Next 24 hours: All Quiet…Unless You Were Trading NOK or CHF
Today’s report: Market Keeps Guessing on the Fed
The US Dollar has put in a decent recovery over the past week, with most of the gains coming from a more legitimate expectation the Fed is committed to moving forward on rates. But there are still plenty of holdouts and this is probably what’s keeping the Buck from accelerating.
Wake-up call
Chart talk: Major markets technical overview video
- German trade
- PM May
- macro funds
- SNB activity
- tariff talk
- Canada jobs
- slumping dairy
- US employment
- global backdrop
- USDZAR
Peformance chart: Five day performance v. US dollar
Suggested reading
- Everything Is Awesome! Now Is the Time to Sell, J. Mackintosh, WSJ (July 6, 2017)
- When You Keep Falling Short of Your Mission, D. Gross, S+B (July 5, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
This latest break to fresh 2017 highs beyond 1.1300 has confirmed a higher low at 1.1110 opening this latest extension towards 1.1500, which also coincides with critical longer-term resistance in the 1.1450-1.1700 area. But daily studies are looking stretched, suggesting any additional upside could be difficult, with the greater risk building for some form of a meaningful bearish reversal in the sessions ahead. Still, the uptrend in 2017 is well intact and a break below back below a confirmed higher low at 1.1110 would be required to officially shift the broader focus back to the downside.
EURUSD – fundamental overview
The Euro comes into the new week consolidating just off its recent 2017 high, with the market not yet ready to give up on this impressive run that has been driven off a combination of softer US data, protectionist policy from the US administration, a market that doesn’t believe the Fed will be able to follow through with hawkish guidance and signs of the start to a reversal of monetary policy over at the ECB. Last week’s ECB Minutes reaffirmed bets the ECB was in fact starting the policy reversal conversation, helping to prop the Euro, though a mild, broad based US Dollar recovery and significant technical resistance helped to keep the Euro run capped. Friday’s US employment report was mixed and didn’t really factor after the headline numbers were strong but earnings remained subdued. Looking ahead, standouts on Monday’s calendar include German trade and Eurozone Sentix investor confidence. But there isn’t anything major on the calendar until the latter portion of the week when we get Yellen testimony, US CPI and US retail sales.
GBPUSD – technical overview
The market has entered a period of choppy consolidation over the past several sessions but is now expected to be very well supported on dips in favour of a higher low and bullish continuation towards a measured move extension objective at 1.3500 in the weeks ahead. A breakout above critical resistance at 1.2775 back in April triggered a structural shift in the major pair warning of a longer-term base. Only back below 1.2360 would compromise this outlook. Still, in the shorter-term, choppy consolidation in the 1.2500-1.3000 area should not be ruled out before the market ultimately breaks higher.
GBPUSD – fundamental overview
The Pound has come under renewed pressure after recently stalling out just shy of the 2017 high from May. Some broad based US Dollar demand over the past week had initially capped the Sterling run, before the UK currency came under intense pressure of its own on Friday after taking in a round of across the board weaker than expected UK data in the form of industrial production, manufacturing production, construction output and trade. Meanwhile, there appeared to be enough good out from the US employment report to keep the Pound under pressure into the weekly close, with the headline NFP print coming in well above forecast. UK politics and the Brexit overhang are other major forces at play, keeping the Pound from running much higher at the moment. Over the weekend, reports surfaced of increased pressure for the PM to step down. Looking ahead, absence of first tier data out of the UK and US on Monday will leave the focus on broader flow. But later this week we get UK employment, Fed Chair Yellen testimony, US CPI and US retail sales.
USDJPY – technical overview
Despite the latest recovery rally, the overall pressure remains on the downside. In the interim, look for any additional upside to remain capped below 114.00 on a daily close basis, with only a clear break back above the recent high at 114.37 to negate the outlook and take the pressure off the downside.
