Next 24 hours: Strange Correlation in Monday Trade
Today’s report: What’s Next for the US Dollar and US Equities?
We're into the new week and now it will get a little more interesting. We've recently seen two intense trends give back a very small amount, with both either getting ready to resume or possibly give back quite a bit more. These trends are the US Dollar decline and US equities rally.
Wake-up call
Chart talk: Major markets technical overview video
- industrial production
- Brexit secretary
- Sentiment stabilisation
- SNB
- RBA Minutes
- reconsider convictions
- retail sales
- Soft CPI
- macro dynamics
- USDSGDÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- Some Large Funds Getting Crushed, R. Levy, Business Insider (August 11, 2017)
- Euro-Pound Parity on Diverging Politics, N. Doff, Bloomberg (August 11, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The Euro has finally cooled off after pushing through longer-term resistance to a plus two and a half year high just over 1.1900. Weekly studies are starting to turn down from highly extended territory, warning of the need for a more significant pullback ahead. From here, expect any rallies to be well capped below 1.2000 on a daily close basis in favor of a more pronounced corrective decline into the 1.1500 area.
EURUSD – fundamental overview
The Euro is still off recent 2017 highs following a period of minor US Dollar strength on the back of a decent uptick in US economic data, highlighted by US employment readings. But inflation indicators haven’t been as supportive of the US recovery, with Friday’s US CPI once again coming in soft, opening the door for renewed Euro demand. Looking ahead, Monday’s economic calendar is quite light with only Eurozone industrial production standing out.
GBPUSD – technical overview
On a longer-term basis, the breakout back in April through 1.2775 suggests the major pair has put in a meaningful base off the October 2016 +30 year low at 1.1840. But shorter-term, the market is looking tired following an impressive run to a fresh 2017 high and there is risk for a period of choppy consolidation before a bullish continuation to 1.3500. Any setbacks are now expected to be well supported in the 1.2700s, with only a break back below 1.2590 to compromise the constructive outlook.
GBPUSD – fundamental overview
Brexit Secretary Davis was in the news over the weekend and will be looking to change the topic from the UK’s exit bill to one that moves onto the more important issues (clearly according to Davis) surrounding a new partnership with the EU. Of course, this probably won’t go off so well from the EU side that would very much like to be talking payment before anything else. Also on the wires over the weekend was news that UK ministers Hammond and Fox had said a transition period would be time limited. Overall, not much movement from the Pound, though the UK currency has recovered off lows, getting help from Friday’s softer US inflation data.
USDJPY – technical overview
The market has done a fabulous job adhering to a range trade this year, with rallies well capped above 114.00 and dips supported down into the 108.00s. The latest round of setbacks after this most recent topside failure have extended back towards the range low just ahead of 108.00, which also represents the yearly low. A weekly close below 108.00 would be required to threaten the range structure, while a bounce and daily close back above 110.00 would warn of range continuation and a push back towards 114.00-115.00.
USDJPY – fundamental overview
As is almost always the case with the Yen, Japan economic data is a non factor, with the market not really doing anything in the aftermath of the early Monday GDP, private consumption and business spending data (solid data). But the currency has been showing signs of possibly coming back under pressure, with a round of risk liquidation coming to an end and softer US CPI inspiring some of this demand, which has been propping USDJPY off multi-day lows just shy of the 2017 base. Looking ahead, absence of first tier data for the remainder of the day will leave the focus on broader macro flow.
EURCHF – technical overview
The market recently pushed up to a fresh 2017 and multi-month high through massive resistance in the form of the 2016 peak at 1.1200, taking the rate above 1.1500 and to its highest level since the collapse of January 2015. However, daily studies are finally unwinding from highly overextended readings, warning of an additional corrective reversal in the sessions ahead, possibly back into a previous resistance turned support zone between 1.1000-1.1200, before the market considers a higher low and resumption of gains through 1.1539 and towards 1.2000.
EURCHF – fundamental overview
Elevated risk sentiment has been a big friend to an SNB committed to doing what it can to discourage appreciation in the Franc. This, along with a recovery in the Eurozone, more hawkish ECB expectations and ongoing SNB activity have helped to recently push the exchange rate back up to its highest level since the great collapse of January 2015. SNB Jordan has also been more active on the wires of late, adding to the bid tone as he reaffirms the central bank’s policy strategy. However, the SNB could be taking extra measures to weaken the Franc in anticipation of a tougher battle ahead. Any capitulation in US equities is likely to rattle global sentiment and invite an intense wave of unwanted Swiss Franc demand on the safe haven flow.
