More ways than one to justify a rate cut

Next 24 hours: Powell offers his reassurances to investors

Today’s report: More ways than one to justify a rate cut

The US Dollar run continues into the mid-week, though as we’ve highlighted, as of yet, no key levels have been broken that would suggest the Buck is about to make another big move. Wednesday's Fed Chair testimony will be used as vehicle to determine if recent moves to scale back rate cut bets have in fact been well founded.

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Wake-up call

Chart talk: Technical & fundamental highlights

EURUSD – technical overview

The major pair has extended its run of declines off the 2008 high, trading down to a fresh multi-month low in May. But with the downtrend looking exhausted, the prospect for a meaningful higher low is more compelling, with a higher low sought out above the multi-year low from 2017, ahead of the next major upside extension. Only a weekly close back below the psychological barrier at 1.1000 would compromise this outlook. Back above 1.1450 will strengthen the view.

  • R2 1.1348 – 7 June high – Strong
  • R1 1.1296 - 4 July high – Medium
  • S1 1.1194 - 9 July low – Medium
  • S2 1.1181 – 15 June low – Strong

EURUSD – fundamental overview

It's been a consistent drip for the Euro since last Friday's above forecast US NFP print that had the market scaling back on Fed rate cut bets. Softer data out of the Eurozone and dovish ECB comments have further contributed to this week's extension of declines. At the same time, dealers continue to report medium-term account bid interest on dips, with many of these players building their soft Dollar bets around soft USD trade policy from the US administration. Looking ahead, there's no first tier data scheduled out of the Eurozone on Wednesday, and the key focus will be on the Fed Chair's testimony. Late in the day, we get the Fed Minutes.

EURUSD - Technical charts in detail

GBPUSD – technical overview

Despite the latest round of setbacks, there has been evidence of a major bottom off of the 2016 low, that would argue for dips to be well supported. As such, look for weakness to be well supported on dips into the 1.2400s, with a break back above 1.2600 to take the immediate pressure off the downside and strengthen the outlook. Only a weekly close back below 1.2400 would compromise the longer-term recovery structure.

  • R2 1.2601– 3 July high – Strong
  • R1 1.2540 – 3 July high – Medium
  • S1 1.2440 – 9 July low – Medium
  • S2 1.2407– 2 January/2019 low – Strong

GBPUSD – fundamental overview

More downside for the Pound this week, carrying over from last week's combination of soft UK data, worry over the Brexit outlook and repricing of dovish Fed bets post US NFPs. On Tuesday, UK MPs voted 294-293 to back an amendment that would prevent the next PM from forcing a no-deal Brexit. Meanwhile, the Labour party called on the UK government to put any Brexit deal to a referendum, while making it known that it would rather stay in the EU than the alternatives of a deal brokered by the Conservatives or a no-deal Brexit. Looking ahead, we get a batch of first tier data out of the UK that includes GDP, trade, industrial production and construction output, followed by an anticipated Fed Chair testimony and Fed Minutes late in the day.

USDJPY – technical overview

The longer-term downtrend remains firmly intact, with the major pair gravitating back towards a retest of major support in the form of the 2018 and 2019 lows respectively, down in the 104s. Any rallies should now be well capped below 110.00, though only a break back above the yearly high at 112.40 would compromise the bearish outlook.

  • R2 109.93 – 26 May high – Medium
  • R1 109.00 – Figure – Medium
  • S1 108.00 – Figure – Medium
  • S2 107.53 – 3 July low – Strong

USDJPY – fundamental overview

The major pair has made a healthy bounce out from recent lows, with most of the demand coming from the US Dollar side, as market participants reconsider Fed rate cut bets in the aftermath of last Friday's US NFP print that came in well above forecast. At the same time, because the stronger US data has cast doubts on the level of Fed accommodation going forward, there have also been offers capping the major pair, on the expectation this will open a wave of risk liquidation. In Japan, the trade minister was out saying restrictions imposed on tech exports to South Korea were not a matter of negotiation, though Japan was willing to keep an open line with South Korea on the matter. Looking ahead, key standouts on the Wednesday calendar come from the Fed Chair's testimony and Fed Minutes late in the day.