USDJPY – fundamental overview
The combination of a broad based US Dollar recovery over the past week and an ongoing bid in US equities has helped to keep the major pair in demand, rallying back to multi-day highs in the 114.00 area. Friday’s US employment report was taken as a net positive despite the softer hourly earnings component, with the market paying more attention to the robust NFP print. Still, dealers do report solid offers from macro accounts as the market comes up into 114.00, with these players worried about signs of an imminent liquidation in US equities, which could invite a fresh wave of Yen demand (USDJPY) on traditional correlations with safe haven demand. Looking ahead, absence of first tier data today will leave the market focused on broader macro flow. Later this week we get Yellen testimony, US CPI and US retail sales. Earlier today, BOJ Kuroda was on the wires but offered nothing new to the market.
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. The market is now flirting with with the major psychological barrier at 1.1000 which coincides 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 on a daily closes basis the overall trend is still bearish and a break back below 1.0834 would renew downside pressure.
EURCHF – fundamental overview
Overinflated, record high US equities 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 have an extremely difficult time offsetting, irrespective of the central bank’s negative rate policy and intervention efforts. The SNB is hoping global sentiment will remain artificially elevated and the ECB will continue to paint a more hawkish picture as was seen over the past two weeks through Draghi and the ECB Minutes. But it looks like it really should come down to the performance in US equities given the influence on broader sentiment. Any signs of intensification to the downside will likely invite a pickup in Franc demand and unwanted downside pressure on EURCHF. For now, it looks like the SNB is growing increasingly worried about a shift in global sentiment, as reflected through this latest push higher in an attempt to get the market back above a critical barrier at 1.1000.
AUDUSD – technical overview
Despite the latest rally, the market continues to be very well capped into medium-term resistance around 0.7800. Ultimately, any moves to the topside are therefore classified as corrective with the market expected to stall out and roll over again. Look for a break back below 0.7536 to strengthen this outlook and accelerate declines.
AUDUSD – fundamental overview
The Australian Dollar’s 2017 recovery stalled out last week, with most of the renewed downside pressure coming from the RBA decision, which failed to follow in the footsteps of other central bank decisions of late that have been leaning more towards the hawkish side. Of course, the US Dollar has also been in demand across the board over the past week, which has also contributed to to the Aussie pullback. Friday’s US jobs report was a wash, with NFPs coming in strong but offset by softer than expected hourly earnings. We did see some renewed demand on Friday, on the back of a recovery in the price of iron ore and healthy rebound in US equities. It will be interesting to see if weekend tariff talk on China and other US trading partners from the White House chief of staff  has any impact. On the one hand, US protectionism is bearish US Dollars, but on the other hand, market jitters from such talk could end up weighing on Aussie. As far as today goes, the economic calendar is exceptionally thin and the focus will be on the broader macro themes. China CPI data out earlier has failed to factor into price action.
USDCAD – technical overview
The latest round of setbacks have taken the pressure off the topside for now, with the market trading back into a longer-term range. The recent break below 1.3000 has opened the door for a more pronounced decline to fresh 2017 lows below the barrier. Ultimately however, the longer-term uptrend remains intact and with technical studies tracking in oversold territory, risk is building for an imminent bullish reversal. Still, we would now need to see a bounce in the sessions ahead and break back above 1.3044 at a minimum to strengthen the constructive outlook.
USDCAD – fundamental overview
The Canadian Dollar is the only currency that has managed to outperform the US Dollar over the past week. Interestingly, the Loonie has been able to achieve this impressive feat in the face of lower OIL prices. The Canadian Dollar was able to extend its 2017 run on Friday after Canada employment data came in much stronger than expected, contrasting with a mixed US jobs report that produced still subdued hourly earnings. Overall, the ten big figure explosion in the Canadian Dollar since May, when it was trading at a 2017 low against the Buck, has come from strong signals from the Bank of Canada that it is now ready to begin the policy reversal process, with many now calling for a rate hike when the Bank of Canada meets on Wednesday. There has however been some talk of profit taking into the event risk, with the Loonie technically overbought. Pre-event risk positioning will play a major role in price action in the sessions ahead, particularly with the economic calendar light in the early portion of the week.
