Next 24 hours: Merkel Takes Her Shot at Currency Talk
Today’s report: More Room for US Dollar Drop
The market has been consolidating this latest run of US Dollar declines on Monday and while the run has been going on for some time, the technical outlook is still showing room for additional US Dollar weakness. Today’s focus will be on new headlines relating to the White House controversy and some Fed speak.
Wake-up call
Chart talk: Major markets technical overview video
- profit taking
- election polls
- North Korea
- US stocks
- selling strength
- Victoria Day
- Macro players
- Same story
- tense backdrop
- USDSGDÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- Blame Twitter for the Death of Volatility?, M. Gilbert, Bloomberg (May 19, 2017)
- The Tory-SNP Dogfight on Independence, M. Dickie, Financial Times (May 19, 2017)
Chart talk: Technical & fundamental highlights
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EURUSD – technical overview
The surge continues with the market extending its run in 2017 to fresh highs. The latest break above the previous 2017 high at 1.1020 confirms a fresh higher low in place at 1.0840 and opens a measured move extension to 1.1200-1.1250 area in the sessions ahead. Overall, the market is showing signs of the formation of a meaningful base, with the recovery off the multi-year low from January pointing to additional upside towards 1.1500. At this point, only back below 1.0840 will take the immediate pressure off the topside.
EURUSD – fundamental overview
The market has been feeling a lot better about the Euro’s prospects with Eurozone structural risk out of the way and economic data suggesting the ECB could soon look to start reversing policy. Meanwhile, it’s been a different kind of story of late in the US, with the combination of US administration protectionist policy and an overall soft run of US economic data weighing on the Buck. This latest Trump turmoil is having less of an impact than many suspect though it isn’t hurting Euro bids. The Buck has managed to find some demand into the early week, though the gains have been mild and the price action has been attributed to nothing more than a minor bout of profit taking on Euro longs. Looking ahead, the market will continue to monitor all things Trump, while also taking in some Fed speak from Kashkari and Harker. Second tier US data isn’t likely to factor at all.
GBPUSD – technical overview
This latest push through 1.2775, 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. The break ends a multi week consolidation mostly ranging between 1.2000-1.2700 with the bullish move paving the way for a measured moved upside extension equal in size back into the 1.3500 area in the days ahead. Still, there is rise for a short-term pullback, though any declines are now classified as corrective and should be well supported ahead of 1.2500 in favour of a higher low and bullish resumption.
GBPUSD – fundamental overview
Despite the Pound’s push to a yearly high above the 1.3000 barrier, it’s one of the weaker currencies in the developed currency basket over the past 5 days. While the Pound has managed to trade higher against the Buck on the wave of negative developments out of the US, there appears to be solid offers capping the UK currency’s run with even an impressive UK retail sales showing last Thursday unable to sustain the rally. Of course, it’s somewhat understandable with an important UK election coming up and with tough Brexit negotiations still a major concern. The latest polls are also less supportive, showing the Conservative lead in the election getting cut down, something the market was not expecting. Meanwhile, the subdued wage growth component in last week’s UK employment data release is yet another factor that should keep the market from getting too aggressive on the bid, with the BOE unlikely to make any moves with wages so soft. Looking ahead, the market will continue to monitor all things Trump, while also taking in some Fed speak from Kashkari and Harker. Second tier US data isn’t likely to factor at all.
USDJPY – technical overview
The run off the 2017 low has stalled out, with the market sharply reversing course to the downside. This latest daily close back below 112.00 now exposes a possible retest of the yearly low at 108.13. In the interim, look for any rallies to be well capped ahead of 113.00, with only a break back above the recent high at 114.37 to negate and take the pressure off the downside.
USDJPY – fundamental overview
The Yen hasn’t been able to ignore the swirl of controversy surrounding the White House. There has been a consistent attack on the White House since the President has taken office and investors are starting to show they are worried about the administration’s ability to get things done amidst the onslaught of allegations. And with risk markets already well overdue for a more significant corrective decline these developments are making things more volatile. And so, the combination of some risk off flow and ongoing broad based US Dollar weakness on the back of scaled back Fed hike odds in June have opened a more pronounced Yen rally in recent days. The Yen has however stalled out, perhaps weighed back down on stability in the US equity market as the White House turmoil calms a bit, hawkish Fed comments and a better set of US releases last Thursday. Looking ahead, the key focus will be on the White House, geopolitics and Fed speak. Earlier news of another North Korea missile launch has done nothing to meaningfully influence the market, with investors less sensitive to what is now becoming a regular event.
EURCHF – technical overview
A recent break back above 1.0900 takes pressure off the downside and could be warning of a more significant structural shift. Next key resistance comes in at 1.1000, with the psychological barrier coinciding with a high from August 2016. The establishment above 1.1000 would strengthen the bullish outlook and open the door for fresh upside. Back below 1.0780 would now be required to put the pressure on the downside.
EURCHF – fundamental overview
With global risk sentiment highly elevated, as reflected through stock markets, and geopolitical tension on the rise, there should be worry that any capitulation on that front could invite massive safe haven Franc demand the central bank will be unable to offset. For now, the SNB is hoping the ECB will take on a more hawkish policy approach as per reports the central bank is preparing for a taper, though at this point, despite some reports of policy reversal and hawkish speak from various ECB officials, there has been no such indication from ECB Draghi in recent speeches. The key focus for this market going forward will unquestionably be on the performance in US equities. Any renewed intensification to the downside will likely invite a pickup in Franc demand and unwanted downside pressure on EURCHF. But if the market extends its recovery, the SNB should be able to relax as the flow supports the EURCHF rate.
