Special report: Fed Minutes Preview
Today’s report: US Dollar outlook and Fed Minutes
We’re back to seeing a bit of that interesting price action where things don’t exactly add up out there. We saw a bit of it last week before everything fell back into line and we’re seeing it again this week.
Wake-up call
- contributing factors
- UK jobs
- Safe haven
- SNB policy
- RBA
- Oil pullback
- RBNZ
- Stocks vulnerable
- Dealers report
- Bigger money
- risk appetite
Peformance chart: 30 Day Performance vs. US dollar (%)
Suggested reading
- The Biggest Tail Risk in Markets Has Shifted, J. Authers, Bloomberg (May 19, 2021)
- Will the Recovery Last?, J. O'Neill, Project Syndicate (May 18, 2021)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The market has been looking for a higher low since topping out in 2021 up at 1.2350. Ideally, this next higher low is sought out ahead of 1.1600 in favour of the next major upside extension back through 1.2350 and towards a retest of the 2018 high at 1.2555 further up.EURUSD – fundamental overview
The Euro continues to benefit from broad based US Dollar weakness on the back of dovish Fed communications. We're also seeing demand from positive news around reopenings in the zone as restrictions around the coronavirus are loosened. Eurozone GDP data came in as expected on Tuesday. Key standouts on today’s calendar include inflation reads out of the UK, Eurozone and Canada, The ECB financial stability review, and the Fed Minutes late in the day.EURUSD - Technical charts in detail
GBPUSD – technical overview
Technical studies are in the process of consolidating from stretched levels after the push to fresh multi-month highs. This leaves room for additional consolidation, before the market considers a meaningful bullish continuation towards a retest of the 2018 high. But look for setbacks to now be very well supported into the 1.3500 area.GBPUSD – fundamental overview
More demand for the Pound this week in the aftermath of Tuesday's mostly upbeat UK employment data. UK money markets are now pricing 15 bps of rate hikes for September 2022, ahead of any significant tapering. Meanwhile, BOE Bailey has said the UK has earned GBP 113 billion from its QE program. Key standouts on today’s calendar include inflation reads out of the UK, Eurozone and Canada, and the Fed Minutes late in the day.USDJPY – technical overview
The major pair has run into massive resistance in the form of the monthly Ichimoku cloud, and has since rolled back over below the cloud. This translates to a longer-term trend that is still bearish despite the run up we saw in 2021, with risk for deeper setbacks ahead. It would take a clear break back above 113.00 to negate the outlook.USDJPY – fundamental overview
Most of the recent demand for the Yen has been on account of broad based US Dollar weakness from dovish Fed communications. Still, with risk coming off this week, we're also seeing Yen demand from that front as well. On Tuesday, Japan GDP came in softer than expected, stoking fears of the post pandemic recovery. Key standouts on today’s calendar include inflation reads out of the UK, Eurozone and Canada, and the Fed Minutes late in the day.EURCHF – technical overview
Lots of sideways price action here, with no clear directional insight. For the most part, price action has been confined between 1.0600 and 1.1200, and it will take a weekly close above or below for an indication of the next big move.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 renewed 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
Technical studies have turned up in recent months, after the market traded down to its lowest levels since 2003 in 2020. There is evidence of a longer-term bottom following the latest push back through 0.7000, though at this stage, there is risk for a deeper pullback to allow for shorter term studies to unwind. Setbacks should now be well supported ahead of 0.7400.AUDUSD – fundamental overview
Tuesday's RBA Minutes showed rates would likely remain on hold out to 2024. Earlier today, Aussie wage prices came in as expected, while consumer confidence reads were a little softer. Aussie has mostly been bid of late on broad based US Dollar selling and rallying commodities prices. Key standouts on today’s calendar include inflation reads out of the UK, Eurozone and Canada, and the Fed Minutes late in the day.USDCAD – technical overview
Has been in major decline since topping out in 2021 above 1.4600. At this stage, with the decline now well extended, the market is likely to find solid support into the 1.2000 area ahead of a resumption of gains. Ultimately, only a weekly close below 1.2000 would suggest otherwise. Back above 1.2352 will strengthen the outlook.USDCAD – fundamental overview