NZDUSD – technical overview
Despite the intense surge over the past several days, the overall pressure remains on the downside with the market expected to be very well capped in the 0.7300s. The longer-term chart is reflective of this fact as it looks like we’re seeing the formation of a major top off the 2016 high. Only a clear break back above 0.7400 would compromise the outlook, while back below 0.7186 strengthens the bearish case.
NZDUSD – fundamental overview
The New Zealand Dollar has put in an impressive rally in recent weeks, but is starting to show signs of exhaustion. Last week’s wave of US Dollar demand and another negative GDT auction showing have factored into the mild Kiwi selloff. Meanwhile, fear of vulnerability in global equities is acting as an additional strain for Kiwi. Looking ahead, it will be interesting to see if weekend tariff talk on China and other US trading partners from the White House chief of staff  has any impact. On the one hand, US protectionism is bearish US Dollars, but on the other hand, market jitters from such talk could end up weighing on Kiwi. As far as today goes, the economic calendar is exceptionally thin and the focus will be on the broader macro themes.
US SPX 500 – technical overview
Any setbacks have been exceptionally mild thus far and at a minimum, a daily close back below 2400 would be required to take the immediate pressure off the topside, though only a break below 2320 would signal a meaningful shift in the structure. But for now, until we see a daily close below 2400, the market is capable of extending its record run towards the next measured move extension target at 2480 further up.
US SPX 500 – fundamental overview
The US equity market has done a good job proving it’s easily supported into any dip and can keep pushing to record highs as it focuses on rates staying lower for longer and the Fed continuing to underdeliver on forward guidance. But this bet will be put to the test in a big way going forward, with the Fed upgrading its commitment to policy normalisation and other major central bank jumping on the monetary policy reversal bandwagon. The major takeaway is that central banks are sending a clear message that an era of artificial support is finally coming to an end. Friday’s US jobs report should do nothing to change the Fed’s timeline, with NFPs coming in strong and hourly earnings not soft enough to challenge the Fed’s view that shorter term subdued inflation is transitory. Look for stocks to continue to struggle into rallies from here.
GOLD (SPOT) – technical overview
The recent breakdown below a previous confirmed higher low at 1214 compromises the constructive outlook for the yellow metal, with the move potentially flagging deeper setbacks below 1200 ahead. The market will now need to establish back above 1230 to reverse the bearish momentum, while inability to do so opens the door for a significant bearish structural shift. Â
GOLD (SPOT) – fundamental overview
Despite the latest sharp round of setbacks, solid demand from medium and longer-term players continues to emerge on dips, with these players more concerned about exhausted monetary policy, extended global equities, political uncertainty, systemic risk and geopolitical threats. All of this should continue to keep the commodity supported around 1200, 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 under pressure in 2017 is adding to the metal’s bid tone as well, but there is a growing sense that even in a scenario where the US Dollar is bid, gold may continue to find bids on risk off macro implications.
Feature – technical overview
USDZARÂ is showing signs of the formation of a meaningful base since bottoming out around 12.30 earlier this year. The latest push back above 13.21 strengthens this outlook and sets the stage for a continuation of gains towards next key resistance at 13.71 further up. Any setbacks should ideally be well supported ahead of 12.55, with only a break back below this level to negate the constructive outlook.
Feature – fundamental overview
The South African Rand is finally succumbing to a wave of negative drivers on the domestic front, with the currency dropping to multi-day lows against the Buck in the previous week. The latest Rand slide has been attributed to jitters from last week’s ANC conference, after the ruling party proposed nationalising the central bank and expropriating land without compensation. The proposals are viewed as quite radical, something that is unsettling to an investor base already nervous about a never ending string of political uncertainty, including corruption charges surrounding Zuma. Throw in persisting recessionary forces in South Africa and the prospect for a material reversal in elevated global equities and it all points to the greater risk for Rand weakness going forward.