Special report: Why the Pound Has Held Up
Next 24 hours: Trump Says US Dollar Getting Too Strong
Today’s report: Nervous Market Runs to Yellow Metal and Yen
We're into the mid-week and geopolitical risk continues to take the spotlight. North Korea has warned of a nuclear strike should the US provoke it, while in Syria tension persists. All of this has been having the most significant impact on the price of Gold and the Yen, both up about 1.50% this week. UK jobs data ahead.
Wake-up call
Chart talk: Major markets technical overview video
- election polls
- UK jobs
- geopolitical risk
- Safe haven
- consumer confidence
- BoC decision
- Distressed market
- US-Russia tension
- global fear
- USDSGDÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- Dalio Worried About Next Global Downturn, R. Levy, Business Insider (April 11, 2017)
- Currency Manipulation for FX Traders, B. Emons, Bloomberg (April 11, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
Inability to establish above resistance at 1.0875 several days back has kept the pressure on the downside, with the market stalling out into medium-term range resistance and rolling back over. While this could be a minor setback ahead of the next upside extension, it could also be the start to a resumption of the broader downtrend. At this point, a break back above 1.0900 or below 1.0500 will be required for clearer directional insight.
EURUSD – fundamental overview
The Euro has been trying to extend its recent recovery, with Tuesday’s impressive German ZEW survey helping things along. But at the same time, the major pair hasn’t been able to mount any significant rallies just yet. News on the French Presidential election front of the latest polls showing a neck and neck race has been offsetting demand for the single currency. Looking ahead, absence of first tier data out of the Eurozone and US will leave the market trading on broader macro flow and themes.Â
GBPUSD – technical overview
Despite a recent 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 break 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
The Pound has done a good job holding up this week despite Tuesday’s softer round of UK inflation data. It seems the market may have been positioned for an even softer CPI reading, while there was also some relief after an earlier release of weak BRC retail sales had rattled the UK currency a bit. Looking ahead, there is plenty of risk for volatility with BOE Governor Carney due to speak and with UK employment data also on tap. Later in the day, absence of first tier data in the US will leave the Pound focused on any Brexit negotiation headlines and broader macro flow and themes.
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. Look for any rallies to be well capped ahead of  114.00, while ultimately, only back above 115.60 would force a bullish structural shift. Below 110.00 strengthens the outlook and should accelerate declines.
USDJPY – fundamental overview
The Yen has been the strongest currency over the past week, with the Japanese currency extending its impressive run on the back of elevated geopolitical tension. The traditional correlation with flight to safety has now been lost on the Yen, with USDJPY breaking down below the major psychological barrier at 110.00. North Korea warnings of a nuclear attack and a standoff between the US and Russia on Syria are not sitting well with investors, fueling the risk liquidation flow. Looking ahead, the market will continue to focus on these developments, with the US Secretary of State on the wires and President Trump holding a joint press conference with NATO Secretary General Stoltenberg.
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 a meaningful pullback in risk markets 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 see a daily close below previous support at 0.7492 to strengthen the bearish outlook.
AUDUSD – fundamental overview
The Australian Dollar is the weakest of the developed currencies over the past week, with Aussie taking hits on softer local data, a more dovish RBA and risk off flow from escalating geopolitical tension. Early Wednesday, Aussie Westpac consumer confidence came in a good deal softer than expected, providing more fuel for bears. Looking ahead, geopolitics will be front and centre, especially with the absence of first tier data on the US economic calendar. The market will be focused on comments from the US Secretary of State and President Trump’s joint press conference with NATO Secretary General Stoltenberg.
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
The Canadian Dollar is actually higher over the past week, with any risk off flow offset by some impressive Canada employment data and a rally in the price of OIL. But all of that could change later today with the Bank of Canada policy decision due and with the market waiting on OPEC production cut deal compliance levels. The Bank of Canada is expected to lean to the dovish side, while the WSJ reports the Saudis will be looking to ask oil producers for a 6 month deal extension.
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 continues to find offers as broader themes weigh on the commodity currency. The combination of a rise in geopolitical tension, and ongoing hawkish Fed speak are the primary drivers behind the bearish Kiwi case, with dealers now talking about some major sell stops below 0.6850. Looking ahead, the risk correlated currency will continue to monitor the geopolitical tension, with the market focused on comments from the US Secretary of State and President Trump’s joint press conference with NATO Secretary General Stoltenberg.
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 2380.
US SPX 500 – fundamental overview
Bulls remain in control, though there have been some cracks at the surface in recent days. Lat week’s Fed Minutes citing equity overvaluation and possible balance sheet shrinkage later this year haven’t been stock market positive, while the rise in geopolitical tension is only adding to the strain. The market is waking up to the fact that the new US administration’s alternative take on diplomacy could make for a less predictable path for equity markets. Stocks will continue to monitor these developments going forward. As far as today goes, the focus will be on comments from the US Secretary of State and President Trump’s joint press conference with NATO Secretary General Stoltenberg.
GOLD (SPOT) – technical overview
The market has been very well supported since basing out ahead of 1100 in 2016. This latest break to another yearly high through 1265 strengthens the outlook, confirming the next higher low at 1195, while opening the door for the next major upside extension towards a measured move into the 1335 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, with these players more concerned about the limitations of exhausted monetary policy, extended global equities, political uncertainty, systemic risk and geopolitical threats. All of this should continue to keep the commodity in demand, 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.
Feature – technical overview
USDSGD 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
Going forward, it will be very difficult for the Singapore Dollar to ignore the combination of still favourable US Dollar yield differentials, overall solid US economic data and risk for a deterioration in global sentiment, all weighing themes that could easily put the emerging market currency back under pressure. The rise in geopolitical tension has only further contributed to strain on the emerging market currency, while expectations for slower economic growth in Singapore aren’t helping. Looking ahead, the market will be curious to see what comes of Thursday’s MAS monetary policy statement and Q1 2017 advance GDP estimates.