Next 24 hours: Pound weighed down in slow start to week
Today’s report: Where Things Stand into the New Week
We come into the new week with currencies reversing course and looking to build momentum against the Buck. Last week, the Dollar came under pressure, with even the Yen rallying, despite an ongoing record push in US equities. Key standouts on the Monday calendar include a batch of data out of China and US empire manufacturing.
Wake-up call
- IP beat
- upbeat Vlieghe
- Japan-South Korea
- SNB's job
- China data
- OIL flows
- visitor arrivals
- Fed incentives
- Macro players
- Institutional demand
- global economy
Suggested reading
- How China Can Create Its Own Goldman Sachs, N. Gopalan, Bloomberg (July 11, 2019)
- Silicon Valley Fears Transatlantic Trade Tensions, K. Stacey, Financial Times (July 12, 2019)
Chart talk: Technical & fundamental highlights
Choose pair:
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.EURUSD – fundamental overview
The Euro comes into the new week with solid momentum, after putting in an impressive recovery, mostly on the back of last Wednesday's Fed Powell testimony, in which the central banker communicated the need for additional rate cuts. Friday's better than expected Eurozone industrial production helped to keep the single currency bid into the weekly close. Looking at the Monday calendar, absence of first tier data out of the Eurozone, will leave the focus on US empire manufacturing and a Fed Williams speech.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.GBPUSD – fundamental overview
The Pound put in an impressive recovery in the second half of last week, narrowly averting a retest of the 2019 low against the Buck. The primary driver of the renewed demand came from the Fed Chair's Wednesday communication, in which Powell outlined the need for additional rate cuts. Market participants were also feeling a little better about the Brexit outlook, after a wave of government officials expressed their strong opposition to a no-deal Brexit, and BOE Vlieghe said a 'smooth Brexit would mean stronger investment, boosting growth, wages and underlying inflation.' Looking at the Monday calendar, absence of first tier data out of the Eurozone, will leave the focus on US empire manufacturing and a Fed Williams speech.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.USDJPY – fundamental overview
The Yen comes into the new week with a renewed bid tone, with the currency opting to respond more to yield differential fundamentals than risk sentiment. Last week's communication from the Fed Chair that rate cuts were still on the cards, had prompted a wave of broad based US Dollar selling, with the Yen rallying as a result, despite an ongoing bid in US equities to record highs. There were also concerns relating to Japan's trading relationship with South Korea, after Japan had curbed exports. South Korea had called for an international probe into Japan's claims that South Korea allowed sensitive materials to end up in the hands of North Korea. Looking at the Monday calendar, the major pair will digest a key batch of data out of China early on, in the form of GDP, industrial production and retail sales, before turning its attention to US empire manufacturing and a Fed Williams speech later 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.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.AUDUSD – fundamental overview
The Australian Dollar comes into the new week with a strong bid tone, after gaining momentum in the previous week on the back of the communication from Fed Powell that more rate cuts were to be expected. Aussie has also since benefited from an ongoing bid in commodities and record highs in US equities. Looking ahead, Looking at the Monday calendar, Aussie will digest a key batch of data out of China early on, in the form of GDP, industrial production and retail sales, before turning its attention to US empire manufacturing and a Fed Williams speech later 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.USDCAD – fundamental overview
Last week's combination of Fed Powell testimony flagging additional rate cuts, and a balanced Bank of Canada decision, was a combination that contributed to most of the latest drive in the Canadian Dollar to fresh 2019 highs against the Buck. On the commodities front, the price of OIL has also held up well, which gave the Loonie additional momentum. Looking ahead, we get Canada new motor vehicle sales, along with US empire manufacturing and a Fed Williams speech.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.NZDUSD – fundamental overview
The New Zealand Dollar managed to find its way back to the topside last week, with the primary driver of flow coming from Wednesday's Fed Chair Powell testimony. The central banker's opinion that rate cuts were still necessary in light of persistently low inflation and downside risks associated with US administration trade policy and global growth, was more than enough to wipe away the post US NFP US Dollar rally from the week before. Looking at the Monday calendar, Kiwi will digest visitors arrivals data and a key batch of data out of China early on (GDP, industrial production and retail sales), before turning its attention to US empire manufacturing and a Fed Williams speech later 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 monthly close above 3000 would be required to compromise the outlook calling for a top.US SPX 500 – fundamental overview
Although we've seen the market extend to another record high in 2019, on Fed signals of additional rate cuts, with so little room for additional easing, given an already depressed interest rate environment, the prospect for a meaningful extension of this record run, on easy money policy incentives, should no longer be as enticing to investors as it once was. 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.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
Overall, look for additional upside to be limited for now, as the market continues to consolidate, in the aftermath of a major surge in the second quarter of 2019. Any setbacks should be very well supported ahead of 7,000, with an eventual higher low sought out in favour of a bullish continuation back above the 2019 high at 13,748. Only a weekly close below 7,000 would compromise the constructive outlook.BTCUSD – fundamental overview
Bitcoin 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. Some attribute recent weakness to criticism of the space from Fed Chair Powell and President Trump.BTCUSD - Technical charts in detail
ETHUSD – technical overview
The market is in the process of a major correction after a surge in the second quarter of 2019. Look for setbacks to be well supported ahead of 200, in favour of the next major higher low and bullish resumption back towards and through the 2019 high up at 363. Ultimately, only a weekly close below 200 would compromise the constructive outlook.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.