Out from the depths

Next 24 hours: Will the optimism stick this time?

Today’s report: Out from the depths

There have been plenty of developments supporting this latest recovery in risk sentiment and concurrent bounce in global equities. On the FX front, this has resulted in some broad based profit taking on US Dollar long exposure, with many currencies rallying out from the depths of multi-month lows against the Buck.

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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 low. 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 1.0800 would compromise this outlook. Back above 1.1412 will strengthen the view.

  • R2 1.1116 – 27 August high – Strong
  • R1 1.1061 - 30 August high – Medium
  • S1 1.0968 - 4 September low – Medium
  • S2 1.0925 – 3 September/2019 low – Strong

EURUSD – fundamental overview

The Euro has been enjoying a nice recovery into the latter half of the week, with the move driven by a combination of factors including broad based profit taking on US Dollar longs, a less distressing overall outlook, and some comments from the next ECB President. On Wednesday, Christine Lagarde expressed concern about negative interest rate policy and the downside risks associated with such policy. Looking ahead, we get German factory orders, German construction PMIs, and US reads in the form of ADP employment, initial jobless claims, ISM non manufacturing, and factory orders.

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 1.2310 to take the immediate pressure off the downside and revive the outlook supporting a longer-term base.

  • R2 1.2310 – 27 August high – Strong
  • R1 1.2259 – 5 September high – Medium
  • S1 1.2200 – Figure – Medium
  • S2 1.2106 – 3 September high – Strong

GBPUSD – fundamental overview

The Pound has been feeling good about the victories in Parliament against the Prime Minister, which are trying to ensure there will be no disorderly, no-deal Brexit. Johnson's hopes for an early election have been voted down and we'll soon find out if the Prime Minister will be complying with a vote that has him needing to ask the EU for a three month extension. Looking ahead, absence of first tier data on the UK docket, leaves the focus on Brexit updates and US reads in the form of ADP employment, initial jobless claims, ISM non manufacturing, and factory orders.

USDJPY – technical overview

The longer-term downtrend remains firmly intact, with the major pair recently taking out major support in the form of the 2018 and 2019 lows respectively. Rallies should continue to be well capped below 110.00. Below the 2018 low now opens the door for the next major downside extension towards the 2016 low at 99.00.

  • R2 107.09 – 6 August high – Strong
  • R1 106.69 – 29 August high – Medium
  • S1 105.00 – 14 August low – Medium
  • S2 104.45 – 23 August/2019 low  – Strong

USDJPY – fundamental overview

The Yen has been selling off, with USDJPY trying to push higher, on the back of a renewed wave of risk on flow. It seems the downgraded worry in Hong Kong, talk of more stimulus out of China, and news China will be heading to the US to get trade negotiations back underway, have been helping to rally the pair. Meanwhile, downside risks in other areas have also simmered, yet another source of risk on, USDJPY demand. Looking ahead, we get US reads in the form of ADP employment, initial jobless claims, ISM non manufacturing, and factory orders.

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.
  • R2 1.1064 – 26 July high – Strong
  • R1 1.0959 – 7 August high – Medium
  • S1 1.0811 – 4 September/2019 low – Medium
  • S2 1.0800 – 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 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.

  • R2 0.6868 – 1 August high – Strong
  • R1 0.6826 – 5 September high – Medium
  • S1 0.6754 – 4 September low – Medium
  • S2 0.6677 – 7 August/2019 low – Strong

AUDUSD – fundamental overview

The Australian Dollar is extending its recovery, after the currency found demand in Wednesday trade from an as expected Aussie GDP print and broad based profit taking on long US Dollar exposure. Into Thursday, it's been better Aussie trade data, talk of more stimulus out of China, and news China will be heading to the US to get trade negotiations back underway, that have been furthering Aussie's upside run. Looking ahead, we get US reads in the form of ADP employment, initial jobless claims, ISM non manufacturing, and factory orders.

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 1.3383– 3 September high – Strong
  • R1 1.3300 - Figure – Medium
  • S1 1.3200 – Figure – Medium
  • S2 1.3178 – 5 August low – Strong

USDCAD – fundamental overview

On Wednesday, the Bank of Canada left policy on hold as widely expected, offering a balanced outlook for the local economy. While the BoC was feeling good about progress on the domestic side, it also highlighted challenges from risks abroad, that would need to keep it cautious. The Loonie had a great session despite the as expected decision, with rallying OIL prices and a broad based profit taking on long US Dollar exposure contributing to the renewed demand. Looking ahead, absence of first tier data on the Canada docket, leaves the focus on Brexit updates and US reads in the form of ADP employment, initial jobless claims, ISM non manufacturing, and factory orders.

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 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.

  • R2 0.6410 – 23 August high – Strong
  • R1 0.6379 –  5 September high – Medium
  • S1 0.6325 – 4 September low – Medium
  • S2 0.6269 – 3 September/2019 low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar is trying to recover out from a 4 year low, finding some demand from a round of broad based profit taking on long US Dollar exposure, along with news of China stimulus and relief China will be heading back to the negotiating table with the US. Looking ahead, we get US reads in the form of ADP employment, initial jobless claims, ISM non manufacturing, and factory orders.

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 2889 – 2 September low – Medium
  • S2 2777 – 6 August 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, 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.

  • R2 1600 – Round number – Strong
  • R1 1558 – 4 September/2019 high – Strong
  • S1 1480 – 13 August low – Medium
  • S2 1400 – Psychological – 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 12,310 – 6 August high – Medium
  • S1 9,348 – 29 August low – Medium
  • S2 9,075 – 17 July 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. Future ECB President Lagarde has just come out in support of cryptocurrencies as well. 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 Q2 run up, though we anticipate continued demand from institutional players starved for yield in a world where global equities are increasingly vulnerable.

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 150 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 150 would compromise the outlook.

  • R2 240 – 6 August high – Strong
  • R1 204 – 20 August high – Medium
  • S1 164 – 29 August low – Medium
  • S2 150 – Psychological  – 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. Risk off in the global economy is expected to result in Eth underperformance relative to Bitcoin.

Peformance chart: 5 Day Performance vs. US dollar

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