Special report: ECB Preview – Taking it Easy
Next 24 hours: Euro Bulls Let Down by Dovish ECB
Today’s report: Loonie Up, BOJ Unchanged, ECB Ahead
The Canadian Dollar is finally getting some relief early Thursday, outperforming across the board on the news the US government will not be terminating NAFTA at this time. Meanwhile the BOJ has left policy on hold as widely expected. Looking ahead, the market will continue to focus on global politics while also taking in the ECB decision.
Wake-up call
Chart talk: Major markets technical overview video
- ECB decision
- downside risk
- unchanged BOJ
- SNB policy
- tax reform
- NAFTA
- commodity cousin
- US data
- uncertainty props
- USDTRYÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- Investors Embrace Good Trump, Ignore Bad One, S. Gandel, Bloomberg (April 26, 2017)
- Dear Canada: It's Not Personal, It's Just Trade, G. Ip, Wall Street Journal (April 26, 2017)
Chart talk: Technical & fundamental highlights
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EURUSD – technical overview
The market has now cleared major resistance at 1.0906, breaking to a fresh 2017 high, while confirming a higher low at 1.0570. The break strengthens the case for a major bottom and opens the next upside extension towards the 1.1400 area. Setbacks should be very well supported, with only a break back below 1.0570 to compromise the constructive outlook.
EURUSD – fundamental overview
The Euro has pulled back from its recent 2017 high, after outperforming this week on reduced risk to the Zone, with Macron seen winning the French election handily. But into Thursday, there is reason to take pause, with the ECB decision ahead and the market wanting to know if the recent positive developments will get the ECB talking a little more upbeat and a little more hawkish, perhaps signaling a move towards a taper. If the market thinks the ECB is moving in that direction, the Euro will likely look to extend its impressive run, while anything that lets this expectation down will open a deeper corrective pullback. Overall however, irrespective of the ECB outlook, medium-term players will be looking to buy the Euro on dips, with the US Dollar not looking as strong in a protectionist US government. The market will also take in a healthy run of data that includes German Gfk consumer confidence, Eurozone confidence readings, German CPI, US initial jobless claims, US durable goods, the US advanced goods trade balance and US pending home sales.
GBPUSD – technical overview
This latest break back above the December 2016 peak is a significant development as it potentially ends a period of bearish consolidation, warning of the formation of a more meaningful longer-term base. Still, it will be interesting to see how the market responds above 1.2775 and if it can hold above the level in the sessions ahead. If the market holds above 1.2775 in the sessions ahead, it could pave the way for the next major upside extension into the 1.3500 area. If the market is unable to hold above 1.2775 it will suggest a false break and could open renewed downside. In the interim, key levels to watch above and below come in at 1.3000 and 1.2616 respectively.
GBPUSD – fundamental overview
Things have been very quiet with the Pound since last week’s rocket in the currency through major barriers at 1.2775 which could now be paving the way for a bigger move as locals start to feel better about the outlook for the economy after the June election which is expected to result in a more cohesive May government that will allow the PM to focus her energies on negotiating Brexit with the EU without needing to be distracted by infighting within her own government. Meanwhile, US protectionism has been a big negative for the US Dollar and the combination of these two themes have been helping out the Pound. Market participants are more inclined to diversify back into the major currency with the Pound having been so beaten up and looking like it could finally be on the mend. Of course, there are many bumps expected going forward. The election has yet to happen, negotiations with the EU won’t be easy, and the US administration is also looking to offer more colour on its tax reform plan that would be US Dollar supportive. Last week’s dreadful UK retail sales should also not be forgotten. Looking ahead, we get UK CBI reported sales and a batch of data out of the US that includes initial jobless claims, durable goods, the advanced goods trade balance and pending home sales. The market will also be interested in the ECB decision.
