Today’s report: Yen still bid despite recovering stock market
On Thursday, the commodity currencies did a good job recovering from the depths of recent their lows that had been brought on by trade war panic carry unwind earlier in the week. Interestingly, the Yen retained a bid tone, despite the ongoing recovery in risk sentiment as reflected in US equities.
Wake-up call
- German trade
- calendar stacked
- diverging flowÂ
- SNB policy
- appetite returns
- monthly employment
- investor sentiment
- artificial support
- hard asset
- Attractive alternative
- traditional markets
Suggested reading
- The Coming Recession - Long Rather Than Deep, J. Siegel, Wharton (August 6, 2019)
- Bond Market Has Investors Nervous, J. Kinahan, Forbes (August 7, 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. 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.EURUSD – fundamental overview
A downbeat ECB economic bulletin citing weaker Eurozone growth, proved to be a strain on the Euro, which gave back some of its recovery gains that had been brought on earlier in the week from the trade war panic carry unwind. Also weighing on the Euro on Thursday was the news out of Italy that the government no longer had a majority and elections would be forthcoming. Looking ahead, Friday's calendar features German trade and US producer prices.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.GBPUSD – fundamental overview
Worry about Boris Johnson calling a snap post Brexit election invited some downside pressure in the Pound on Thursday, though overall, there wasn't much movement in the currency. The UK PM called on the EU to show some flexibility and to take advantage of the time between now and October end to work something out. UK Foreign secretary Raab expressed frustration about the EU's uncompromising stance. Looking ahead, Friday's calendar features UK trade, GDP, industrial production and manufacturing production, along with US producer prices.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. Rallies should continue to be well capped below 110.00.USDJPY – fundamental overview
Price action in the major pair was interesting on Thursday, with the Yen still retaining a bid tone, despite an ongoing recovery in US equities. It seems President Trump's communications that he wasn't thrilled with the strong Dollar and that the Fed should make substantial rate cuts to weaken the Dollar, were offsetting variables, which prevented the major pair from moving higher with the risk sentiment recovery. Looking ahead, Friday's calendar features China inflation reads and US producer prices.EURCHF – technical overview
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. The latest breakdown below 1.1000 opens the door for the next major downside extension towards 1.0600.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 under pressure over the past several months, but has also been well supported on dips. 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 above 0.6700 on a weekly close basis.AUDUSD – fundamental overview
The Australian Dollar was a primary beneficiary of the stronger than expected PBOC Yuan fixing on Thursday, along with well received China trade data and a continued resurgence in investor risk appetite. Looking ahead, Friday's calendar features China inflation reads and US producer prices.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.USDCAD – fundamental overview
Reports that Saudi Arabia reached out to other OIL producers to discuss ways to halt the slide in the commodity, helped to invite some bids back into the Canadian Dollar on Thursday. The concurrent recovery in risk assets was also seen as positive catalyst for Loonie demand. Looking ahead, Friday's calendar features Canada employment and US producer prices.NZDUSD – technical overview
Despite recent weakness, there's a case to be made for a meaningful low, with the market trading back down to medium-term cyclical low territory in the 0.6300-0.6400 area. As such, look for setbacks to be well supported in the days ahead, in anticipation of renewed upside. Only a weekly close below 0.6300 would give reason for rethink. Back above 0.6600 will take the immediate pressure off the downside.NZDUSD – fundamental overview
Kiwi has done a good job recovering out from 3.5 year lows against the Buck earlier this week, that had been brought on by the RBNZ's surprise 50bps rate cut and Governor Orr's communication that negative interest rate strategy was not to be ruled out. It seems the combination of confidence from RBNZ Hawkesby that inflation would rise post this week's rate cuts, a better than expected Yuan fixing and ongoing recovery in risk sentiment, all helped to offset bearishness and fuel the Kiwi rebound on Thursday. Looking ahead, Friday's calendar features China inflation reads and US producer prices.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 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 1600, while in the interim, look for any setbacks to be well supported above 1400.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.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 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 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.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. Risk off in the global economy is expected to result in Eth underperformance relative to Bitcoin.