EURCHF – technical overview

The recent breakdown below critical range support in the 1.1200 area, has opened the door for the next wave of declines targeting a move back towards initial support in the form of the 1.1000 psychological barrier. The market is trading at its lowest levels in nearly two years and at this point, it would take a daily close back above 1.1279 to take the immediate pressure off the downside.
  • R2 1.1265 – 12 June high – Strong
  • R1 1.1173 – 2 July high – Medium
  • S1 1.1057 – 20 June/2019 low – Medium
  • S2 1.1000 – Psychological – Strong

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, 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 on dips 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 0.7100 to strengthen this outlook. In the interim, look for setbacks to continue to be well supported ahead of 0.6800.

  • R2 0.7049 – 7 May high – Strong
  • R1 0.6995 – 8 July high – Medium
  • S1 0.6900 – Figure – Medium
  • S2 0.6832 – 18 June low – Strong

AUDUSD – fundamental overview

Broad based US Dollar demand on a reconsideration of Fed rate cut bets post last week's better than expected US NFP print, has opened a round of selling in the Australia Dollar after it had put in a healthy multi-session rally. The commodity currency had also been feeling less enthusiastic about a recent slide in the price of iron ore and some softer Tuesday data in the form of Aussie consumer confidence and business confidence. Looking ahead, key standouts on the Wednesday calendar come from the Fed Chair's testimony and Fed Minutes late in the day.

USDCAD – technical overview

The market has come under intense pressure over the past several weeks, extending declines to a fresh 2019 low. However, the longer-term structure remains constructive, with dips expected to be well supported for fresh upside, eventually back above the 2018/multi-month high at 1.3665. At this point, only a weekly close below the psychological barrier at 1.3000 would delay the outlook.

  • R2 1.3230– 21 June high – Strong
  • R1 1.3146 - 1 July high – Medium
  • S1 1.3038 – 4 July/2019 low – Strong
  • S2 1.3000 – Psychological – Strong

USDCAD – fundamental overview

Last week's contrasting employment reports out of Canada and the US, have been responsible for a large portion of the latest selling in the Canadian Dollar out from 2019 highs against the Buck (USDCAD lows). At the same time, setbacks in the Canadian Dollar have been somewhat contained, as the price of OIL tries to rally back up. Tuesday's data out of Canada was mixed, with housing starts coming in above forecast, and credit conditions and softer credit conditions going the other way, which ultimately proved to be offsetting. Looking ahead, the calendar will heat up for the Loonie on Wednesday, with the Bank of Canada decision due, along with Fed Chair Powell testimony and the Fed Minutes late in the day.

NZDUSD – technical overview

Despite recent weakness, there's a case to be made for a meaningful low in place at 0.6425 (2018 low). As such, look for setbacks to be well supported above the latter, in anticipation of renewed upside, with only a close below to compromise the outlook. The most recent rally has triggered a double bottom, further strengthening the constructive outlook. Look for a higher low to carve out ahead of 0.6500.

  • R2 0.6727 – 1 July high – Strong
  • R1 0.6700 –  Figure – Medium
  • S1 0.6595 – 26 June low – Medium
  • S2 0.6535 – 20 June low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar had been enjoying a nice rally in recent weeks on the back of improving Kiwi data, rallying stocks and better bid commodities. But the commodity currency has since relented, on account of a repricing of Fed rate cut expectations in the aftermath of last week's healthy US NFPs print. Tuesday's second tier Kiwi data may have added to some of the currency's slide, after the heavy traffic index fell by more than expected. Looking ahead, key standouts on the Wednesday calendar come from the Fed Chair's testimony and Fed Minutes late in the day.

