Next 24 hours: Tension Ahead of Trump Tuesday
Today’s report: More Uncertainty in the UK?
The Pound has come under pressure on a Times of London report that PM May is preparing for the prospect of Scotland calling a second referendum. Clearly this is a development that will need to be watched closely as it significantly increases odds of a UK breakup, particularly in light of Brexit. US durable goods ahead.
Wake-up call
Chart talk: Major markets technical overview video
- Eurozone confidence
- Scotland referendum
- durable goods
- SNB Zurbruegg
- RBA Lowe
- hot CPI
- sentiment shift
- No fear
- Fresh batch
- USDMXNÂ
Suggested reading
- What Causes The Market’s 3:30pm Ramp, T. Durden, ZeroHedge (February 24, 2017)
- Le Spread, Meet Die Bundesbank, M. Ashworth, Bloomberg (February 24, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
A recent breakdown below 1.0620 suggests the market could be in the process of rolling back over in favour of a retest in the days ahead of the 14 year low from January at 1.0341. Consider the possibility of a lower top in place at 1.0830 to be confirmed on a break below 1.0341, exposing the next drop through the massive parity barrier. At this point, a daily close back above 1.0680 would be required to take the pressure off the downside, while a daily close below 1.0500 further strengthens the bearish outlook. But if the market fails to establish below 1.0500 and breaks back above 1.0680, it could reinforce the possibility of a bullish inverse head & shoulders formation.
EURUSD – fundamental overview
A quiet start to the week for the Euro which is trading at a critical inflection point in the 1.0500s and waiting for some answers to bigger questions before making its next big move. The single currency would like more clarity on French elections, Greek debt, Trump policies and the Fed outlook, to name some of these outstanding uncertainties, but the market has been supported on Monday on cross related Euro demand against the Pound on the story that the UK PM is preparing for the possibility of another Scotland referendum. Looking at the data, Eurozone confidence readings are due, followed by a round of US releases that include durable goods, pending home sales and Dallas Fed manufacturing.
GBPUSD – technical overview
This latest impressive run to the topside has stalled out ahead of critical resistance in the form of the December peak at 1.2775. While we could still see a test and overshoot beyond 1.2775 in the sessions ahead, the market would need to establish a weekly close above this level to suggest a major base in place and force a bullish structural shift. Until then, expect any moves into or through 1.2775 to stall out. A daily close back below 1.2347 will increase bearish prospects.
GBPUSD – fundamental overview
The Pound has come under pressure early Monday on a Times of London report UK PM May's team is preparing for the prospect of Scotland calling a second referendum for its independence. Clearly this is a development that will need to be watched closely as it would significantly increase chances of a UK breakup, particularly in light of Brexit. All of this also has many reconsidering the fact that the Bank of England's next move may not be a hike after all. Looking ahead, absence of first tier data in the UK leaves the focus US releases including durable goods, pending home sales and Dallas Fed manufacturing. Fed Kaplan is scheduled to speak on the official circuit.
USDJPY – technical overview
The short-term pressure remains on the downside in light of a recent break of multi-session consolidation that projects weakness into the 109.50 area in the days ahead. At this point, it would take a push back above 115.62 to officially alleviate short-term downside pressure and as such, any rallies are expected to stall out ahead of 115.00.
USDJPY – fundamental overview
Flows in the Yen have been all about external drivers, namely yield differentials and surging global equities, which have been Yen bearish, and Trump protectionism and fear of impending risk off flow, which have been Yen supportive. Last week’s comments from US Treasury Secretary Steve Mnuchin knocked the US Dollar back across the board as he cast doubt on any imminence for both a Fed rate hike and clarity on US policy reforms and this has contributed to this run in the Yen. Looking ahead, broader themes will continue to dictate flow. We also get US economic data that features durable goods, pending home sales and Dallas Fed manufacturing.
EURCHF – technical overview
A recent close below 1.0800 which had been defined as the bottom of a multi-week range has strengthened the bearish outlook, opening the door for additional declines below the 2016 low at 1.0624 and towards psychological barriers at 1.0500 further down. A descending triangle formation on the daily chart is strengthening the bearish outlook. At this point, a daily close back above 1.0763 would be required to take the immediate pressure off the downside.
EURCHF – fundamental overview
The SNB is in a quiet battle with the market, forced to contend with an ongoing wave of demand for the Swiss Franc in a less certain global environment, especially with the weapon of monetary policy worn down. The central bank has been committed to its mandate of ensuring the Franc does not appreciate further. But despite all efforts, the Franc continues to want to appreciate. It seems the central bank’s strategy has been to sell Francs when risk comes off and to do nothing when risk is back on and natural flows should be CHF bearish. But the trouble is, even with global equities elevated, arguably reflecting global appetite for risk, the Franc barely depreciating, if at all. This is an added concern with the SNB’s holding of US equities at record highs. Of course, the reemergence of Eurozone political risk as reflected through elections in France, Holland and Italy, and renewed Greek debt concerns, are only further contributing to SNB stress, with the Franc finding even more demand on the back of these developments. So if equities start to come off and demand for the Franc ramps up, this SNB headache could turn into an SNB migraine. Perhaps we will get more colour on SNB sentiment when SNB Zurbruegg speaks today.
AUDUSD – technical overview
The market has entered a healthy bullish phase after setbacks stalled shy of key medium-term support at 0.7145 in late December. Still, overall, rallies continue to be very well capped on a medium-term basis, with only a daily close back above 0.7800 to compromise this outlook. Look for a daily close below 0.7600 to officially put the pressure back on the downside.
