Next 24 hours: Quiet Start to the Week
Today’s report: Thinner Monday Trade on MLK Day
Economic data out of China came in solid in early Monday trade, though this has failed to inspire additional demand for risk assets. It seems a combination of profit taking from last week’s run and faded optimism around US-China trade talks, have been offsetting.
Wake-up call
- producer prices
- Plan B
- USDJPYChina data solid but no pop
- policy strategy
- US-China talks
- OIL rebound
- USD themes
- Fed model
- Hard asset
- Bitcoin outlook
- Demand expected
Peformance chart: 5-Day Performance v. US dollar
Suggested reading
- Coal’s Belt and Road Links Are Crumbling D. Fickling, Bloomberg (January 18, 2019)
- How Shutdown Impacts the US Economy, V. Kortekaas, Financial Times (January 18, 2019)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The Euro recently broke out from a period of extended consolidation off the 2018 low, setting the stage for a bullish structural shift. Look for the market to establish above 1.1500 over the coming sessions for confirmation, setting the stage for an acceleration towards next critical resistance in the 1.1815 area, which guards against a retest of the +3 year high from 2018 around 1.2550. Setbacks should now be well supported, with only a close back below 1.1300 to delay the constructive outlook.
EURUSD – fundamental overview
Overall, the Euro continues to get bought aggressively by longer term players into dips. These players are looking at the combination of a Fed that’s taking a full pause in 2019 more seriously, ongoing White House drama, and the US administration’s soft Dollar protectionist agenda. Looking at today’s calendar, key standouts are in the US session and feature industrial production, Michigan sentiment and some Fed speak, with Williams and Harket on the docket. Looking ahead, Monday trade will be thinner on account of MLK holiday closures in the US. German producer prices are the only notable standout. Meanwhile, attempts to end the longest US government shutdown on record have failed thus far.
EURUSD – Technical charts in detail
GBPUSD – technical overview
We 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. The recent break back above short-term resistance at 1.2815 helps to strengthen the bullish prospect. Next short-term resistance is up at 1.3175.
GBPUSD – fundamental overview
Theresa May has given up her strategy of cross party talks that wasn’t making any headway and that would have ended up splitting the Tories, eliminating a recent wave of optimism. Instead, it seems the PM is back working on the Irish backstop, in an effort to get the DUP and Tory Brexiteers to support her deal. But this has been a tough road for the PM thus far and any breakthroughs will be difficult on this front. Still, we continue to hear talk of an Article 50 extension, which has been supportive of the Pound despite all the uncertainty, as this significantly diminishes the risk of a hard Brexit. The Prime Minister will officially unveil her Plan B today, though it seems the cat is already out of the bag. There are no data releases of note, and the US session will be thinner on account of the MLK Day holiday.
GBPUSD – Technical charts in detail
USDJPY – technical overview
The major pair is in the process of consolidating the latest round of declines within a bigger picture downtrend. 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
Economic data out of China was a source of relief to start the week, though there has been a wave of offsetting, bearish sentiment on the back of faded optimism over US-China trade talks. Overall, there haven’t been enough risk positive developments that should have investors believing last week’s run up in USDJPY was anything other than corrective ahead of the next round of risk liquidation. Moreover, the themes of a more dovish Fed, ongoing US government shutdown and US protectionism, all argue for additional Dollar weakness ahead. Today’s economic calendar is empty, in light of the US holiday closures for MLK Day.
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
Despite the recent 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. As far as the topside goes,the market would need to break back above 0.7400 to force a bullish shift in the structure.
AUDUSD – fundamental overview
Aussie has held up quite well into dips, with most of the demand coming from last week’s run up in the US equity market. And into this week, the Australian Dollar has been trying to find additional support on the solid round of first tier Chinese data in the form of retail sales, industrial production and GDP. Meanwhile, a possible Fed pause, ongoing drama at the White House and worry about US administration protectionism are all USD bearish drivers expected to continue to support Aussie into setbacks. Still, Aussie is also sensitive to downside risk associated with a deterioration in global sentiment, and faded optimism around US-China trade talks, along with a lack of stronger follow through from a record setting China liquidity injection, could also offset demand for Aussie from the highlighted positives. Today’s economic calendar is empty, in light of the US holiday closures for MLK Day.
USDCAD – technical overview
A period of intense correction has kicked in after a run to its highest levels since May 2017. Overall, the structure remains constructive, with dips expected to be well supported ahead of 1.3000 for renewed upside. Only back below the psychological barrier would compromise this view.
USDCAD – fundamental overview
Oil’s recovery from the dump we had seen in recent weeks has helped to support the Loonie and reinforce the BoC’s more balanced view. Meanwhile, growing evidence of broad based renewed sell interest in the US Dollar has been another major contributing factor to the recent run of Loonie gains. The drivers of USD selling include a possible Fed pause in 2019, the US government impasse and soft Dollar US protectionism. Friday’s hotter Canada CPI was also supportive of the Loonie but failed to have much of an impact. Looking ahead, there’s no first tier data scheduled in Canada and US trading conditions will be thinner on account of the MLK Day holiday.
NZDUSD – technical overview
While the bigger picture outlook still shows the market in a downtrend, as per the weekly chart, there’s 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. A break back above 0.6970 will strengthen the constructive outlook.
NZDUSD – fundamental overview
Despite some setbacks and underperformance over the past week, the New Zealand Dollar held up relatively well since recovering out from multi-month lows in Q4 2018. The commodity currency is benefitting from a less hawkish Fed outlook, ongoing White House drama, and soft Dollar protectionist US administration policy. Still, risk liquidation themes remain an ongoing concern for the correlated commodity currency. Lack of positive momentum from US-China trade talks and a cooling China economy (despite the solid Monday economic data) that hasn’t been too excited about this latest record setting liquidity injection are the type of things that could once again weigh on Kiwi. Today’s economic calendar is empty, in light of the US holiday closures for MLK Day.
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
The latest recovery rally has stalled out into a meaningful previous support zone, to keep the pressure on the downside, with risk for a bearish continuation to next critical support in the 50-75 area. At this point, it would take a sustained break back above 167 to take the immediate pressure off the downside.
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.