Next 24 hours: US Dollar weak, Pound even weaker
Today’s report: 3 major themes impacting global markets
There are three major themes influencing markets at the moment, which include global trade, Fed policy expectations and the Brexit outlook. Updates on these fronts will be what shape the direction we take over the coming days, weeks and months.
- soft data
- legal challenge
- global trade
- SNB policy
- RBA Lowe
- housing reads
- Yield differentials
- looking tired
- hard asset
- institutional demand
- 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 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 1.1026 – 23 September high – Strong
- R1 1.1001 - 7 October high – Medium
- S1 1.0904 - 2 October low – Medium
- S2 1.0880 – 1 October/2019 low – Strong
EURUSD – fundamental overviewThe Euro settled Monday in the red, though the single currency was well supported considering economic data that included disappointing German factory orders and a slide in Eurozone investor confidence. It seems the market was feeling better about ECB comments that a vast majority of supervised banks had comfortable liquidity positions. Meanwhile, on the US Dollar side, ongoing soft Dollar policy from the US administration and expectations for additional cuts from the Fed, have been fueling profit taking on Dollar longs. Looking ahead, key standouts on the calendar come in the form of German industrial production, and ECB Lane speech, US producer prices and more from Fed Chair Powell.
EURUSD - Technical charts in detail
GBPUSD – technical overviewThe market has seen a recovery out from the lowest levels since 2016, with the price recovering back above the daily Ichimoku cloud to take the immediate pressure off the downside. Ultimately, only back below 1.2000 would compromise the more constructive outlook for the major pair. Next key resistance comes in the form of the recent recovery high up around 1.2580.
- R2 1.2500 – Psychological – Strong
- R1 1.2414 – 3 October high – Medium
- S1 1.2266 – 3 October low – Medium
- S2 1.2205 – 1 October low – Strong
GBPUSD – fundamental overviewPM Johnson won a Scottish legal challenge over the Benn Act, with the judge refusing to put further obligations on Johnson, given that reassurances to seen an extension were deemed sufficient. Reports also have the PM launching legal action at the Supreme Court, in an effort to avoid being forced to request a Brexit delay. Given the window is getting tight now, and Johnson continues to play hardball, we suspect the EU will be more inclined to be thinking about making a deal happen in the days ahead. Meanwhile, the US Dollar has come under some pressure of late, on the back of US data pointing to additional Fed accommodation, along with ongoing soft Dollar policy efforts out from the US administration. Looking ahead, key standouts on the calendar come in the form of a BOE Carney appearance, UK labour productivity, US producer prices and more from Fed Chair Powell.
USDJPY – technical overviewThe 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 108.00 – Figure – Medium
- R1 107.47 – 7 October high – Medium
- S1 106.48 – 3 October low – Medium
- S2 106.32 – 5 September low – Strong
USDJPY – fundamental overviewThe Japanese government lowered its formula based assessment of the Japan economy, indicating that economic conditions were deteriorating. Overall however, the Yen is more focused on all things trade and risk sentiment. On these fronts, there has been some back and forth activity. On the one side, the Yen has been sold on some optimism around the US-Japan trade deal, though on the other side, the Yen has been supported on skepticism around the trade deal and worry about trade negotiations between the US and China. Looking ahead, key standouts on the calendar come in the form of US producer prices and more from Fed Chair Powell.
EURCHF – technical overviewThe 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 1.1020 – 18 September high – Strong
- R1 1.0980 – 3 October high – Medium
- S1 1.0832 – 25 September low – Medium
- S2 1.0811 – 4 September/2019 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 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 0.6806 – 24 September high – Strong
- R1 0.6774 – 4 October high – Medium
- S1 0.6700 – Figure – Medium
- S2 0.6671 – 2 October/2019 low – Strong
AUDUSD – fundamental overviewNot much of a reaction to an op-ed piece in the FT co-written by RBA Governor Lowe, in which the central banker talks about a world where unconventional monetary policy may become increasingly important. Lowe goes on to warn that unconventional monetary policy is however only one component and needs to be accompanied by fiscal and prudential policy responses. Aussie data into Tuesday has come in mixed, with the commodity currency trying to shrug off selling from worry around risk associated with US-China trade talks. Looking ahead, key standouts on the calendar come in the form of US producer prices and more from Fed Chair Powell.
USDCAD – technical overviewThe 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 1.3348 - 3 October high – Medium
- S1 1.3206 – 2 October low – Medium
- S2 1.3133 – 10 September low – Strong
USDCAD – fundamental overviewThe Canadian Dollar is trying to make a comeback after taking a hit in the previous week from declining OIL prices and some weaker economic data. Profit taking on US Dollar longs, amidst increasing expectation the Fed will cut rates some more, and relief associated with US-Canada trade deal prospects, have also been helping to bolster the Loonie into Tuesday. Looking ahead, key standouts on the calendar come in the form of Canada housing starts and building permits, US producer prices and more from Fed Chair Powell.
NZDUSD – technical overviewDespite 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 0.6349 – 25 September high – Strong
- R1 0.6338 – 4 October high – Medium
- S1 0.6255 – 3 October low – Medium
- S2 0.6204 – 1 October/2019 low – Strong
NZDUSD – fundamental overviewOverall, Kiwi has been weighed down on worry associated with the outlook for the global economy amidst ongoing trade tensions, with risk liquidation knocking the correlated commodity currency. We have however seen some attempts at recovery, on the back of broad based profit taking on US Dollar longs, brought on by a wave of softer economic data out of the US that points to additional rate cuts from the Fed. Looking ahead, key standouts on the calendar come in the form of a US producer prices and more from Fed Chair Powell.
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 2777, 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 2959 – 7 October low – Medium
- S1 2854 – 3 October low – Medium
- S2 2777 – 6 August 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, 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 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 1600, while in the interim, look for any setbacks to be well supported above 1400.
- R2 1558 – 4 September/2019 high – Strong
- R1 1536 – 24 September high – Medium
- S1 1459 – 1 October low – Medium
- S2 1400 – Psychological – 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 overviewThe market continues to correct and consolidate in the aftermath of a major surge in the second quarter of 2019. However, any setbacks should be very well supported around 7,000, with an eventual higher low sought out in favour of a bullish continuation back above the 2019 high and towards the record high from late 2017 further up. Ultimately, only a weekly close below 5,750 would compromise the constructive outlook.
- R2 10,972– 20 August high – Strong
- R1 9,825 – 24 September high – Medium
- S1 7,736 – 30 September low – Medium
- S2 7,447 – 6 June low – Strong
BTCUSD – fundamental overviewBitcoin is 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. Plenty of demand is reported on dips down towards $7,000.
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 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 225 – 19 September high – Strong
- R1 200 – Psychological – Medium
- S1 153 – 26 September low – Medium
- S2 150 – Psychological – Strong