Investors focused on what lies ahead

Next 24 hours: Sitting back and waiting for Wednesday FOMC risk

Today’s report: Investors focused on what lies ahead

We’ve got a Fed decision tomorrow, BOJ decision Thursday and the monthly employment report out of the US on Friday. We’ve also got some end of month flow that should factor into volatility tomorrow and Thursday. But for now, things are stable in the world of FX, with market participants well aware of what lies ahead.

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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 Euro has been finding some renewed demand following a dip late last week. The single currency has been feeling better about the EU granting the UK a Brexit extension through the end of January. Overall however, things have been quiet for the Euro thus far this week, though we suspect volatility will start to pick up into the end of month and ahead of event risk in the form of tomorrow's Fed decision. Later today, we get a speech from ECB Weidmann, US case shiller, and US pending home sales.

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

The EU has granted an extension until the end of January and UK Parliament has rejected PM Johnson's third attempt at an early election. Overall, the expectation is that there will ultimately be an early election on December 12th. Johnson is drawing up a plan B to trigger an election and the Commons will debate a "one-line bill" for an election on the 12th. Looking ahead, we get some UK housing data, UK consumer credit and mortgage approvals, US case shiller, and US pending home sales.

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 109.07 – 29 October high – Medium
  • S1 108.25 – 23 October low – Strong
  • S2 107.85 – 11 October low  – Medium

USDJPY – fundamental overview

The Yen has been selling off on the back of this latest wave of risk on flow that has catapulted US equities to another record high, as reflected through performance in the S&P500. We've also seen softer inflation data out of Japan adding to the Yen weakness. Still, there continue to be bids in the Yen on dips, with technical traders citing solid resistance in USDJPY up towards 110.00 and fundamental players worried about risk off flow on account of all the event risk ahead this week, including BOJ and Fed decisions. Later today, we get US case shiller, and US pending home sales.

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

Aussie holding up well with US equities bid up and negotiations on the US-China front still hanging on the positive side. The market is now waiting to digest the latest speech from RBA Lowe, which is expected to generate some volatility. Looking ahead, we get US case shiller, and US pending home sales.

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 1.3049 – 28 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 recovery in the price of OIL, have 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, we get US case shiller, and US pending home sales. There is no first tier data out of Canada.

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

US-China trade deal optimism has been propping the New Zealand Dollar in recent sessions. Meanwhile, RBNZ assistant governor Hawkesby comments have forced an unwinding of RBNZ rate cut expectations, which has also bolstered Kiwi. There was some selling on chatter about a possible rating agency downgrade to the country's credit rating, though setbacks were contained. Looking ahead, we get US case shiller, and US pending home sales.

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 3044 – 28 October/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 consolidate in the aftermath of a major surge in the second quarter of 2019. However, any setbacks should be very well supported ahead of 7,000, with an 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 7,000 would compromise the constructive outlook.

  • R2 10,920– 6 September high – Strong
  • R1 10,468 – 26 October high – Medium
  • S1 8,806 – 11 October high – Medium
  • S2 7,326 – 23 October low – 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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