Next 24 hours: Holding Pattern into Major Risk Events
Today’s report: Cracks at the Surface
The calendar isn’t all that hot on Tuesday, but there are bigger picture storylines that could easily inspire plenty of volatility. These include US-China trade talks, Brexit updates and positioning into tomorrow’s highly anticipated FOMC decision.
Wake-up call
- USD outflow
- More updates
- bigger picture
- policy strategy
- business conditions
- OIL activity
- US-China trade
- Fed model
- Hard asset
- Bitcoin outlook
- Demand expected
Peformance chart: 5-Day Performance v. US dollar
Suggested reading
- Trade Deals Less Important Than Easy Money J. Authers, Bloomberg (January 28, 2019)
- The Future of Economics, B. Greeley, Financial Times (January 28, 2019)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
Despite the latest round of setbacks, the market looks to be in the process of carving out a meaningful base off the multi-year low from 2017, with a higher low sought out ahead of the next major upside extension back towards and through the +3 year high from 2018 around 1.2550. Look for the major pair to continue to be well supported on dips into the 1.1300 area, with only a break back below the 2018 low around 1.1215 to compromise the outlook.
EURUSD – fundamental overview
The Euro has rallied back after an ECB day selloff this past Thursday. We had talked a lot about solid demand from longer term players into dips and the well supported area around 1.1300. The market seemed to be selling too aggressively post ECB, with the central bank delivering no real surprises after it was already expected the ECB would sound more dovish and downbeat. We’ve since seen the single currency wake up to this fact, while also exiting the Buck on the news of the end of the government shutdown. There’s also been some squaring up of US Dollar long exposure ahead of tomorrow’s Fed decision. As far as today goes, US Case Shiller and consumer confidence readings are the only notable standouts.
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 1.3000 helps to strengthen the bullish prospect. Next short-term resistance is up at 1.3175.
GBPUSD – fundamental overview
Despite ongoing uncertainty, odds for a no-deal Brexit scenario have been reduced significantly over the several days, and this has helped to inspire tail risk position squaring and overall outperformance. There is now a growing expectation the Article 50 trigger date will be pushed back, if Theresa May is unsuccessful with her Plan B attempt. The Pound has also been helped along by some hawkish leaning BOE comments and last week’s impressive UK employment report, which produced a healthy jump in the earnings component. At the same time, we’ve also seen some Dollar selling on the back of the end of the US government shutdown. Looking at today’s calendar, we’ll get the Brexit Bill amendment votes and some US data that features Case Shiller and consumer confidence readings.
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
The major pair will continue to track along with risk sentiment. After benefiting from a healthy rebound in stocks this month, the market could be getting ready to roll back over again. We don’t see equities holding up in the aftermath of the end of the US government shutdown and continue to see risk assets exposed to the realities of exhausted monetary policy and government stimulus post 2008 financial markets crisis. Looking ahead, the calendar is light. US Case Shiller and consumer confidence readings are the only notable standouts.
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
On the data front, Aussie took a little hit today on the sharp drop in the business conditions component of the NAB survey, but RBA Harper managed to offset this flow with comments that the next policy move is expected to be a hike. Overall, Australian Dollar continues to hold up well into dips, with the currency getting some help from a wave of US Dollar profit taking on news of the end of the US government shutdown and rallying metals prices. Still, we continue to see risk assets vulnerable to the realities of exhausted monetary policy accommodation and government stimulus post 2008 crisis and we believe Aussie will also be subject to weakness on any turbulence that we get this week from the US-China trade talk front. Looking ahead, the calendar is light. US Case Shiller and consumer confidence readings are the only notable standouts.
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 Loonie has put in an impressive recovery run off the 2018 low against the Buck, getting a big boost from a recovery in the price of OIL, a more balanced Bank of Canada outlook and profit taking on the US Dollar in the aftermath of the end of the US government shutdown. Looking at today’s calendar, absence of first tier data out of Canada will leave the market focused on the price of OIL, bigger picture macro themes and US Case Shiller and consumer confidence readings.
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
The New Zealand Dollar has been holding up well despite ongoing vulnerability associated with the risk correlated commodity currency. A lot of this latest bid comes from some profit taking on US Dollar long exposure as the US government opens back up. Still, Kiwi faces headwinds from renewed risk off flow, which we see as a distinct possibility, with risk assets vulnerable to the realities of exhausted monetary policy accommodation and government stimulus post 2008 crisis. Looking ahead, the market will be watching developments on the US-China trade talks front, US equities and pre-Fed positioning. Looking ahead, the calendar is light. US Case Shiller and consumer confidence readings are the only notable standouts.
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. The latest push through 1300 strengthens the outlook.
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.