Market still shaky on Fed outlook

Special report: Dollar dynamics, global trade and inflation

Today’s report: Market still shaky on Fed outlook

We come into Wednesday with the US Dollar having generated a fresh wave of demand from shorter term spec accounts, after these accounts reconsidered Fed rate cut bets in the aftermath of an above forecast US retail sales print. Meanwhile, the Pound has suffered another Brexit blow, sinking to a 27 month low against the Buck.

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Chart talk: Technical & fundamental highlights

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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 1.1286 - 11 July high – Medium
  • S1 1.1194 - 9 July low – Medium
  • S2 1.1181 – 15 June low – Strong

EURUSD – fundamental overview

The Euro has been under pressure this week, with setbacks more notable on Tuesday after the single currency took a hit on the softer German ZEW readings and some broad based demand for the US Dollar. The broad USD demand was attributed to an above forecast US retail sales print, which had many shorter-term traders taking this as a sign the Fed would be less inclined to cut rates. Still, dealers continue to talk of demand from medium and longer term players on dips, many of whom are still expecting those Fed rate cuts, while also betting on the Euro supportive impact of US administration soft Dollar trade policy. Looking ahead, Wednesday's European calendar features an ECB Coeure speech, Eurozone construction output, Eurozone inflation readings, and an appearance from the Bundesbank's Weidmann. In the US session, we get housing starts, building permits, and the Fed Beige Book.

EURUSD - Technical charts in detail

GBPUSD – technical overview

The major has been well supported on dips in 2019, but will need to hold up above 1.2400 on a weekly close basis, to keep the constructive outlook intact. If the market can hold up above 1.2400, it will set up a higher low above the +30 year low from 2016, ahead of the next major upside extension. If however the market puts in a weekly close below 1.2400, this will open the door for a retest of the sub-1.2000 2016 low.

  • R2 1.2579 – 12 July high – Strong
  • R1 1.2500 – Psychological – Medium
  • S1 1.2396 – 16 July/2019 low – Strong
  • S2 1.2365 – April 2016 low – Strong

GBPUSD – fundamental overview

Tuesday was an interesting day for the Pound, which tumbled to a 27 month low below 1.2400, on the back of ongoing worry about the Brexit outlook, and some broad demand for the US Dollar. Market fears of no-deal have yet to be put to rest, with the Theresa May's replacement candidates ruffling feathers, as they introduced the possibility of the removal of the Irish backstop from any deal. Meanwhile, a better than expected US retail sales print provoked a wave of Dollar demand from shorter term spec accounts, as they took this as a sign it would be harder for the Fed to justify rate cuts. What was interesting about the price action, was the fact that all of this overshadowed Sterling supportive employment data, which showed another above forecast earnings print. Looking ahead, Wednesday's calendar features UK inflation readings, and US releases highlighted by housing starts, building permits, and the Fed Beige Book.

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 109.00 – 10 July high – Medium
  • R1 108.61 – 12 July high – Strong
  • S1 107.80 – 15 July low – Medium
  • S2 107.53 – 3 July low – Strong

USDJPY – fundamental overview

At the moment, the major pair is caught between diverging flows. On Wednesday, the US Dollar had the upper hand, getting support from shorter term spec accounts keen on lightening up Fed rate cut bets after US retail sales came in above forecast. At the same time, downside pressure in US equities warned of risk liquidation, which kept the risk correlated major pair well capped into the rally. Looking ahead, key standouts on the calendar come from the US session, which features housing starts, building permits, and the Fed Beige Book.

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 – 16 July/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 0.7070 – 30 April high – Strong
  • R1 0.7049 – 7 May high – Medium
  • S1 0.6954 – 11 July low – Medium
  • S2 0.6911 – 10 July low – Strong

AUDUSD – fundamental overview

The Australian Dollar recovery fell victim to some broad US Dollar demand on Tuesday, with shorter term traders scaling back on Fed rate cut bets after US retail sales came in above forecast. We also saw Aussie under pressure on risk off flow, as US equities showed signs of rolling over. Looking ahead, key standouts on the calendar come from the US session, which features housing starts, building permits, and the Fed Beige Book.

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 1.3146– 1 July high – Strong
  • R1 1.3100 - Figure – Medium
  • S1 1.3018 – 12 July/2019 low – Strong
  • S2 1.3000 – Psychological – Strong

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 the drive in the Canadian Dollar to fresh 2019 highs against the Buck. But this week, the story has been different, with the Canadian Dollar coming under pressure on the back of scaled back rate cut bets post a stronger US retail sales print, and on the back of renewed selling in the price of OIL. Looking ahead, key standouts on the calendar include Canada inflation readings and manufacturing sales, along with US releases in the form of housing starts, building permits, and the Fed Beige Book.

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 projecting a measured move upside extension towards 0.7000, further strengthening the constructive outlook. The daily chart now shows the next confirmed higher low in place at 0.6568.

  • R2 0.6783 – 15 April high – Strong
  • R1 0.6739 –  16 July high – Medium
  • S1 0.6653 – 12 July low – Medium
  • S2 0.6568 – 10 July low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar managed to extend its recovery run to multi-day highs on Tuesday, before falling victim to a fresh wave of broad based US Dollar demand. The initial rally was inspired by hotter than expected Kiwi inflation data, though this could not be sustained after US retail sales came in above forecast, prompting shorter-term spec accounts to reconsider Fed rate cut bets. We also saw some downside pressure as the risk correlated currency reacted to a dip in US equities. Looking ahead, key standouts on the calendar come from the US session, which features housing starts, building permits, and the Fed Beige Book.

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.

  • R2 3050 – Psychological – Strong
  • R1 3021 – 15 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, 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.

  • 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

Overall, look for additional upside to be limited for now, as the market continues to correct and 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.

  • R2 13,748– 26 June/2019 high – Strong
  • R1 11,031 – 16 July high – Medium
  • S1 9,094 – 30 May high – Strong
  • S2 8,935 – 19 June low – Strong

BTCUSD – fundamental overview

Bitcoin enjoyed a spectacular run in the second quarter of 2019, racing to fresh yearly highs, surging towards 14k, on the back of increased adoption and more openness from the traditional investor community. The news of tech giants now turning towards the world of crypto has invited a higher profile that should be a net positive in the long run, but that has also exposed the ethos to critique from higher levels at the central bank and government levels. The market is also 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 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 above of previous resistance turned support at 170 on a weekly close basis, 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 170 would compromise the longer term constructive outlook.

  • R2 325 – 30 June high – Strong
  • R1 290 – 11 July high – Medium
  • S1 191 – 16 July low – Strong
  • S2 170 – 24 February High  – Strong

ETHUSD – fundamental overview

There was 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 correction, while critique of the space from the likes of President Trump and Fed Chair Powell, along with worry associated with fallout in the global economy, are stories that could keep the more risk correlated crypto asset weighed down in the second half of the year.

Peformance chart: 5 Day Performance vs. US dollar

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