Next 24 hours: Safe Haven Currencies Up, Risk Assets Down
Today’s report: Investors swimming to safer waters
Risk liquidation is the theme into Tuesday, with safe haven currencies outperforming and global equities turning down. Markets are back to full form today, after the US had been on holiday for MLK Day. Looking at the calendar, we get UK employment data, German and Eurozone ZEW surveys, Canada manufacturing sales and US existing home sales.
Wake-up call
- German ZEW
- UK ministers
- CFO extradition
- policy strategy
- Risk liquidation
- manufacturing sales
- Softer data
- Fed model
- Hard asset
- Bitcoin outlook
- Demand expected
Peformance chart: 5-Day Performance v. US dollar
Suggested reading
- Beijing Isn’t Backing the Junk Bond Rally S. Ren, Bloomberg (January 22, 2019)
- What Are Leveraged Loans?, R. Birkett, Financial Times (January 22, 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. Markets get back to full form on Tuesday following the Monday holiday in the US. Looking at the calendar, we get German and Eurozone ZEW surveys and US existing home sales.
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
The Pound has pulled back from recent recovery highs on the back of some flight to safety bids that are benefitting the Buck into Tuesday. Meanwhile, on the Brexit front, the Times has reported up to 40 UK ministers and government aides will resign next week if Theresa May refuses to allow a vote to close off the possibility for a no-deal outcome. Looking at the calendar, we get UK employment data and US existing home sales.
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
Markets are back to full form today, after the US had been on holiday for MLK Day. Risk liquidation is the theme into Tuesday, with the Yen outperforming as global equities turn down. We believe there are many catalysts to the price action, which include the US formally seeking extradition of Huawei’s CFO from Canada, natural profit taking following the run up from last week and a global macro backdrop into 2019 that should have investors far more vulnerable to downside risks in a world where monetary policy accommodation and government stimulus have been exhausted. Looking at the calendar, US existing home sales is the only notable standout. It’s also worth noting the major pair could see some event risk positioning into Wednesday’s BOJ decision.
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
The Australian Dollar is feeling the pressure of renewed risk liquidation as markets get back to fuller form after the US long weekend. The primary catalysts for Aussie weakness come from the US formally seeking extradition of Huawei’s CFO from Canada, natural profit taking following the run up from last week and a global macro backdrop into 2019 that should have investors far more vulnerable to downside risks in a world where monetary policy accommodation and government stimulus have been exhausted. Some of these bigger picture risks associated with Aussie are those risks linked to a slowdown in China and possible trade war with the US. Looking at the calendar for the remainder of the day, US existing home sales is the primary standout.
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
The Canadian Dollar has been giving back some of its recent run of gains, with risk liquidation themes weighing on the Loonie in the early week. The Loonie had put in an impressive recovery run off the 2018 low against the Buck, getting a big boost from the recovery in OIL and a more balanced Bank of Canada outlook. Looking at today’s calendar, key standouts come in the form of Canada manufacturing sales and US existing home sales.
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
Risk liquidation themes remain an ongoing concern for the correlated commodity currency. Into Tuesday, Kiwi has taken a hit on softer performance of services and the news of the US seeking a formal extradition of Huawei’s CFO from Canada. Looking at the calendar for the remainder of the day, US existing home sales is the primary standout.
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.