloomberg (January 1, 2019)
- FT Correspondents’ Predictions for 2019, J Riddell, FT (January 1, 2019)
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 establish back above 1.1500, it sets the stage for a bigger bullish move ahead. If however the market is unable to establish above 1.1500, it will keep the overall pressure on the downside, with risk for a drop back below the 2018 low around 1.1215, for the next major downside extension.
EURUSD – fundamental overview
The Euro has held up well in the face of the latest market flash crash. Overall, while the ECB has stated it sees increasing downside risk to the Eurozone economy, it also continues to project more expansion. There has been plenty more talk out from ECB officials about policy that is far too accommodative, with the central bank committing to not even considering a rate hike until deeper into this year. Meanwhile, the Fed is looking like it will be forced into an even more accommodative stance in 2019, White House drama continues to play out and the US administration is expected to keep pushing its protectionist agenda. These developments should prop up the Euro. Looking at the calendar, US releases are featured, which include ADP employment, initial jobless claims and ISM manufacturing.
EURUSD – Technical charts in detail
GBPUSD – technical overview
At this stage, we still view the pullback in 2018 as a correction within a developing uptrend off the 2016 low and will be looking for a higher low to carve out well ahead of 1.1840, in favour of a push back to the topside. For this to play out, the market will ideally need to hold above some meaningful support in the 1.2300s and recover back through the September 2018 peak at 1.3300. Critical short-term resistance comes in at 1.2815, with a break back above the level to strengthen the bullish prospect.
GBPUSD – fundamental overview
The Pound sunk to another multi-month low following the latest flash crash in USDJPY, though this might ultimately encourage the outlook for the currency. The deterioration in global sentiment has intensified and it could pressure UK parliament into a deal that would avoid further catastrophic downside risk from a disorderly Brexit. Theresa May is getting back to it as 2019 kicks off. The PM is hoping her holiday rest will give her enough energy to figure out a way to get her government to sign off on a Brexit deal in the week of the 14th. This is a risk that continues to hang over the Pound, though the UK currency has been getting some help from bearish US Dollar flow into the new year, with the Dollar facing headwinds from a Fed that could be forced into an even more accommodative stance in 2019, White House drama that refuses to go away, and US administration protectionism. As far as today goes, we get UK construction PMIs and a slew of US releases that include ADP employment, initial jobless claims and ISM manufacturing.
GBPUSD – Technical charts in detail
USDJPY – technical overview
Setbacks have intensified as the market continues to confirm the bearish outlook since stalling out above 114.00 in early October. Look for any recovery rallies to be well capped ahead of 111.00 in favour of the next major downside extension below the 104.63 2018 low. This would expose a very important psychological barrier at 100.00 further down.
USDJPY – fundamental overview
The overnight flash crash has all the attention of the FX market, with the major pair sinking some 5 big figures on the back of algo related selling. But overall, all of this has already been in play, with the major pair correlating to the bigger picture drivers, with US Dollar yield differentials and risk sentiment dictating the flow. Renewed downside pressure in the US equities market has already knocked USDJPY back down in recent weeks, while an expectation the Fed could bring the normalization process to a halt is another major driver of Yen demand. Tension between the President and Fed, a partial government shutdown in the US and worry about US administration protectionism are also factoring into price action. Apple’s downward revision of quarterly revenue estimates and an acknowledgment that it underestimated the slowdown in emerging markets has been sourced as a potential catalyst to the wild move overnight. Looking ahead, US releases are featured, which include ADP employment, initial jobless claims and ISM manufacturing.
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 1.1185 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 in 2019, 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
Daily studies are trying to unwind from stretched readings and there could be an extended period of consolidation and correction that plays out from here. Despite the breakdown below the 2016 low, inability to establish below that low around 0.6825 will keep the market from wanting to get overly bearish and could even warn of some form of a longer-term base. However, a drop back below the 2016 low again, would expose deeper setbacks towards the 2008 low around 0.6000. The market would need to break back above 0.7400 to force a bullish shift in the structure.
AUDUSD – fundamental overview
While the Australian Dollar has just suffered a major blow from the overnight flash crash, sinking to its lowest levels in a near decade, the currency has managed to find quick demand into dips. Apple’s downward revision of quarterly revenue estimates and an acknowledgment that it underestimated the slowdown in emerging markets has been sourced as a potential catalyst to the wild Aussie price decline, after the tech giant was particularly concerned about China. This is something that could continue to weigh on Aussie given its correlation to China, though at the same time, despite the bearish Aussie risk off flow, setbacks could be better supported in 2019 on a theme of broad based US Dollar weakness. A possible Fed pause, partial government shutdown in the US and worry about US administration protectionism are all USD bearish drivers. Looking ahead, US releases are featured, which include ADP employment, initial jobless claims and ISM manufacturing.