A pullback in risk sentiment and drop in the price of OIL have resulted in profit taking on Canadian Dollar longs. The Loonie has already been looking due for a sell-off after running up to a six year high against the Buck. Key standouts on today’s calendar include inflation reads out of the UK, Eurozone and Canada, and the Fed Minutes late in the day.NZDUSD – technical overview
Finally signs of topping out after a nice multi-month rally. Look for a weekly close below 0.7000 to strengthen the bearish outlook and expose deeper setbacks towards the 0.6500 area. Back above 0.7315 would be required to take the immediate pressure off the downside.NZDUSD – fundamental overview
The New Zealand Dollar has traded higher in recent sessions as New Zealand property prices continue to rise and as expectations build for an RBNZ rate hike from August 2022. Of course, broad based US Dollar weakness has also contributed to Kiwi demand. Still, with risk coming off into the mid-week, plenty of offers are starting to work their way into the mix. Key standouts on today’s calendar include inflation reads out of the UK, Eurozone and Canada, and the Fed Minutes late in the day.US SPX 500 – technical overview
Longer-term technical studies are looking quite exhausted and the market is showing signs of wanting to roll over after racing to another record high. Look for rallies to be well capped above of 4200, with a break back below 4000 to strengthen the outlook.US SPX 500 – fundamental overview
We're trading just off fresh record highs, and yet, with so little room for additional central bank accommodation, given an already depressed interest rate environment, the prospect for sustainable runs to the topside on easy money policy incentives and government stimulus, should no longer be as enticing to investors. Meanwhile, ongoing worry associated with coronavirus fallout and risk of rising inflation should weigh more heavily on investor sentiment into the second half of 2021.GOLD (SPOT) – technical overview
The 2019 breakout above the 2016 high at 1375 was a significant development, opening the door for fresh record highs and an acceleration beyond the next major psychological barrier at 2000. Setbacks should now be well supported above 1600. Longer-term technical studies are however in the process of unwinding, with the market in search of a higher low ahead of a bullish continuation.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, and coronavirus fallout. 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
Risk for any meaningful bullish continuation beyond the recent record high just ahead of $65,000 should be limited over the coming weeks, with the higher probability leaning towards more correction and consolidation. There is now room for the correction to extend back down into the $30,000-35,000 area, where a higher low would ideally be sought out for a resumption of the bigger picture uptrend.BTCUSD – fundamental overview
Heading into 2021, there was a great anticipation for institutional adoption. And as we saw follow through on this anticipation, the bitcoin price tripled in value, exploding to a record high beyond $60,000. But with much of that now priced into the market, and with short-term bitcoin fundamentals still correlating with global risk sentiment, there does appear to be room for somewhat of an adjustment lower in the price before we see that next wave of renewed demand. We also believe bitcoin's emergence into the mainstream will invite more challenge and scrutiny from central banks and governments, which could translate to a bumpy ride into H2 2021 before the asset once again finds its legs on the compelling longer-term value proposition.BTCUSD - Technical charts in detail
ETHUSD – technical overview
Despite the latest run to a fresh record high through $4,000, the market is looking quite extended following a massive run higher in 2021. At this stage, additional upside should be limited to allow for extended studies to unwind, before the market considers a meaningful bullish continuation. Look for setbacks to be well supported ahead of $2,000.ETHUSD – fundamental overview
Ether has entered a phase of meaningful correction after an explosive start to 2021 that has resulted in fresh record highs beyond $4,000. There are already signs of overvaluation in the defi space and this in conjunction with an anticipated deterioration in global risk sentiment are been behind a lot of the reasoning for the anticipated downside pressure. Still, we believe there will be plenty of demand for ether down into the $2,000 area.