USDJPY – technical overview
The recent break of a multi-week range low at 111.60 marked an end to a 400 point bearish consolidation that has now opened the next major downside extension towards a 400 point measured move that targets 107.60 in the sessions ahead. As such, look for the current rally to be well capped ahead of 112.20 in favour of a lower top and bearish resumption, with only a break back above 112.20 to take the immediate pressure off the downside.
USDJPY – fundamental overview
Earlier today, the BOJ came out and as widely expected, left policy unchanged, only offering minor tweaks in its quarterly outlook report. In the report, the BOJ highlighted an improved outlook on economic growth but offset with its warning that downside risks remained. All of the moves in the Yen right now are directly correlating with the market’s risk appetite. And so, with US equities leading the charge back to record highs this week, the market is once again selling Yen, even in the face of impressive rallies in the other major currencies against the Buck. We did see a minor wave of Yen demand late Wednesday on the back of a well telegraphed and perhaps underwhelming tax reform plan from the US administration. Looking ahead, if US equities continue to push, expect the Yen to inversely correlate (USDJPY higher), if on the other hand US equities show signs of weakness, the Yen is likely to rally. As far as today’s data goes, we get a healthy batch of readings out of the US that include initial jobless claims, durable goods, the advanced goods trade balance and pending home sales.
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 rallies have stalled above 1.0800 and a fresh medium-term lower top is sought below 1.0900 ahead of the next major downside extension through the 2016 base at 1.0624 and towards 1.0400 further down. Ultimately, only back above 1.0900 would negate the overall bearish outlook.
EURCHF – fundamental overview
There is  no doubt that among those who have been celebrating the results of the weekend election in France, officials at the SNB have to be right up there. The SNB has been battling the market for months in an effort to prevent the Franc from appreciating, seemingly drawing an unofficial line in the sand around EURCHF 1.0600. The SNB’s efforts have been met with an aggressive wave of consistent demand for the safe haven Franc, despite the incredible disincentive of negative rates. But the Macron victory has reduced quite a bit of risk in the Eurozone this week, helping to drive the Euro higher as many market participants feel better about moving back into the Euro and using it as a legitimate funding currency. The EURCHF rate has pushed to a fresh 2017 high and will be looking to see if it can overcome a key obstacle at 1.0900. Still, while the SNB can relax a little, it shouldn’t relax too much as the threat of a highly extended global equity market that could be inching closer to a major capitulation, should be keeping the central bank on high alert. If such an event were to occur, it would be difficult to see a scenario where the SNB could fight against such widespread demand for the Franc.
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. The latest break below 0.7475 strengthens the bearish outlook and any rallies should be very well capped ahead of that previous support now turned resistance at 0.7600.
AUDUSD – fundamental overview
Commodity price declines, worry over the impact of US protectionism and softer Aussie CPI have been a bother to the Australian Dollar this week, so much so, that the normally risk correlated currency has failed to benefit from a push in US equities back to record highs. On a relative basis, it is worth noting that despite recent weakness, Aussie has managed to outperform its commodity currency cousins, up a good amount over the past week against both Kiwi and Cad. Aussie has found some demand on dips into Thursday, getting help from an underwhelming US tax reform announcement and news the US won’t be terminating NAFTA right now, which loosely suggests US trade policies may not be as tough. Looking ahead, most of the focus will be on headlines out of the White House and price action in equities, though there is also a healthy batch of US data due that features initial jobless claims, durable goods, the advanced goods trade balance and pending home sales.
USDCAD – technical overview
The uptrend in this market remains firmly intact, getting added confirmation following this latest break to fresh 2017 highs and also through a key peak from December 2016 at 1.3600. Any setbacks should now be very well supported above 1.3200 on a daily close basis in favour of an eventual push towards the next measured move upside extension objective in the 1.4000 area. Ultimately, only back below 1.3200 would give reason for pause and delay the constructive outlook.
