Next 24 hours: US Data Shrugged, Pound Retreats on Profit Taking
Today’s report: Euro Up But No Confirmation Just Yet
On Monday, the Euro cleared major resistance at 1.0875 which has the ability of paving the way for a push towards 1.1400 in the days ahead. At the same time, the market will need to establish a daily close above 1.0875 to confirm the move, as inability to do so will suggest a false break and could invite renewed USD demand.
Wake-up call
Chart talk: Major markets technical overview video
- ECB Praet
- EU officials
- external themes
- SNB’s job
- liquidity crunch
- OILÂ slide
- Deteriorating risk
- policies together
- hard asset
- USDSGDÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- UK Household Brexit Pessimism Grows, T. Colson, Business Insider (March 27, 2017)
- Hedge Funds’ Win-or-Die Bet, C. Langner, Bloomberg Gadfly (March 24, 2017)
Chart talk: Technical & fundamental highlights
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EURUSD – technical overview
The market has finally taken out critical resistance in the form of the 1.0875 December peak, triggering an inverse head and shoulders formation on the daily chart that projects gains towards 1.1400 in the days ahead. Still, the market will need to establish above 1.0875 to confirm the bullish formation and we will be looking to see if we get a daily close above 1.0950 for confirmation. Inability to establish a daily close above 1.0950 could suggest a false break and negate the formation, opening the door for a resumption of the longer-term downtrend. A daily close below 1.0700 would be required to take the immediate pressure off the topside.
EURUSD – fundamental overview
Euro gains have stalled after the market took out large buy stops on Monday through 1.0875. A combination of dovish ECB Praet comments, renewed confidence in Trump’s ability to still deliver on tax cut and fiscal spending reform and a more upbeat Fed Evans all factored into the Euro’s slowdown and minor pullback. Looking ahead, most of the calendar risk for Tuesday comes in North America with the US advanced goods trade balance, Case Shiller and consumer confidence standing out. We also get some central bank speak, highlighted by Fed Chair Yellen.
GBPUSD – technical overview
Despite this latest bounce, the market remains confined to a well defined downtrend while it holds below the December 2016 peak at 1.2775. Ultimately, rallies should continue to be very well capped ahead of 1.2775, with only a break above 1.2775 to compromise the bearish structure. Look for a daily close back below 1.2324 to strengthen the outlook, opening the door for a retest of the 2017 low just under 1.2000, which guards against the +30 year low from October 2016 at 1.1840.
GBPUSD – fundamental overview
Tomorrow is the day the UK PM will trigger Article 50, officially putting the EU on notice of the UK’s exit. The event hasn’t done anything to deter Sterling bulls in recent days, with the UK currency rallying through 1.2600, mostly on the back of broad based US Dollar weakness and the already priced in UK risk. Still, with EU officials talking tough on Brexit and with the event about to become a reality, it wouldn’t be surprising to see the Pound find renewed selling interest. Looking ahead, absence of data in the UK on Tuesday will leave the market focused on the North American calendat with the US advanced goods trade balance, Case Shiller and consumer confidence standing out. We also get central bank speak, highlighted by Fed Chair Yellen.
USDJPY – technical overview
The market has broken down below critical range support at 111.60 which could signal the end of a 400 point bearish consolidation that now opens the next major downside extension towards a 400 point measured move that targets 107.60 in the days ahead. Last Wednesday’s daily close below 111.60 strengthens this bearish outlook and any rallies should be very well capped ahead of 114.00. Ultimately, only back above 115.60 would force a bullish structural shift.
USDJPY – fundamental overview
Price action in the Yen is all about external themes, with the Japanese currency finding a healthy wave of demand in recent days on the back of broad based US Dollar declines and a deterioration in global risk sentiment. Into Tuesday, we have seen some of this fall away, which has inspired renewed selling in the Yen, though at this point, it looks like there will be room for another Yen rally and drop in the USDJPY below 110.00 in the sessions ahead. As far as today’s calendar goes, most of the calendar risk comes in North America with the US advanced goods trade balance, Case Shiller and consumer confidence standing out. We also get some central bank speak, highlighted by Fed Chair Yellen.
EURCHF – technical overview
Rallies continue to be very well capped, with the market adhering to a broader downtrend of lower tops and lower lows. The most recent rally has stalled at 1.0826 where a fresh lower top is now sought ahead of the next major downside extension below the 2016 base at 1.0624 and towards 1.0400 further down. Only back above 1.0826 delays the bearish outlook.
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 appetite for risk, the Franc hasn’t been able to weaken all that much. There have been some signs of the SNB perhaps making a little headway on reports of a boost in SNB reserves, but this latest pullback in equities could easily offset that advantage.
AUDUSD – technical overview
The impressive rally in 2017 has stalled out into significant medium-term resistance ahead of 0.7800. A recent break back below 0.7600 strengthens the prospect for some form of a top and could open the door for a deeper drop back towards the 0.7000 area in the days ahead. However, the market will need to hold below 0.7750 to keep the prospect of the bearish shift alive, with a subsequent break back below 0.7492 to confirm.