US SPX 500 – technical overview

There have been signs of a major longer term top, after an exceptional run over the past decade. Any rallies from here, are expected to be very well capped, in favour of renewed weakness targeting an eventual retest of strong longer-term previous resistance turned support in the form of the 2015 high at 2140. The initial level of major support comes in at 2729, with a break below to strengthen the outlook. A weekly close above 3000 would be required to compromise the outlook calling for a top.

  • R2 3050 – Psychological – Strong
  • R1 3001 – 5 July/Record high – Medium
  • S1 2911 – 26 June low – Medium
  • S2 2867 – 13 June low – Strong

US SPX 500 – fundamental overview

Although we've seen the market extend to another record high in 2019, exhausted monetary policy tools post 2008 crisis suggest the prospect for a meaningful extension of this record run at this point in the cycle is not realistic. Meanwhile, expected renewed tension on the global trade front, should continue to be a drag on investor sentiment. We recommend keeping a much closer eye on the equities to ten year yield comparative going forward, as the movement here is something that could be a major stress to the financial markets looking out.

GOLD (SPOT) – technical overview

The recent breakout above the 2016 high at 1375 was a significant development, and suggests the market is in the early stages of a bullish move that follows a multi-month consolidation. The next major level of resistance comes in around 1500, while in the interim, look for any setbacks to be well supported above 1300.

  • R2 1488 – May 2013 high – Strong
  • R1 1440 – 25 June/2019 high – Strong
  • S1 1358 – 20 June low – Medium
  • S2 1320 – 11 June low – Strong

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

The market has enjoyed a nice run since breaking out above a consolidation between Q4 2018 and Q1 2019, though the rally had resulted in extended technical readings after racing through 10k psychological barrier. Overall, look for additional upside to be limited for now, to allow for these technical readings to unwind some more from stretched readings, before the market considers that next meaningful push. Initial support comes in at 9,721, though ultimately, the structure remains constructive while above 7,000.

  • R2 14,335– 15 January high (2018) – Strong
  • R1 13,748 – 26 June/2019 high – Medium
  • S1 9,721 – 2 July low – Medium
  • S2 8,935 – 19 June low – Strong

BTCUSD – fundamental overview

Bitcoin is enjoyed a spectacular run in the second quarter of 2019, racing to fresh yearly highs, surging through 10k, on the back of increased adoption and a clear readiness for the investment community to welcome the new digital asset into the mainstream. The news of tech giants now turning towards a world of crypto transactions has given Bitcoin a major boost, with the latest moves over at Facebook, only serving to give crypto assets additional credibility. The market is going through a period of technical adjustment after the fierce run up, though we anticipate renewed demand from institutional players into dips.

BTCUSD - Technical charts in detail

ETHUSD – technical overview

The recovery has recently accelerated to a fresh 2019 high, surging through medium-term resistance at 300 and back into critical previous support from back in 2018 around 355. The upside break suggests the market is now looking to establish a meaningful base, in favour of bullish structural shift. Still, shorter-term, the run was looking stretched and before we see that next major upside extension, expect rallies well capped, to allow extended readings to continue unwinding before the market gets going again. Initial support comes in at 272, though ultimately, the structure remains constructive while above 200.

  • R2 400 – Psychological – Strong
  • R1 363 – 26 June/2019 high – Medium
  • S1 272 – 2 July low – Medium
  • S2 260 – 19 June low  – Strong

ETHUSD – fundamental overview

There has been a lot more buzz around adoption following the Q2 2019 Bitcoin surge, with many mainstream names coming out in support of blockchain integration. Demand for web 3.0 applications is on the rise, and Ethereum is the blockchain with the biggest front end application potential. At the same time, profit taking in the aftermath of the rapid Q2 appreciation has triggered a healthy period of consolidation, while worry associated with fallout in the global economy, could be a theme that keeps the more risk correlated crypto asset weighed down, or at least underperforming relative to Bitcoin in the second half of the year.

Peformance chart: 5 Day Performance vs. US dollar

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