USDCAD – technical overview
The market has extended its run through a major psychological barrier at 1.3500, breaking to fresh 2018 highs and looking for a push to that next critical level of resistance in the form of the 2017 high, up around 1.3800. However, medium-term studies suggest additional upside may be limited to this area, with risk for another sizable pullback. Still, a break back below 1.3493 would be required at a minimum to take the immediate pressure off the topside.
USDCAD – fundamental overview
The Canadian Dollar has come under a lot of pressure over the past several weeks, with USDCAD posting a yearly high on the final day of 2018. Most of the Loonie’s slide has come from the dump in the price of OIL, though the risk correlated commodity currency has also suffered from faltering global equities. The only mitigating factor is the market’s selling of the US Dollar on uncertainty around the partial government shutdown, the global trade outlook and expectation the Fed will be decidedly less hawkish in 2019. As far as today’s calendar goes, absence of first tier data out of Canada will put the focus on US releases that feature ADP employment, initial jobless claims and ISM manufacturing.
NZDUSD – technical overview
The market has been in the process of cooling off after enjoying a healthy recovery rally out from +2.5 year lows. While the bigger picture outlook still shows the market in a downtrend, as per the weekly chart, there is a case to be made for a meaningful low in place at 0.6425. As such, look for the latest setbacks to be well supported ahead of 0.6500 in anticipation of additional upside, with only a break back below 0.6500 to put the focus back on the multi-month low from October at 0.6425.
NZDUSD – fundamental overview
The New Zealand Dollar has held up relatively well in the face of risk liquidation and the latest flash crash in USDJPY. The commodity currency is trying its best to shrug off deteriorating global sentiment, instead deferring to profit taking on USD longs from the partial government shutdown in the US, USD bearish White House trade policy and a possible Fed pause in 2019. Looking ahead, US releases are featured, which include ADP employment, initial jobless claims and ISM manufacturing.
US SPX 500 – technical overview
There have been legitimate signs of a major longer term top, with deeper setbacks projected in the months ahead. Any rallies should now continue to be very well capped ahead of 2800, in favour of renewed weakness that targets an eventual retest of strong longer-term resistance turned support in the form of the 2015 high at 2140. The projection is based off a measured move extension derived from the previous 2018 low from February to the record high move.
US SPX 500 – fundamental overview
Investor immunity to downside risk is not as strong into 2019. The lag effect of Fed policy normalisation, US protectionism, ongoing White House drama and geopolitical tension are all warning of deeper setbacks ahead. The Fed has also finally acknowledged inflation no longer running below target, something that could very well result in even less attractive equity market valuations this year, given the implication on rates. We recommend keeping a much closer eye on the equities to ten year yield comparative going forward, as the movement here is something that will continue to stress the market in 2019.
GOLD (SPOT) – technical overview
There are 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 1200 to compromise the constructive outlook. Next key resistance comes in at the 1300 psychological barrier.
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
At this stage, any upside moves are classified as corrective ahead of what could be the next downside extension and bearish continuation. It would take a break back above previous support in the 6,000 area to take the pressure off the downside. Next critical support comes in the form of the July and September 2017 lows, around 2,000 and 2,975 respectively.
BTCUSD – fundamental overview
Bitcoin has just gone through a tough 2018, with the cryptocurrency suffering on a number of fronts. 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 over the medium to longer term.
BTCUSD – Technical charts in detail
ETHUSD – technical overview
Stretched medium-term studies have been turning back up, leading to this latest recovery. Still, it would take a sustained break back above 255 to take the pressure off the downside. Until then, risk remains for a lower top and bearish continuation to next major support in the 50-75 area.
ETHUSD – fundamental overview
We’re coming off a year of dramatic weakness in the price of Ether in 2018 and the cryptocurrency continues to face headwinds into 2019. Ongoing regulatory challenges and a global economic downturn are some of those headwinds that need to be considered. At the same time, longer term prospects are looking quite bright and valuations are increasingly attractive. There is a lot of demand for Ether that has been reported below 100 and ahead of 50.