AUDUSD – fundamental overview
The Australian Dollar has been a standout underperformer over the past week, with the currency failing to benefit from another run of broad based US Dollar weakness, instead focused on other drivers. A deterioration in global risk sentiment, worry over a liquidity crunch in China and falling copper and iron ore prices have all more than offset any demand from the broad US Dollar weakness and could continue to pressure the risk correlated commodity currency going forward. As far as today’s calendar goes, the US advanced goods trade balance, Case Shiller and consumer confidence stand out. We also get some central bank speak, highlighted by Fed Chair Yellen.
USDCAD – technical overview
The market remains very well supported on dips, with the latest bounce out from 1.3000 warning of a more significant bullish resumption. Any setbacks should now be very well supported above 1.3200 on a daily close basis in favour of an eventual push back through the multi-day peak at 1.3599 and towards 1.4000 further up.
USDCAD – fundamental overview
Although the Australian Dollar has been a notable decliner relative to the US Dollar over the past week, despite broad based US Dollar weakness, the Canadian Dollar is another currency that has also seen setbacks against the Buck. There are some who subscribe to the mantra that what’s good for the US Dollar is good for the Loonie and so, with the US Dollar tracking lower, so too is the Canadian Dollar. At the same time, OIL weakness in the month of March has been a major story and these declines are also having a definitive negative influence on the Loonie. Looking ahead, a speech from Bank of Canada Governor Poloz stands out, while in the US, we get the US advanced goods trade balance, Case Shiller, consumer confidence and Fed speak, highlighted by Fed Chair Yellen.
NZDUSD – technical overview
The overall pressure remains on the downside with the market expected to be very well capped on rallies. The weekly chart is reflective of this fact as it looks like we’re seeing the formation of a major top off the 2016 high. As such, expect the market to continue to roll over in the days ahead, with setbacks projected towards medium-term support in the 0.6600s. Only back above 0.7400 compromises the outlook.
NZDUSD – fundamental overview
The New Zealand Dollar has managed to outperform its commodity currency cousins over the past week, but hasn’t been able to really take advantage of another round of US Dollar weakness, with a deterioration in risk sentiment, softer local data and an accommodative RBNZ all helping to keep the Kiwi rate well capped. As far as today’s calendar goes, the US advanced goods trade balance, Case Shiller and consumer confidence stand out. We also get some central bank speak, highlighted by Fed Chair Yellen.
US SPX 500 – technical overview
An extended run to record highs is finally showing signs of exhaustion in 2017, with the market rolling over, taking out critical short-term support at 2350. This now opens the door for an acceleration of declines towards 2300 in the sessions ahead, with a daily close below this psychological barrier to suggest the possibility of a more significant structural shift. In the interim, rallies should now be well capped below 2375.
US SPX 500 – fundamental overview
The latest pullback in the stock market is generating a lot of attention as investors begin to wonder if this is warning of a more significant reversal ahead. Stocks have been supported on easy Fed policy for so many years, but with the Fed now on course to normalise policy, this could finally be resonating with investors. Higher rates means less attractive valuations and considering where this market is trading, there is a strong possibility that a mass exodus could inspire an intensified liquidation. Moreover, with Trump policies failing to materialize, investors are worried they may have been too aggressive pricing it all in. The politics have come front and centre in financial markets, with Trump pulling his healthcare bill off the table, calling into question the President’s ability to actually follow through with tax cut and fiscal spending promises the market had aggressively priced in at the end of 2016. There has been some renewed hope into Tuesday on chatter Trump will push through tax cuts and fiscal spending reform at the same time, but at this point, it’s unlikely rallies on this hope alone will be sustainable.
GOLD (SPOT) – technical overview
The market has been very well supported since basing out around 1120 in 2016. A recent bounce out from the 1200 area strengthens the outlook, opening the door for the next major upside extension towards a measured move into the 1330 area. Look for any setbacks to be well supported ahead of 1200, with only a break back below 1180 to compromise the constructive outlook.
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. Of course, declines in the US Dollar post a dovishly perceived FOMC decision and worry over Trump policies have fueled additional gains in the metal.
Feature – technical overview
USDSGD has been in the process of correcting out from the critical high 1.4545 from earlier this year, putting in a series of lower highs and lower lows. However, the market has finally traded down into a strong previous resistance turned support area in the 1.3900s that could warn of the resumption of the more prominent uptrend. Look for a daily close back above 1.4100 to strengthen prospects for a bullish reversal. Ultimately, while the market holds above 1.3800, risk is tilted to the topside.
Feature – fundamental overview
The Singapore Dollar has been bolstered on US themes over the past several days. At the top of the list are the more dovishly perceived FOMC and a diminished confidence in President Trump’s ability to deliver US Dollar supportive policies. Local data has been mixed and less relevant with last Thursday’s core CPI readings on the soft side and last Friday’s industrial production coming in above forecast. But going forward, a deterioration in global risk sentiment is likely to have a bigger influence on the emerging market currency, and it seems that if the stock market comes under added pressure, it could open the door for a resumption of Singapore Dollar weakness. Dealers have also been talking of US Dollar demand ahead of 1.3900.