Waiting for Brexit and global trade updates

Next 24 hours: Central banks keep doing whatever it takes

Today’s report: Waiting for Brexit and global trade updates

Most of the attention in the currency market this week has been on the Euro, with the single currency sinking back below 1.1000 after Euro area data was highly discouraging on Monday, stoking renewed concerns about global growth. Otherwise, things have been calm and the market is waiting for updates relating to big picture themes.

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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. 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 1.1164 – 26 August high – Strong
  • R1 1.1110 - 13 September high – Medium
  • S1 1.0966 - 23 September low – Medium
  • S2 1.0925 – 3 September/2019 low – Strong

EURUSD – fundamental overview

A discouraging round of Eurozone and German flash PMIs turned things sour on Monday, and the Euro reacted accordingly, sinking back below an important psychological barrier at 1.1000. The Eurozone flash composite PMI put in its lowest level on record, while German manufacturing PMIs established a new series low at 41.4. Evidence that severe weakness in the manufacturing sector was now spilling over into services was not well received and further contributed to the Euro retreat. Draghi didn't do anything to help the Euro later in Monday trade, after saying there's currently a 'need for a highly accommodative' policy stance, the current 'temporary' slowdown is 'deeper and more prolonged than expected,' and the Euro is 'not especially weak.' Looking ahead, key standouts on today's calendar come in the form of German IFO readings, US Case Shiller, the Richmond Fed manufacturing index, and consumer confidence data. We'll also hear from ECB Guindos late in the day.

EURUSD - Technical charts in detail

GBPUSD – technical overview

The market has seen an impressive bounce out from the lowest levels since 2016, with the price recovering back above critical resistance at 1.2310, to not only take the immediate pressure off the downside, but also transition the market into a technical uptrend on the daily chart, as per the daily Ichimoku cloud. Ultimately, only back below 1.2000 would compromise the more constructive outlook for the major pair. Next key resistance comes in the form of a double bottom objective at 1.2660.

  • R2 1.2660 – Double Bottom Objective – Strong
  • R1 1.2583 – 20 July high – Medium
  • S1 1.2413 – 23 September low – Medium
  • S2 1.2392 – 17 September high – Strong

GBPUSD – fundamental overview

Lead EU Brexit negotiator Michael Barnier said the UK's Irish backstop proposal was unacceptable, while European Council President Donald Tusk was out saying the EU continues to look for ways to avoid a disorderly Brexit. Looking ahead, key standouts on today's calendar come in the form of UK public sector net borrowing and industrial trends orders, US Case Shiller, the Richmond Fed manufacturing index, and consumer confidence data. The UK Supreme Court is also expected to rule on whether or not Boris Johnson acted lawfully when he suspended Parliament for five weeks.

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 in favour of  the next major downside extension towards the 2016 low at 99.00.

  • R2 109.32 – 1 August high – Strong
  • R1 108.48 – 18 September high – Medium
  • S1 107.18 – 10 September low – Medium
  • S2 106.32 – 5 September low  – Strong

USDJPY – fundamental overview

A lot of two way flow in the Yen of late. On Monday, there was some initial Yen weakness on constructive, risk on developments out of China relating to its progress with the US on trade. However, this was offset later in the day on renewed global growth concerns, after Euro area data disappointed. There hasn't been much reaction to a NY Times report that the talked about US-Japan trade deal would be delayed. A downbeat set of Japan PMI readings have also been shrugged off. Looking ahead, key standouts on today's calendar come in the form of a BOJ Kuroda speech, US Case Shiller, the Richmond Fed manufacturing index, and consumer confidence data.

EURCHF – technical overview

The market is attempting to recover out from 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 recent breakdown below 1.1000 opens the door for the next major downside extension towards 1.0600. Look for rallies to be well capped ahead of 1.1100.
  • R2 1.1064 – 26 July high – Strong
  • R1 1.1020 – 18 September high – Medium
  • S1 1.0856 – 23 September low – Medium
  • S2 1.0811 – 4 September/2019 low – 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 0.6895 – 12 September high – Strong
  • R1 0.6832 – 19 September high – Medium
  • S1 0.6754 – 4 September low – Medium
  • S2 0.6677 – 7 August/2019 low – Strong

AUDUSD – fundamental overview

Things have been quiet for the Australian Dollar into Tuesday. The market is waiting to digest the latest from RBA Lowe, on the topic of an economic update. If the central banker paves the way for another rate cut, we can expect renewed Aussie selling. Overall however, we believe a wait and see approach is the more likely way things will play out. Other key standouts on today's calendar come in the form of US Case Shiller, the Richmond Fed manufacturing index, and consumer confidence data.

USDCAD – technical overview

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 1.3311 - 18 September high – Medium
  • S1 1.3202 – 13 September low – Medium
  • S2 1.3133 – 10 September low – Strong

USDCAD – fundamental overview

The Canadian Dollar has been quiet this week, with a lot of this having to do with a light calendar and consolidation in the price of OIL. On Monday, Canada wholesale says came in better than expected, though this didn't have much of an impact on the currency. Looking ahead, key standouts on today's calendar come in the form of US Case Shiller, the Richmond Fed manufacturing index, and consumer confidence data. There is no first tier data scheduled on the Canada calendar.

NZDUSD – technical overview

Despite recent weakness, there's a case to be made for a meaningful bottom, with the market rallying out from longer-term cycle low area around 0.6200. As such, look for setbacks to be well supported in the days ahead, in anticipation of a continued recovery. Only a weekly close below 0.6200 would give reason for rethink. Back above 0.6451 will take the immediate pressure off the downside.

  • R2 0.6451 – 12 September high – Strong
  • R1 0.6363 –  18 September high – Medium
  • S1 0.6255 – 20 September/2019 low – Medium
  • S2 0.6200 – Figure – Strong

NZDUSD – fundamental overview

The New Zealand Dollar is trying to hold onto positive news relating to US-China trade, while on Monday, we heard that President Trump had discussed expanding trade and defence cooperation with New Zealand, in a conversation with PM Ardern. We've also seen some profit taking on Kiwi shorts ahead of Wednesday's anticipated RBNZ decision. Looking ahead, key standouts on today's calendar come in the form of US Case Shiller, the Richmond Fed manufacturing index, and consumer confidence data.

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 3023 – 19 September high – Strong
  • S1 2957 – 10 September low – Medium
  • S2 2889 – 2 September 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 despite any signs that would suggest otherwise. 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 recently 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 225 – 19 September 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 and consolidation, 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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