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 0.7500 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 drop below 0.7500 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
The broad based decline in the US Dollar has been the bigger story here right now helping to prop Aussie off recent lows. It would seem that the recovery in commodities markets is also helping to offset. But on the data front, last week’s Aussie employment data wasn’t as great as it may have appeared to be on initial glance, with most of the jobs coming from the part time sector. Meanwhile, Aussie consumer inflation expectations ticked down from the previous print. We have seen the emergence of fresh offers into rallies, with medium-term accounts still playing the bet the Fed will stick to its timeline this time round. Certainly hawkish Fed comments have helped this cause. The US also got a welcome round of solid data in the form of initial jobless claims and the Philly Fed last Thursday. Looking ahead, the key focus will be on the White House, geopolitics and Fed speak. Earlier news of another North Korea missile launch has done nothing to meaningfully influence the market, with investors less sensitive to what is now becoming a regular event.
USDCAD – technical overview
The uptrend in this market remains firmly intact, getting added confirmation following this latest break to a fresh 2017 high and through a key peak from December 2016 at 1.3600. But the market is looking super stretched at the moment which has invited this short-term correction. Still, any setbacks should now be very well supported ahead of 1.3400Â in favour of an eventual push towards the next measured move upside extension objective in the 1.4000 area. Ultimately, only back below 1.3224 would give reason for pause and delay the constructive outlook.
USDCAD – fundamental overview
The Canadian Dollar is finally recovering off 2017 lows after getting hit hard on the combination of US tariffs, rating agency downgrades, troubles at a mortgage lending giant and a drop in the price of OIL. But, an impressive recovery in the price of OIL, overall soft patch of US data, comments from BOE Governor Poloz that risk associated with mortgage lending giant Home Capital Group had been contained and more controversy out of the White House have definitely helped to inspire profit taking on Canadian Dollar shorts. Friday’s first tier batch of Canada data was mixed and ultimately proved offsetting with the Loonie extending its recovery run on the OIL surge. On Friday, Canada retail sales beat forecasts but CPI came in softer than expected. Looking ahead, with Canada celebrating the Victoria Day holiday, the key focus will be on the White House, geopolitics, oil and Fed speak. Earlier news of another North Korea missile launch has done nothing to meaningfully influence the market, with investors less sensitive to what is now becoming a regular event.
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, with outlook strengthened on this week’s breakdown to a fresh 2017 low. 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
Recent performance in the New Zealand Dollar hasn’t been all that impressive when considering an intense wave of negative US Dollar sentiment, rallying commodities prices and upbeat batch of Kiwi data including consumer confidence, the GDT auction and firmer producer prices. Still, with broader risk sentiment showing signs of possible deterioration and with many out there still looking for the Fed to follow through with its policy guidance of two more hikes in 2017, these players are happy to sell Kiwi into rallies. Certainly last Thursday’s hawkish comments from Fed Mester helped this cause after the central banker downplayed recent developments in the US. The US also got a welcome round of solid data in the form of initial jobless claims and the Philly Fed. Looking ahead, the key focus will be on the White House, geopolitics and Fed speak. Earlier news of another North Korea missile launch has done nothing to meaningfully influence the market, with investors less sensitive to what is now becoming a regular event.
US SPX 500 – technical overview
The market has been unable to break down below major support at 2320 thus far, leaving the pressure on the topside and the door open for that next big record push towards a measured move extension at 2480. However, if setbacks intensify and the market breaks down and closes below 2320, this will signal a shift in the structure and suggest a meaningful top is finally in place ahead of a more significant corrective decline.
US SPX 500 – fundamental overview
There has been a lot of talk about a potential top in the US equity market, with the rally pushing to record highs at an unnerving pace in the face of some disturbing fundamentals including the reversal of Fed policy and rising geopolitical risk. And certainly this latest turmoil surrounding the US President has exposed these more pressing fundamentals a little more. But overall, the US equity market has done a good job proving it can easily buy back into the shallow dips as it focuses on rates staying lower for longer and the Fed continuing to underdeliver on its forward guidance. The fact that the Fed has begun the reversal of policy has been of no consequence to this point, with negligible rate increases to date, doing nothing to dissuade the market, with valuations remaining attractive. Still, with asset prices where they are right now and with the Fed showing it may actually follow through with guidance in 2017, there is risk it could all come crashing down, with any additional upside limited before a major capitulation.
GOLD (SPOT) – technical overview
The market has been very well supported since basing out ahead of 1100 in 2016, putting in a series of higher lows and higher highs. This latest round of setbacks have been well supported above the previous higher low at 1195, with the 1215 area now sought out as the next higher low ahead of a fresh upside extension beyond the 2017 high at 1295 and towards the 2016 peak at 1375 further up. At this point, only a break back below 1215 would 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. Certainly the US Dollar back under pressure in recent days is adding to the metal’s bid tone as well.
Feature – technical overview
USDSGD has been trending lower in 2017, making a series of lower highs and lower lows. The most recent lower top has just been confirmed at 1.4130 following last week’s break to a fresh 2017 low, with the drop now opening the door for the next measured move downside extension into the 1.3600-1.3700 area. At this point, rallies should be well capped ahead of 1.4000, with only a break back above 1.4130 to compromise the bearish outlook.
Feature – fundamental overview
The Singapore Dollar did a great job overlooking last week’s non-oil domestic export data which came in quite weak. For now, the currency is more focused on the broader macro flows and fallout from an intense wave of US Dollar selling and risk off flow on the back of scaled back Fed rate hike odds, US protectionism and this latest controversy out of the White House. But into Monday, we are seeing some profit taking on Singapore Dollar longs, after the emerging market extended its run of fresh 2017 highs on Friday. Looking ahead, the market will continue to focus on these broader flows while waiting for tomorrow’s CPI data and Friday’s Q1 GDP release.