Next 24 hours: GOLD not willing to sit back and wait
Today’s report: Not all risk correlated markets feeling better
Damage control out of China and PBOC assurances the Yuan would not continue to weaken significantly, were enough to rejuvenate risk markets on Tuesday. This resulted in sizable USDJPY and EURCHF rebounds, and a recovery in the US equity market as well.
- industrial production
- Brexit drama
- Sentiment rebound
- SNB policy
- RBA holds
- OIL decline
- RBNZ decision
- Stocks vulnerable
- hard asset
- Attractive alternative
- traditional markets
Chart talk: Technical & fundamental highlights
EURUSD – technical overviewThe 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 1.1286 – 11 July high – Strong
- R1 1.1250 - 6 August high – Medium
- S1 1.1167 - 6 August low – Medium
- S2 1.1100 – Figure – Strong
EURUSD – fundamental overviewThe Euro was inclined to settle down on Tuesday, after getting jolted higher in Monday trade on the back of the massive carry unwind and flight to quality spurred on by the latest escalation in trade war fears. On the data front, German factory orders came in above forecast, though this didn't do much to factor into price action. Looking ahead, Wednesday’s calendar features German industrial production and a speech from Fed Evans.
EURUSD - Technical charts in detail
GBPUSD – technical overviewThe 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 1.2250 – 31 July high – Strong
- R1 1.2210 – 6 August high – Medium
- S1 1.2100 – Figure – Medium
- S2 1.2080 – 1 August/2019 low – Strong
GBPUSD – fundamental overviewThough the Pound is still stressed about the Brexit outlook, as it lags against the other major currencies, it's still been able to find support out from +2 year lows against the Buck, on the back of the latest soft Dollar trade policy moves out from the US administration. Monday's better than expected UK services PMIs print was also seen helping to support the beaten down Pound's cause a bit. No Brexit talks are expected until the G7 at the end of the month. Looking ahead, absence of first tier data out of the UK on Tuesday, will leave the focus on Brexit updates and a Fed Evans speech.
USDJPY – technical overviewThe 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. Rallies should continue to be well capped below 110.00.
- R2 107.57 – 2 August high – Strong
- R1 107.09 – 6 August high – Medium
- S1 105.52 – 6 August low – Medium
- S2 105.00 – Psychological – Strong
USDJPY – fundamental overviewDamage control out of China and assurances from the PBOC the Yuan would not continue to weaken significantly, were enough to rejuvenate risk markets on Tuesday, which helped to prop the major pair back up. Looking ahead, Wednesday’s calendar is quite thin, with only a speech from Fed Evans standing out. Most of the attention will continue to be on risk associated with trade war updates.
EURCHF – technical overviewThe 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. The latest breakdown below 1.1000 opens the door for the next major downside extension towards 1.0600.
- R2 1.1064 – 26 July high – Strong
- R1 1.1000 – Psychological – Strong
- S1 1.0864 – 5 August/2019 low – Medium
- S2 1.0834 – 2017 23 June low – Strong
EURCHF – fundamental overviewThe 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 overviewThe 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 0.6868 – 1 August high – Strong
- R1 0.6819 – 2 August high – Medium
- S1 0.6748 – 5 August low – Medium
- S2 0.6734 – 3 January/2019 low – Strong
AUDUSD – fundamental overviewThe RBA decision went off without a hitch on Tuesday, with the central bank leaving policy on hold as expected, and perhaps even helping Aussie a bit through a communication that stopped short of offering any upgraded dovishness on account of recent turbulence in global markets. Looking ahead, Wednesday’s calendar is quite thin, with only a speech from Fed Evans standing out. Most of the attention will continue to be on risk associated with trade war updates.
USDCAD – technical overviewDespite 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 1.3345– 12 June high – Medium
- R1 1.3292 - 6 August high – Medium
- S1 1.3178 – 5 August low – Medium
- S2 1.3105 – 31 July low – Strong
USDCAD – fundamental overviewBank of Canada rate cut expectations have risen in the face of all this turbulence on the global trade front, while ongoing downside pressure in the price of OIL has added to Loonie bearishness in recent sessions. Looking ahead, Wednesday’s calendar features Canada Ivey PMIs and a speech from Fed Evans.
NZDUSD – technical overviewDespite 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 0.6620 – 31 July high – Strong
- R1 0.6578 – 1 August high – Medium
- S1 0.6500 – Psychological – Medium
- S2 0.6482 – 23 May/2019 low – Strong
NZDUSD – fundamental overviewThe New Zealand Dollar had received an initial boost early Tuesday on the back of a much lower than expected Kiwi unemployment rate, before getting some more help from the recovery in risk sentiment. However, there was a good amount of selling pressure into rallies, with Kiwi declines intensifying on the release of the negative GDT auction print. Looking ahead, Wednesday’s calendar features an RBNZ decision and speech from Fed Evans later in the day.
US SPX 500 – technical overviewThere 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 2961 – 2 August high – Strong
- S1 2777 – 6 August low – Medium
- S2 2729 – 3 June low – Strong
US SPX 500 – fundamental overviewAlthough 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 overviewThe 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 1475 – 6 August/2019 high – Strong
- S1 1400 – Psychological – Strong
- S2 1382 – 1 July low – Strong
GOLD (SPOT) – fundamental overviewThe 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 overviewOverall, 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 12,310 – 6 August high – Medium
- S1 10,000 – Psychological – Strong
- S2 9,075 – 17 July low – Strong
BTCUSD – fundamental overviewBitcoin 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 continued demand from institutional players starved for yield in a world where global equities are now under pressure.
BTCUSD - Technical charts in detail
ETHUSD – technical overviewThe 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 290 – 11 July high – Strong
- R1 250 – Psychological – Medium
- S1 191 – 16 July low – Strong
- S2 170 – 24 February High – Strong
ETHUSD – fundamental overviewThere 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. Risk off in the global economy is expected to result in Eth underperformance relative to Bitcoin.
Peformance chart: 5 Day Performance vs. US dollar
- Good Bankers Know Lots of Things, M. Levine, Bloomberg (August 6, 2019)
- Brexit: Challenge Facing UK Prime Minister Johnson, L. Barber, FT (August 6, 2019)