Next 24 hours: Euro Finds Bids After 1.1400 Goes
Today’s report: Aussie Hammered on RBA Lowe Speak
RBA Governor Lowe caught Aussie longs off guard early Wednesday, forcing these players to reconsider their exposure after the central banker shifted gears, adopting a more neutral outlook. Lowe said rates could go in either direction, acknowledging risks on the domestic and international fronts.
Wake-up call
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- factory orders
- Irish backstop
- BOJ Kuroda
- policy strategy
- RBA Lowe
- USDCADIvey PMIs ahead
- US trade
- Fed model
- Hard asset
- Bitcoin outlook
- Demand expected
Peformance chart: 5-Day Performance v. US dollar
Suggested reading
- Star Trek Shows How to Live Long and Prosper, M. Gilbert, Bloomberg (February 6, 2019)
- Why Stocks May Not Cheer A Weaker Dollar, A. Tappe, MarketWatch (February 5, 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
Most of the news out of the Eurozone has been bearish Euro this week. On Tuesday, economic data was less than encouraging, with a batch of services PMIs on the whole weaker (Eurozone composite and services PMIs were an exception), and Eurozone retail sales also disappointing. Meanwhile, on the political front, Italian Deputy Premier Luigi Di Maio met a senior figure from France’s Yellow Vests movement, voicing his support for the protest movement against French president Emmanuel Macron. There were also reports that the EU may drastically lower 2019 economic growth forecasts for Italy. Looking ahead, we get German factory orders and US trade data.
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
There have been reports about Ireland and the European Commission in talks about an emergency fund to offset fallout from a no-deal Brexit. Theresa May was out recently stating her commitment to honoring commitments to Northern Ireland. The FT is reporting the PM appealing to business leaders in an effort to get the EU to a place of compromise on the Irish backstop. May will also be holding talks with EU Juncker on Thursday. We’ve also been hearing a lot about efforts in UK parliament to secure an extension to the Article 50 trigger date in March. All of this has been weighing on the Pound, with the currency taking an added hit on Tuesday’s round of softer services PMI data and some broad based US Dollar demand. Looking ahead, US trade data is the only notable standout on the calendar.
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
BOJ Kuroda was out dismissing the latest change in wages data (that he described as flawed), stating this wouldn’t cause a big change in the outlook and assessment for the economy. Overall, the major pair should continue to track along with risk sentiment. After benefiting from a healthy rebound in stocks since the yearly open, 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. Looking ahead, US trade data is the only notable standout on the calendar.
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
RBA Governor Lowe caught Aussie longs off guard early Wednesday, forcing these players to reconsider their exposure after the central banker shifted gears, adopting a more neutral outlook. Lowe said rates could go in either direction acknowledging risks on the domestic and international fronts. This was quite a departure from how the market had interpreted the RBA decision released just one day earlier, in which the market had felt the RBA was more upbeat than expected. Looking ahead, US trade data is the only notable standout on the calendar.
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 a bounce in OIL prices, more balanced Bank of Canada outlook, and renewed selling of the US Dollar on a more cautious Fed outlook. 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 ahead, key standouts on the calendar come in the form of US trade and Canada Ivey PMIs.
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 has enjoyed the benefits of risk on price action since the start to the year, largely on the back of the more cautious Fed outlook. 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 trade data is the only notable standout on the Wednesday calendar.
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 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.