Making sense of the market madness

Today’s report: Making sense of the market madness

In our Thursday call, we warned there would be blowback, after the Fed did nothing to help the US administration’s cause, when it delivered the less dovish than expected decision. While a falling stock market is not in the interest of the US government, a rallying US Dollar is quite arguably, a lot more distressing.

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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. 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 1.1412 will strengthen the view.

  • R2 1.1188 – 25 July high – Strong
  • R1 1.1162 - 31July high – Medium
  • S1 1.1027 - 1 August/2019 low – Medium
  • S2 1.1000 – Psychological – Strong

EURUSD – fundamental overview

The Euro extended its run of post FOMC declines into Thursday, breaking down to a fresh +2 year low, before finally finding demand ahead of the 1.1000 barrier. Initially, demand emerged on long Dollar profit taking and a softer US ISM reading, though the rebound got an additional boost on the news of upgraded soft Dollar policy out of the White House, via another round of China tariffs. Eurozone manufacturing PMIs were more or less in line with expectations earlier on Thursday and didn't factor into price action. We also heard news of the ECB preparing a tiered cut of the deposit rate. Looking ahead, key standouts on the Friday calendar include Eurozone retail sales and producer prices, US trade, US factory orders, Michigan confidence and the highlight of the day, the US monthly employment report.

EURUSD - Technical charts in detail

GBPUSD – technical overview

The recent breakdown below 1.2400 has opened the door for a fresh downside extension towards the major cycle low from 2016 in the 1.1800s. Longer-term studies continue to suggest the market should be looking to start turning back up, though at this stage, the pressure remains on the downside and it will take a break back above 1.2400 to take the immediate pressure off the downside and revive the outlook supporting a longer-term base.

  • R2 1.2384 – 29 July high – Strong
  • R1 1.2250 – 31 July high – Medium
  • S1 1.2080 – 1 August/2019 low – Strong
  • S2 1.2000 – Psychological – Strong

GBPUSD – fundamental overview

Brexit worry has been a major thorn at the side of the Pound in recent weeks, in light of the tougher stance from the new UK PM. At the same time, the Pound has been facing additional pressure from the US Dollar side, after the Federal Reserve delivered a less dovish message on Thursday. This resulted in another big drop in the Cable rate, before the UK currency was finally supported on a weaker US ISM read and the soft Dollar trade policy move from the White House, in which the administration announced new tariffs on China. UK manufacturing PMIs beat on the headline, but also had some weaker components, which made the data a wash. Meanwhile, the BOE decision went off as expected, with Carney citing downside risks to Brexit and global trade, but also balancing it out with talk of UK inflation at target. Looking ahead, key standouts on the Friday calendar include UK construction PMIs, US trade, US factory orders, Michigan confidence and the highlight of the day, the US monthly employment report.

USDJPY – technical overview

The longer-term downtrend remains firmly intact, with the major pair slowly 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 109.32 – 1 August high – Strong
  • R1 108.00 – Figure – Medium
  • S1 107.21 – 18 July low – Medium
  • S2 106.78 – 25 July low – Strong

USDJPY – fundamental overview

The major pair could not hold on to its post Fed rally, falling victim to profit taking on US Dollar longs and a weaker US ISM read, and then on a massive hit in the US equity market, after the White House announced a fresh round of tariffs on China, pushing ahead with its soft Dollar initiative. The combination of trade wars and a falling stock market, is a combination that should continue to invite downside pressure in the major pair. Looking ahead, key standouts on the Friday calendar include the BOJ Minutes, and US releases in the form of trade, factory orders, Michigan confidence and the highlight of the day, the monthly employment report.

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 into the 1.1000 area. The market is trading at its lowest levels in two years, and at this point, it would take a daily close back above 1.1173 to take the immediate pressure off the downside. A weekly close below 1.1000 opens the door for the next major downside extension towards 1.0600.
  • R2 1.1173 – 2 July high – Strong
  • R1 1.1064 – 26 July high – Strong
  • S1 1.0963 – 25 July/2019 low – Medium
  • S2 1.0900 – Figure – 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 0.6700.

  • R2 0.6956 – 26 July high – Strong
  • R1 0.6917 – 29 July high – Medium
  • S1 0.6795 – 1 August low – Medium
  • S2 0.6734 – 2 January/2019 low – Strong

AUDUSD – fundamental overview

Last week, we got some dovish speak out from RBA Lowe, which had weighed on the Australian Dollar. And this week, Aussie has come under additional pressure, on the back of a less dovish Fed read and liquidation in US equities from the latest round of soft Dollar policy trade measures out of the US administration, in which a fresh batch of China tariffs were announced. Looking ahead, key standouts on the Friday calendar include Aussie retail sales and producer prices, US trade, US factory orders, Michigan confidence and the highlight of the day, the US monthly employment report.

USDCAD – technical overview

Despite the recent breakdown to a yearly low, the longer-term structure remains constructive, with dips expected to be well supported for renewed 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 compromise this outlook.

  • R2 1.3287– 20 June high – Strong
  • R1 1.3248 - 1 August high – Medium
  • S1 1.3145 – 30 July low – Medium
  • S2 1.3105 – 31 July low – Strong

USDCAD – fundamental overview

The Canadian Dollar has extended its run of declines out from a recent 2019 high against the Buck, despite this week's positive run of data out of Canada, in the form of GDP and manufacturing PMIs. The offsetting flow has come from a number of places, which include broad US Dollar demand in the aftermath of a less dovish Fed read, a big hit in the OIL market, and falling US equities in response to the latest US tariffs on China. Looking ahead, key standouts on the Friday calendar include Canada trade, and US releases in the form of trade, factory orders, Michigan confidence and the highlight of the day, the monthly employment report.

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. Any setbacks, should ideally be well supported into the 0.6500 area.

  • R2 0.6708 – 25 July high – Strong
  • R1 0.6620 –  31 July high – Medium
  • S1 0.6534 – 1 August low – Medium
  • S2 0.6500 – Psychological – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has come under a lot of pressure in recent weeks, giving back most of what had been an impressive recovery. Downside momentum from last week's dovish RBNZ calls, has continued, following a less dovish Fed read and liquidation in stocks on the White House announcement of additional tariffs on China. Looking ahead, key standouts on the Friday calendar come out of the US, in the form of trade, factory orders, Michigan confidence and the highlight of the day, the monthly employment report.

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 3029 – 26 July/Record high – Strong
  • R1 3000 – Psychological – Strong
  • S1 2911 – 26 July low – Medium
  • S2 2867 – 13 June low – Strong

US SPX 500 – fundamental overview

Although we've seen the market extending to fresh record highs in 2019, on the back of the Fed policy reversal, 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 1400.

  • R2 1488 – May 2013 high – Strong
  • R1 1453 – 19 July/2019 high – Strong
  • S1 1400 – Psychological – Strong
  • S2 1382 – 1 July 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 9,075 – 17 July low – 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. At the same time, it also exposes the ethos to fresh critique from higher ups 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 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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