Next 24 hours: A Boring Start to the Week
Today’s report: China Out, Market Contemplates USD Exposure
We’re off to a quiet start this week, after coming out of a week in which the US Dollar was mostly sold on the back of a Fed policy decision which had the central bank outlining its intention to hit the brakes on the normalization process.
Wake-up call
- producer prices
- construction PMIs
- Risk assets
- policy strategy
- building approvals
- Recovering OIL
- Higher stocks
- Fed model
- Hard asset
- Bitcoin outlook
- Demand expected
Peformance chart: 5-Day Performance v. US dollar
Suggested reading
- Asia’s Big Chance, Courtesy of the Fed, D. Moss, Bloomberg (February 1, 2019)
- New Silk Road: China’s Trillion Dollar Campaign, A. Frazzetta, New York Times (January 30, 2019)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
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. A push above 1.1570 will strengthen the outlook.
EURUSD – fundamental overview
The US jobs report produced a mixed result, though on net, the takeaway was one which supported the Fed’s more cautious outlook, on the back of a downward revision to NFPs, rise in the unemployment rate and softer hourly earnings. This kept the Euro supported on dips. There wasn’t much reaction to a batch of Eurozone manufacturing PMIs that came in broadly in line with expectation. Looking ahead, we get Eurozone Sentix investor confidence, Eurozone producer prices and US factory orders.
EURUSD – Technical charts in detail
GBPUSD – technical overview
The major pair has put in an impressive recovery in recent weeks, helping to support the case for a longer-term developing uptrend off the 2016 low, with a higher low sought out by the multi-month low from early January. A break back above the September 2018 high at 1.3300 will strengthen this outlook, while setbacks should now be well supported ahead of 1.2650.
GBPUSD – fundamental overview
Chancellor of the Exchequer Philip Hammond said the EU and UK would agree to delay Brexit if more time was needed to pass required legislation. The prospect of a hard Brexit in March has been reduced significantly and it looks like an extension of the Article 50 date is where things could be headed. On the data front, UK manufacturing PMIs came in a little softer, but didn’t really factor into price action, with more of the focus on a mixed US jobs report that ultimately supported the recent dovish shift in the Fed’s outlook. As far as today goes, key standouts on the calendar include UK construction PMIs and US factory orders.
GBPUSD – Technical charts in detail
USDJPY – technical overview
The major pair is in the process of consolidating within a bigger picture downtrend. Look for any recovery rallies to be well capped ahead of 111.50 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, which guards against the 2016 low at 99.00.
USDJPY – fundamental overview
The major pair will continue to track along with risk sentiment. After benefiting from a healthy rebound in stocks in January, the market could be getting ready to roll back over again. We don’t see equities holding up in a world where risk assets are exposed to the realities of exhausted monetary policy and government stimulus post 2008 financial markets crisis. The major pair is also vulnerable to broad based US Dollar selling in the aftermath of the more dovish leaning FOMC decision. On the data front, Friday’s US jobs report was mixed but supported the Fed’s dovish shift in light of the downward revision to NFPs, rise in the unemployment rate and softer hourly earnings. Looking ahead, US factory orders are the only notable standout for the remainder of the 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
The market has been very well supported since breaking down in early January to multi-year lows. The price action suggests we could be seeing the formation of a major base, though it would take a clear break back above 0.7400 to strengthen this outlook. Look for setbacks to now be well supported ahead of 0.7000.
AUDUSD – fundamental overview
Thinner trading activity in Asia this week with China out for the Lunar New Year holidays. Aussie has given back som recent gains on Monday after building approvals and job ads came in on the softer side. But overall, The Australian Dollar is coming off a week of outperformance, with the currency benefitting from a combination of factors including this latest US jobs data supporting the Fed’s dovish shift, hawkish RBA Harper comments, hotter than expected Aussie inflation readings and rallying metals prices. Still, we continue to see risk assets as vulnerable on account of US trade policy and exhausted central bank and government stimulus efforts post 2008 crisis, which could keep Aussie from really taking off in 2019. Looking ahead, US factory orders is the only notable standout on the Monday docket.
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 a medium-term higher low from September 2018 around 1.2780.
USDCAD – fundamental overview
The Loonie has put in an impressive recovery run off the 2018 low against the Buck, getting a big boost from an impressive bounce in OIL prices, more balanced Bank of Canada outlook, and renewed selling of the US Dollar after the US jobs report confirmed the need for the Fed to be hitting the pause button. At the same time, with risk assets looking vulnerable after an impressive January run and US trade policy a worry for investors, there is risk the Loonie will come back under pressure again. Looking at the Monday calendar, absence of first tier data out of Canada will leave the focus on US factory orders.
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 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 push through 0.6970 will strengthen the constructive outlook.
NZDUSD – fundamental overview
The New Zealand Dollar enjoyed the benefits of risk on price action in January, along with renewed selling of the US Dollar in the aftermath of more dovish leaning Fed decision. Still, Kiwi faces headwinds in an environment where risk assets remain vulnerable to the realities of exhausted monetary policy accommodation and government stimulus post 2008 crisis. Risk assets will also be a lot more vulnerable if trade talks between the US and China deteriorate. Looking ahead, US factory orders is the only notable standout on the Monday docket.
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, with only a close back below 1250 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 between $50 and $100.