Next 24 hours: Markets Play Nice on Holiday Monday
Today’s report: Month End Flow in Focus on Holiday Thin Monday
We're off to an exceptionally quiet start to the week in a thin holiday Monday, with Mainland China markets out, the UK off for bank holiday and the US closed for the Memorial Day weekend. Trading conditions are expected to be quiet, though we could see some volatility on month end flow.
Wake-up call
Chart talk: Major markets technical overview video
- ECB Draghi
- Tighter election
- Fed Williams
- Franc’s fate
- US data
- watching OIL
- Month end
- Stocks dismiss
- Global backdrop
- USDSGDÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- Europe Has No Bubbles to Fear — For Now, F. Giugliano, Bloomberg (May 26, 2017)
- Wall Street and the College Jock, J. Baer, Wall Street Journal  (May 25, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The market is showing signs of short-term exhaustion after extending its 2017 run on Tuesday. But with the medium-term structure still quite bullish, any setbacks that we do see in the sessions ahead should ideally be well supported above 1.1000 on a close basis in favour of the next higher low and bullish continuation towards the next key resistance point at 1.1367, which represents the August 2016 peak. Ultimately, only back below a confirmed higher low at 1.0840 would negate the outlook.
EURUSD – fundamental overview
The latest CFTC positioning data shows longs at the highest level since 2013 which could be some of the reason we’ve been seeing a pullback over the past few sessions as the market considers the possibility the Euro has run a little too far. Meanwhile, Friday’s batch of US data is also weighing on the Euro as it strengthens the case a recent slowdown in US data may in fact have been transitory in nature which pushes the Fed back towards following through with its guidance for two more rate hikes this year. As far as today goes, some of the movement in the thinner holiday conditions may come from month end flow, while ECB Draghi is slated to address the European parliament. Draghi has been good at offering nothing new when it comes to talking monetary policy reversal and so it isn't likely he will deviate from that course.
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 risk 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
The Pound has come under pressure over the past few sessions with most of the weakness coming from the election polls showing a much tighter race than anyone had thought. We have seen some demand off recent lows after the weekend YouGov/Times poll had the Tory lead edging back up, but overall, the uncertainty around the upcoming election could start to weigh more heavily in the days ahead given the possible impact on the Brexit process. Meanwhile, Friday’s batch of US data is also weighing on the Pound as well as it strengthens the case a recent slowdown in US data may in fact have been transitory in nature which pushes the Fed back towards following through with its guidance for two more rate hikes this year. As far as today goes, with the UK and US out, look for movement in the thinner holiday conditions to come from month end flow.
USDJPY – technical overview
A recent recovery 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
Fed Williams was out earlier commenting that three rate hikes this year still made sense, though he did express concern over uncertainty surrounding US government policy. But with key markets in China, the UK and US out for holidays, there wasn’t much of a reaction. There were also reports of another North Korea missile test, though here it seems the market is getting used to this regular occurrence. Overall, the Yen has been chopping around and can’t really make a decision as far as the next move goes, with favorable US Dollar yield differentials weighing but the possibility for risk off flow supporting. As far as the rest of today goes, look for movement in the thinner holiday conditions to come from month end flow.
EURCHF – technical overview
A recent break above 1.0900 has taken the short-term 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 force a meaningful shift in the structure and open the door for longer-term upside. At the same time, while the market holds below 1.1000 the overall trend is still bearish and a break back below 1.0865 would renew downside pressure.
EURCHF – fundamental overview
The combination of artificially supported, record high US equities and rising geopolitical tension should be a worry for the SNB as any capitulation on the equity front is likely to invite massive safe haven Franc demand the central bank will be unable to offset, irrespective of negative rate policy. For now, the SNB is hoping global sentiment will remain artificially elevated and the ECB will take on a more hawkish policy approach as per reports the central bank is preparing for a taper. But the key focus for this market going forward will unquestionably be on the performance in US equities given the influence on broader sentiment. Any renewed intensification to the downside will likely invite a pickup in Franc demand and unwanted downside pressure on EURCHF.
AUDUSD – technical overview
An 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. Ultimately, any moves to the topside are classified as corrective with a fresh lower top sought out, with only a break back above 0.7611 to negate the outlook.
AUDUSD – fundamental overview
Economic data out of Australia has been less impressive of late, while ongoing fear of a slowdown in China and slumping iron ore prices are only adding to the currency’s stress. Even record high US equities haven’t done much to inspire bids in the normally risk correlated commodity currency. We’ve also been seeing a lightening up of Aussie long exposure after Friday’s batch of US data, suggesting a recent slowdown in US data may in fact have been transitory in nature which pushes the Fed back towards following through with its guidance for two more rate hikes this year. Fed Williams was out earlier with somewhat hawkish comments substantiating this view of two more hikes this year. As far as the rest of today goes, look for movement in the thinner holiday conditions to come from month end flow. The news of another North Korea missile test could be weighing a bit as well though it seems the market is growing immune to what is 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, beyond a previous peak from December 2016 at 1.3600. A period of healthy correction has now ensued and the market will be trying to carve the next higher low, with any additional weakness likely to be limited in favour of a 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
Last week’s cautiously optimistic Bank of Canada policy decision and a dovish reading of the Fed Minutes helped to fuel additional upside in a Canadian Dollar that had already been enjoying a healthy recovery from 2017 lows against the Buck on more stable oil and softer US data. But overall, the Loonie remains a sell on rallies for most players out there, with these participants stepping in last Thursday and getting some more help from Friday’s impressive round of US readings that should keep the Fed thinking about two more hikes this year. Certainly Fed Williams has helped this cause early Monday after his comments that two more hikes were in fact still on the table. As far as the rest of today goes, look for movement in the thinner holiday conditions to come from month end flow with the US out for holiday. The price of oil should also be watched.
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
New Zealand Dollar demand off recent 2017 lows has picked up, helped along by a wave of negative US Dollar sentiment, rallying commodities prices and an upbeat batch of recent Kiwi data including consumer confidence, the GDT auction, firmer producer prices and trade data. Meanwhile, local dairy giant Fonterra came out last week raising its milk price forecasts to give the currency another prop. But at the same time, with global equities continuing to look like they have run too far and with many out there keeping with bets the Fed will follow through with its policy guidance of two more hikes in 2017, these players are happy to sell Kiwi into rallies. Friday’s solid round of US data and early Monday hawkish comments from Fed Williams strengthen the bearish Kiwi case. As far as the rest of today goes, look for movement in the thinner holiday conditions to come from month end flow.
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 exhausted (and reversing) Fed policy and rising geopolitical risk. And certainly this latest turmoil surrounding the US President has made things even more tense. But overall, the US equity market has done a good job proving it can easily buy back into any dip and keep pushing to record highs as it focuses on rates staying lower for longer and the Fed continuing to underdeliver on its forward guidance promises. Still, with asset prices where they are right now and with the Fed still very capable of following through with guidance in 2017, there is risk it could all come crashing down, with any additional upside limited before a major capitulation. Certainly Friday’s solid round of US data and early Monday hawkish comments from Fed Williams strengthen the bearish case.
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 2017 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 has done a great job overlooking a soft run of data including non-oil domestic exports and disappointing GDP, with the emerging market currency rallying to a fresh 2017 high on a wave of US Dollar selling in 2017. Meanwhile, China’s revamped fix methodology has been another source of additional Singapore Dollar demand.  But we have seen some profit taking on Singapore Dollar longs, with the emerging market currency not wanting to get ahead of itself after this latest run, especially with US data picking back up on Friday and Fed Williams still leaving the door open for two more Fed hikes this year.