AUDUSD – fundamental overview
RBA Governor Lowe offered some balanced testimony this past Friday with respect to the Australian Dollar. While the central banker conceded the currency wasn’t fundamentally overvalued, he also said they would like to see the Australian Dollar lower. Firmer Aussie sovereign bond yields, supported base metals and an ongoing push in global equities have all been helping to keep the Australian Dollar well supported in 2017. Still, with the market running so far and fast, with Fed policy divergence a major potential weight and with risk rising for some form of a correction in the stock market, the commodity currency could be vulnerable to weakness in the days ahead. Looking ahead, broader themes will continue to dictate flow, with Aussie likely taking its cues from US equity market direction. We also get US economic data that features durable goods, pending home sales, Dallas Fed manufacturing and a speech from Fed Kaplan.
USDCAD – technical overview
Despite recent setbacks, look for the market to continue to be well supported on dips into the 1.3000 area ahead of the next major upside extension back towards the December peak at 1.3600. In the interim, a daily close back above 1.3213 will help take the immediate short-term pressure off the downside.
USDCAD – fundamental overview
The Canadian Dollar didn’t really go anywhere in the previous week. Economic data out of Canada was mixed with softer retail sales offset by Friday’s hotter Canada CPI. Meanwhile, the price action in the OIL market has become much less relevant to the Canadian Dollar now that the commodity has deferred to range trade. Looking ahead, we can expect volatility later in the day with US durable goods, US pending home sales, Dallas Fed manufacturing and a speech from Fed Kaplan all due. Of course, the performance in US equity markets and broader macro themes will also be watched closely.
NZDUSD – technical overview
Despite this latest upside correction in 2017, the overall pressure remains on the downside with the market expected to be very well capped on rallies into the 0.7400 area. The weekly chart is reflective of this fact as it looks like we are seeing the formation of a major top off the 2016 high. As such, expect the market to continue to roll over in favour of that next lower top. This latest weekly close below 0.7200 helps to strengthen the bearish outlook.
NZDUSD – fundamental overview
There has been a notable shift in sentiment towards the New Zealand Dollar in recent days. Softer local employment, a more dovish RBNZ, a rotation into AUDNZD, hawkish Fed speak leaving the door open for a March hike, disappointing New Zealand retail sales and this latest GDT auction letdown are some of the major drivers behind the Kiwi bearishness. Of course, last Thursday’s USD bearish Mnuchin talk, an ongoing bid for equities and rallying commodities have been helping to slow Kiwi declines. But ultimately, if the US Dollar pushes back to focusing on Trump reflation and hawkish Fed policy, and if US equities falter, we could very well see a more intense liquidation of Kiwi longs. Looking ahead, broader themes will continue to dictate flow, with Kiwi likely taking its cues from US equity market direction and US data calendar featuring US durable goods, US pending home sales, Dallas Fed manufacturing and a speech from Fed Kaplan
US SPX 500 – technical overview
The latest break to yet another record high following a healthy period of consolidation, has opened the door for the next big push towards 2400. While technicals are severely stretched and there are definitive signs of exhaustion on the horizon, given the intensity of this uptrend, a break back below 2300 would be required at a minimum to alleviate immediate topside pressure.
US SPX 500 – fundamental overview
The record run in US equities has been more than impressive, particularly at a time when the Fed is embarking on a hawkish path to policy normalisation and the Trump administration is lacking the type of stability that would inspire confidence. This leaves financial markets vulnerable to any shocks and exposed to intense periods of risk liquidation going forward. The fact that monetary policy around the rest of the globe is exhausted with very little left in the tank to artificially support risk assets is yet another major concern. Throw in systemic risk from Brexit and Eurozone structural issues, stretched valuation, and a market that hasn’t dipped 1% in an disturbingly uncomfortable amount of time and the picture gets even uglier. Of course, expectation of fresh tax reform and the revival of the Trump reflation play have contributed to this latest record high push, but overall, there are plenty of red flags out there, warning of a major capitulation ahead. It’s almost as if investors are now climbing a very dangerous stock market ladder more because they’re being chased by red flags below, than on an actual desire to go higher.
GOLD (SPOT) – technical overview
The market has been very well supported since basing out around 1120 in 2016. This latest break to 1260Â confirms a fresh higher low at 1216 and opens the next major upside extension towards a measured move into the 1300 area. Only back below 1216 would delay the constructive outlook, while ultimately, below 1180 would be required to negate.
GOLD (SPOT) – fundamental overview
Solid demand from medium and longer-term players continues to emerge on dips, with these players more concerned about the limitations of exhausted monetary policy, extended global equities, political uncertainty and systemic risk. All of this should continue to keep the commodity in demand, with many market participants fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax.
Feature – technical overview
USDMXN has been in the process of correcting out from recent record highs earlier this year. The market has now dropped back into critical support in the 19.00-20.00 area and is expected to be well supported around this area (61.8% fib retrace, 200-Day SMA) in favour of a resumption of the uptrend and push back through the record high just over 22.00. Ultimately, only back below 19.00 would give reason for pause and open the possibility for a more meaningful structural shift.
Feature – fundamental overview
The Peso has been getting a lot of help of late. A unanimously decided Banxico rate hike, reduction in Peso shorts and more conciliatory talk out of the White House have already been helping to rally the currency out from record lows against the Buck. And now this latest Banxico announcement of plans to hold FX hedge auctions in March as a means to further prop the Peso, is giving the Peso an additional boost, with USDMXN sinking back below the psychological barrier at 20.00 and towards its longer run 200-Day moving average. Still, the Peso is far from out of the woods, with Trump uncertainty running high and the Fed on it policy normalisation path. Of course, the fact that global equities look like they could come off the rails is yet another serious variable that could undermine any recovery in the Peso and emerging market FX. Looking out, the market is pricing another 100bps of Banxico hikes in 2017.