Month end flow and Fed positioning

Today’s report: Month end flow and Fed positioning

The market was worried about the US Veep’s speech on China, but in the end, Mike Pence struck a balanced chord, talking tough on human rights and IP, but also stressing the US wasn’t seeking to decouple from China. Looking ahead, the calendar is rather light on this Friday, with only some German reads and US Michigan sentiment standing out.

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Wake-up call

Chart talk: Technical & fundamental highlights

EURUSD – technical overview

The downtrend off the 2018 high is looking exhausted and the prospect for a meaningful higher low is more compelling. A higher low is now 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 1.1250 – 6 August high – Strong
  • R1 1.1180 - 21 October high  – Medium
  • S1 1.1065 - 17 October low  – Medium
  • S2 1.0991 – 15 October low – Strong

EURUSD – fundamental overview

The ECB left rates unchanged and said it would begin purchases of EUR20B in debt a month from the 1st of November, continuing thereafter, as long as needed. The ECB also added rates would be at current levels or lower until inflation neared its objective. Overall, the balance of risk was to the downside, while the discussion of the stimulus plan was supportive. Nothing too shocking from the result, with the Euro selling off on what may have been perceived as a slightly more dovish tone. ECB President Draghi is now out, with Christine Lagarde coming in as his replacement. Looking ahead, we get German GfK consumer confidence and German IFO reads, followed up by US Michigan sentiment.

EURUSD - Technical charts in detail

GBPUSD – technical overview

The 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 the bottom of the daily Ichimoku cloud would compromise the more constructive outlook for the major pair. Next key resistance comes in the form of the 2019 high from March around 1.3380. Setbacks should ideally be well supported ahead of 1.2400.

  • R2 1.3013 – 21 october high – Strong
  • R1 1.3000 – Psychological – Medium
  • S1 1.2749 – 17 October low – Medium
  • S2 1.2657 – 16 October low – Strong

GBPUSD – fundamental overview

UK Parliament voted 310-294 to approve the government's 'Queen's Speech' legislative agenda which includes Brexit-related legislation and an environmental bill. PM Boris Johnson said the 'opposition must allow a general election' on December 12th, and Labour's Jeremy Corbyn reiterated he would only support an early election if no-deal was 'taken off the table'. The UK government then said it 'won't be delivering the budget' on November 6th, given that it will be 'calling for an election'. Irish Foreign Minister Simon Coveney warned the UK that 'standards would need to stay closely aligned to the EU' if a future trade agreement between the two sides was to be reached. UK Brexit Secretary Stephen Barclay said 'there would be minimal checks on goods moving from Northern Ireland to Great Britain'. Looking ahead, there is no first tier data on the UK docket and only US Michigan sentiment in North America.

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 108.95 – 17 October high – Medium
  • S1 107.85 – 11 October low – Medium
  • S2 106.48 – 3 October low  – Strong

USDJPY – fundamental overview

Most of the flow in the major pair continues to be driven off risk themes. Japan PM Abe met with South Korea's Lee Nak-Yon, with both agreeing they needed to work to ease the feuding between the two countries. Meanwhile, there were reports the BOJ was considering refraining from extra stimulus at its upcoming October meeting, though it would still explore alternative methods of demonstrating a readiness to act if needed. Looking ahead, US Michigan sentiment is the only notable standout on Friday's economic calendar.

EURCHF – technical overview

The market is attempting to recover out from its lowest levels in two years, with the recent break back above 1.1000 taking the immediate pressure off the downside and opening the door for a larger correction back towards next key resistance at 1.1160. Overall however, the medium-term picture continues to favour the downside, and the market could have a hard time pushing much beyond that solid previous support turned resistance around 1.1160.
  • R2 1.1173 – 2 July high – Strong
  • R1 1.1060 – 17 October high – Medium
  • S1 1.0871 – 9 October 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 0.7083 – 19 July high – Strong
  • R1 0.6895 – 12 September high – Strong
  • S1 0.6800 – Figure – Medium
  • S2 0.6710 – 10 October low – Strong

AUDUSD – fundamental overview

A weaker round of Aussie PMI data has brought back concern that Aussie rate cuts haven't been all that effective, which has been weighing on the Australian Dollar into the end of the week. Looking ahead, US Michigan sentiment is the only notable standout on Friday's economic calendar.

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 1.3348 – 3 October high – Strong
  • R1 1.3240 - 15 October high – Medium
  • S1 1.3053 – 24 October low – Medium
  • S2 1.3016 – 19 July/2019 low – Strong

USDCAD – fundamental overview

Canada PM Justin Trudeau has announced the government will continue to move ahead with construction of the Trans Mountain Pipeline expansion project, with profits going to fund climate change and green energy projects. This in conjunction with a healthy rally in the price of OIL, has contributed to another run in the Loonie, with the Canadian Dollar closing in on a retest of its yearly high against the Buck. Looking ahead, the Canada budget balance and US Michigan sentiment are the only notable standouts on Friday's economic 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 strengthen the outlook and take the immediate pressure off the downside.

  • R2 0.6451 – 12 September high – Strong
  • R1 0.6436 –  22 October high – Medium
  • S1 0.6343 – 18 October low – Medium
  • S2 0.6241 – 16 October low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar is finding some offers into the end of the week on the back of renewed concern about the global economy, after a round of PMI data out of Australia and Japan came in on the softer side. Looking ahead, US Michigan sentiment is the only notable standout on Friday's economic calendar.

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 2854, with a break below to strengthen the outlook. A monthly close above 3000 would be required to compromise the outlook.

  • R2 3100 – Psychological – Strong
  • R1 3029 – 26 July/Record high – Medium
  • S1 2854 – 3 October 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 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 2019 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 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

The 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 ahead of 6,000, 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 10,000– Psychological – Strong
  • R1 8,806 – 11 October high – Medium
  • S1 7,000 – 30 Psychological – Medium
  • S2 5,750 – Internal support zone – Strong

BTCUSD – fundamental overview

Bitcoin 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 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 100 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 100 would compromise the outlook.

  • R2 225 – 19 September high – Strong
  • R1 200 – Psychological – Medium
  • S1 153 – 26 September low – Medium
  • S2 150 – Psychological  – Strong

ETHUSD – fundamental overview

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 continue to keep the more risk correlated crypto asset weighed down into the end 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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