Today’s report: Plenty of uncertainty into the weekly close
We’re into Friday and looking at the scorecard since the weekly open, it’s the New Zealand Dollar that stands out, up about 1.25% since things got going on Monday, while the Pound sits on the other end of the spectrum, down about 1% on the week. UK retail sales, Eurozone trade and US industrial production are some of today’s releases.
Wake-up call
- Eurozone trade
- retail sales
- political risk
- policy strategy
- US-China trade
- OIL bounce
- bigger picture
- Fed model
- Hard asset
- Bitcoin outlook
- Demand expected
Peformance chart: 5-Day Performance v. US dollar
Suggested reading
- Emerging-Market Rebound Has Room to Run, J. Authers, Bloomberg (February 14, 2019)
- Why Paul Tudor Jones Fears a Revolution, C. Idzelis, Institutional Investor (February 13, 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 below 1.1300, with only a close back below the 2018 low at 1.1215 to compromise the outlook. A push above 1.1570 will strengthen the outlook.
EURUSD – fundamental overview
The Euro recovered on Thursday after US retail sales came in much weaker than expected. Into Friday, there have been concerns about political instability in Spain and Italy. The market is also waiting to see how things play out with US-China trade talks and the news of President Trump declaring a national state of emergency to secure border wall funding. As far as today’s economic calendar goes, key standouts come from Eurozone trade, and US releases that include empire manufacturing, industrial production and Michigan sentiment.
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. The latest pullback is viewed as corrective on the daily chart, with the market still holding above the daily Ichimoku cloud top. 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
Theresa May’s insistence that delay to Brexit is not an option, might be what the PM is thinking right now, though there’s been plenty of evidence to suggest that when the time comes, considering a delay may be what is necessary. We suspect there will be some more clarity after a week that failed to produce any major updates. UK data has been a little softer this week and the market will be looking to see if today’s UK retail sales can do better for the Pound, than Thursday’s horrid US retail sales did for the US Dollar. Other data out includes a batch of US releases in the form of empire manufacturing, industrial production and Michigan sentiment.
USDJPY – technical overview
The major pair is in the process of chopping 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
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 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. We’ve also seen plenty of headlines in recent days talking downward revisions to growth outlooks in major economies around the globe. For today, the focus will be on US empire manufacturing, industrial production and Michigan sentiment. The market will also be looking for updates relating to US-China trade talks and the news of President Trump declaring a national state of emergency to secure border wall funding.
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
The Australian Dollar has been supported into Friday after a horrid US retail sales print triggered broad based selling of the Buck. This follows what has been a solid run of developments for Aussie which include more upbeat RBA speak, decent China reads and solid local data. At the same time, there is quite a bit of risk associated with the commodity currency, particularly as things relate to updates on US-China trade and the latest news of President Trump declaring a national state of emergency to secure border wall funding. On the data side, we get US empire manufacturing, industrial production and Michigan sentiment.
USDCAD – technical overview
A period of correction has kicked in after a run at the end of 2018 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 entered a period of stabilisation following an impressive recovery run off the 2018 low against the Buck (USDCAD high). Better bid OIL and and renewed broad based selling in the US Dollar in the aftermath of a horrid US retail sales print, have helped the Loonie hold up into periods of weakness, offsetting some of the negative fallout from Thursday’s discouraging Canada manufacturing report. Looking ahead, absence of first tier data out of Canada will leave the focus on US releases that include empire manufacturing, industrial production and Michigan sentiment.
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
Kiwi has been an outperformer in the FX market over the past week. The relative strength comes from a more upbeat RBNZ policy decision, rallying equities, solid China data, decent local economic releases and horrid US retail sales. Still, the New Zealand Dollar continues to face headwinds in an environment where US-China trade talks are shaky, and risk assets look vulnerable to the realities of exhausted monetary policy accommodation and government stimulus post 2008 crisis. Investor tension is also running higher into the end of the week on the news that President Trump will be declaring a state of national emergency to secure border wall funding. Looking at the economic calendar, the focus will be on US releases, with empire manufacturing, industrial production and Michigan sentiment due.
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. Although we have seen attempts to push the market higher in early 2019, on the Fed’s more cautious outlook, exhausted monetary policy tools post 2008 crisis suggest the prospect for fresh record highs at this point in the cycle are not a realistic prospect. 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.