USDCAD – fundamental overview
The Canadian Dollar has been one of the harder hit of late, with a good deal of that weakness coming from the new US administration's protectionist policies that will make trading with the US more difficult for its partners. Earlier this week we heard about the US imposing tariffs on Canada, though the Canadian Dollar is finally getting some relief early Thursday on the news the US government will not be terminating NAFTA at this time. We have since seen the Loonie rally back, outperforming thus far today. Looking ahead, headlines out of the White House will continue to be monitored, while the market will also take in a batch of US data that includes initial jobless claims, durable goods, the advanced goods trade balance and pending home sales.
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 0.7100 compromises the outlook.
NZDUSD – fundamental overview
The New Zealand Dollar has come under quite a bit of pressure this week, with setbacks in commodities and worry over the implications of protectionist US policy weighing on the commodity currency. The setbacks have also come at a time when Kiwi would normally be supported on drivers like a rally in the major currencies against the Buck (ex-Yen) and perhaps more importantly, a rally in US equities back to fresh record highs. Meanwhile, there has been strong cross related selling against the Australian Dollar this week, with the pop in the AUDNZD rate further contributing to Kiwi declines. Kiwi has however been getting a little help into Thursday after the Trump tax reform announcement underwhelmed and the US administration sounded a little softer on trade by way of the release that it would not be terminating NAFTA right now. Looking ahead, headlines out of the White House will continue to be monitored, while the market will also take in a batch of US data that includes initial jobless claims, durable goods, the advanced goods trade balance and pending home sales.
US SPX 500 – technical overview
The market was unable to break down below major support at 2320, leaving the pressure on the topside and opening the door for this latest run back to record highs. At this point, a push through 2400 will open the door for the next major upside extension towards 2500, while at a minimum, a break back below 2368 would be required to alleviate immediate topside pressure.
US SPX 500 – fundamental overview
Bulls remain in firm control despite the emergence of legitimate cracks at the surface in the month of April. This month’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 and sup-par Goldman Sachs earnings are only increasing stress. Furthermore, 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. But again, for now, only tiny cracks, with investors still comfortable playing the game of trading sideways (not down) on stress and then rallying to fresh record highs on any signs of an elimination of the stress given the artificial rate environment. Macron’s victory in the first round of the French election has significantly reduced systemic risk associated with the election and has been primarily responsible for this latest surge. The anticipated Trump tax plan announcement seemed to be well telegraphed and underwhelmed investors, though this is unlikely to prevent the market from racing higher. As far as economic data goes, investors will be looking to see what comes of initial jobless claims, durable goods, the advanced goods trade balance and pending home sales.
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 1230, with only a break back below 1195 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, 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. Meanwhile, a bout of US Dollar selling (bullish gold on inverse correlation) in 2017 has also kicked in as the market gives more serious consideration to US policies that are likely to direct the US Dollar lower.
Feature – technical overview
USDTRY has been in a period of choppy consolidation since topping out at a fresh record high earlier this year. At this point, the structure continues to favour the topside, with scope still existing for a bullish continuation to yet another record high. At a minimum, a daily close back below 3.5580 would be required to potentially force a shift in the outlook and open the door for a more significant bearish corrective phase.
Feature – fundamental overview
The Lira got a little boost on Wednesday after the CBRT surprised the market with another tightening move by way of “late liquidity window” (LLW), the highest of the four rates the central bank uses. The CBRT raised the LLW by 50bps, this after analysts were split on no change or a possible 25bp bump. The move suggests the central bank may be more serious about tackling inflation, which could make the Lira a little more attractive going forward. But overall, the currency market is still taking time to digest the latest result in the Turkish referendum which produced a narrow “Yes” victory for President Erdogan. On the one hand, the result can be viewed as Lira supportive as it reduces political uncertainty which should translate into more stable economic policy. On the other hand, the move to grant an unlimited amount of power to the President could pose risk on the global stability front, which would be viewed as Lira bearish. Of course, geopolitical risk, the US administration’s protectionist policies and possible vulnerability in global equities are other themes that need to be considered with respect to the outlook for the emerging market currency.