Today’s report: Three Stories Bolstering Sentiment into Friday
There’s been a pickup in sentiment into Friday, with risk correlated assets benefiting from a few drivers. One of those drivers came from Thursday’s economic calendar. Looking ahead, the US jobs report is the standout release on Friday, though the market will also be eyeing a late appearance from the Fed Chair.
- inflation readings
- Brexit clarity
- Flash crash
- SNB headache
- trade news
- OIL reversal
- positive drivers
- Fed model
- Hard asset
- Bitcoin outlook
- Demand emerges
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 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.
- R2 1.1500 – 7Nov high – Strong
- R1 1.1400 – Fugure – Medium
- S1 1.1309 – 3Jan low – Medium
- S2 1.1268 – 28Nov low – Strong
EURUSD – fundamental overview
The Euro has been bid up into Friday, mostly on the back of the latest US ISM reading, with the data coming in much weaker than expected, driving yield differentials out of the Dollar’s favour. 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. Looking at the calendar, we get German unemployment, Eurozone inflation readings and the US employment report. Later in the day, the market will also be watching what comes from Fed Powell’s sit down with former Fed Chairs Yellen and Bernanke at the American economic association.
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.
- R2 1.2815 – 31Dec high – Strong
- R1 1.2681 – 31Dec low – Medium
- S1 1.2443 – 3Jan/multi-month low – Strong
- S2 1.2380 – Major 78.6% Fib retrace – Strong
GBPUSD – fundamental overview
Brexit 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. The Dollar is 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 some second tier UK data in the form of consumer credit and services PMIs, before the market turns its attention to the US session and the monthly employment report. Later in the day, the market will also be watching what comes from Fed Powell’s sit down with former Fed Chairs Yellen and Bernanke at the American economic association.
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.
- R2 109.73 – 2Jan high – Strong
- R1 108.90 – 3Jan high – Medium
- S1 104.70 – 3Jan low – Medium
- S2 104.63 – 2018 low – Strong
USDJPY – fundamental overview
The major pair has managed to recover out from those flash crash lows, with the latest wave of demand coming from a number of risk positive headlines. The softer US ISM data has increased odds the Fed will need to reconsider a more hawkish stance than the market is pricing, US and China officials will meet in person next week, and the US House has just passed those bills to end the government shutdown (Senate still needs to sign off). Looking ahead, the US jobs report will be a major focus, along with a late appearance from the Fed Chair, when Powell sits down with former Fed Chairs Yellen and Bernanke at the American economic association.
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.
- R2 1.1435– 16Nov high – Strong
- R1 1.1359 – 22Nov high – Medium
- S1 1.1200 – Psychological – Medium
- S2 1.1185– 7Sep/2018 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 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.
- R2 0.7078 – 27Dec high – Strong
- R1 0.7050 – Mid-Figure – Medium
- S1 0.6994 – 4Jan low – Medium
- S2 0.6817 – 3Jan/Decade low – Strong
AUDUSD – fundamental overview
While the Australian Dollar suffered a major blow from this week’s flash crash, sinking to its lowest levels in a near decade, the currency has managed to find quick demand into dips. A possible Fed pause, ongoing drama at the White House and worry about US administration protectionism are all USD bearish drivers. Certainly, an uptick in risk sentiment into Friday is also helping, with the softer US ISM data (should get the Fed thinking pause), news of next week’s in person meeting between US and China officials, and the House passage of the bills to end the US partial government shutdown inspiring the recovery. Looking ahead, the US jobs report will be a major focus, along with a late appearance from the Fed Chair, when Powell sits down with former Fed Chairs Yellen and Bernanke at the American economic association.
USDCAD – technical overview
The market recently extended its run through a major psychological barrier at 1.3500, breaking to fresh multi-month high. However, stretched technical studies suggest additional upside may be limited to this area, with risk for another sizable pullback. Thursday’s bearish reversal is confirming the shorter-term bearish outlook, which has room to extend back down towards 1.3000.
- R2 1.3665– 31Dec/2018 high – Strong
- R1 1.3500 – Psychological – Medium
- S1 1.3416 – 19Dec low – Medium
- S2 1.3398 – 12Dec low – Strong
USDCAD – fundamental overview
The Canadian Dollar is finally fighting its way back from multi-month lows, with the Loonie getting a lot of help from the recovery in the price of OIL and US Dollar bearish sentiment. Activity will pickup later in the day, with the market taking in the double whammy of employment reports. Attention will then turn to the Fed Chair, when he sits down with former Fed Chairs Yellen and Bernanke at the American economic association.
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.
- R2 0.6746 – 26Dec high – Strong
- R1 0.6725– 2Jan high – Medium
- S1 0.6565 – 3Jan low – Medium
- S2 0.6500 – Psychological – Strong
NZDUSD – fundamental overview
The New Zealand Dollar held up relatively well in the face of this week’s flash crash. The commodity currency is trying its best to shrug off deteriorating global sentiment, instead deferring to profit taking on USD longs from softer US data that should pressure the Fed into easier policy, ongoing White House drama, and US administration trade policy. It’s also worth noting this week’s positive GDT auction result, something that gives the New Zealand Dollar another reason to be feeling good. Looking ahead, the US jobs report will be a major focus, along with a late appearance from the Fed Chair, when Powell sits down with former Fed Chairs Yellen and Bernanke at the American economic association.
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.
- R2 2688 – 12Oct high – Strong
- R1 2521 – 28Dec high – Medium
- S1 2339 – 26Dec/2018 low – Medium
- S2 2300 – Psychological – Strong
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.
- R2 1300 – Psychological – Strong
- R1 1292– 3Jan high – Medium
- S1 1264 – 26Dec low – Medium
- S2 1233 – 14Dec 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
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.
- R2 5,050 – 20Nov high – Strong
- R1 4,480 – 29Nov high – Strong
- S1 3,212– 15Dec/2018 low –Medium
- S2 2,975 – Sep 2017 low – Very Strong
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.
- R2 200 – Psychological – Medium
- R1 167 – Previous Support – Strong
- S1 109 – 22Dec low – Medium
- S2 83 – 7Dec/2018 low – Strong
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.
- The Yen Inspired Flash Crash is an Ugly Omen, M. Ashworth, Bloomberg (January 3, 2019)
- Stocks Have Plummeted But Doesn’t Mean Time to Buy, S. Tulley, Fortune (January 2, 2019)