AUDUSD – technical overview
Daily studies have been in the process of turning down after the market recently surged through the critical 0.8000 barrier to a fresh +2 year high. From here, there is risk for a deeper drop back towards a previous resistance turned support zone in the 0.7700-0.7750 area before the market considers a higher low and possible resumption of a more well defined 2017 uptrend.
AUDUSD – fundamental overview
It’s been a slow grind lower for the Australian Dollar over the past several days, since the currency posted a plus two year high against the Buck above 0.8000. But the combination of a pickup in US economic data and less hawkish RBA have contributed to this most recent slide. However, setbacks are starting to find support, with Friday’s softer round of US CPI contributing to renewed demand into this dip. Earlier today, China industrial production and retail sales came in weaker than expected, but weren’t having much of an impact on Aussie. Looking ahead, absence of first tier data will leave the market focused on the broader macro flow.
USDCAD – technical overview
Technical studies are in the process of turning up from deep oversold territory, warning of the possibility for a more significant bullish reversal to allow for these studies to unwind. The recent break back above 1.2575 strengthens this outlook, opening the door for a return towards the 38.2% fib retrace off the 2017 high-low move, which comes in at 1.2940. Only a close back below 1.2500 would negate the recovery prospect and put the pressure back on the downside.
USDCAD – fundamental overview
There has been a sense in recent days that the intense Canadian Dollar rally, which saw the Loonie appreciate about 10% between May and July, may have gotten a little ahead of itself. A few weeks back, everything was going for the Canadian Dollar at one time, which helped to accelerate demand. Canadian data was strong, OIL was rebounding and the Bank of Canada went ahead and hiked rates, all while US data was soft and the Fed was scaling back from hawkish speak. But more recently, US economic data has been showing signs of recovery, while OIL prices are finding solid resistance. Still, Friday’s softer US CPI report could not be ignored and has opened renewed downside pressure on USDCAD. Looking ahead, absence of first tier data will leave the market trading on broader macro flow.
NZDUSD – technical overview
Daily studies are in the process of turning down from extended readings after the market pushed up to a plus two year high through 0.7500 in late July. A recent close back below 0.7400 has opened the door for a more meaningful corrective pullback, possibly towards 0.7000-0.7200, before the market considers a higher low and resumption of gains.
NZDUSD – fundamental overview
Plenty of downbeat and more dovish leaning takeaways from last week’s RBNZ decision, which has further contributed to setbacks in the Kiwi rate. But all of this already comes on the back of a nasty run of Kiwi data that’s included softer CPI, weak GDP, an employment report miss, the weakest GDT auction since March, and slide in consumer inflation expectations. Still, the US side of this is also a big factor and with the Buck so beaten up in 2017, the Kiwi rate has managed to rally back to levels that aren’t making the RBNZ happy. We did see a recovery in US economic data of late that had further contributed to Kiwi declines, though bids have found their way back after Friday’s softer US CPI reading got the market thinking dovish Fed again. Looking ahead, absence of first tier data will leave the focus on broader macro flows. Earlier today, New Zealand retail sales were out and came in above forecast, but didn’t really factor into price action.
US SPX 500 – technical overview
After extending the record run earlier this week, the market has finally relented, acknowledging the need for a period of corrective declines to allow for highly extended longer-term studies to unwind. Still, while the market holds above 2400 on a weekly close basis, the uptrend remains firmly intact. A weekly close below 2400 would be required to signal the possibility for a more meaningful top and bearish structural shift.
US SPX 500 – fundamental overview
The US equity market has done a good job proving it can hold up 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. While rates may not be going lower in the US, it seems a dovish policy normalisation is the next best thing and enough to keep the artificially supported rally going. At the same time, the Fed’s move to policy normalisation and the prospect for Fed balance sheet reduction as soon as September are not supportive of stocks, while the longer-term technical picture has been quite extended, warning of the need for a major correction. And so now we’re back to finding out whether the market will once again easily recover from this latest dip, that may have been helped along by rising geopolitical tension, or if this is the start to a bigger reversal that has been long overdue. Certainly Friday’s softer US inflation print is giving investors good reason to be buying into last week’s dip as the soft inflation should keep the Fed from needing to be worried about raising rates.
GOLD (SPOT) – technical overview
Setbacks have been well supported, with the latest push back above 1275 setting the stage for a bullish resumption through 1300 and towards the 2016 peak at 1375 further up. A higher low is now in place around 1250 and only back below this level would offset this latest wave of bullish momentum.
GOLD (SPOT) – fundamental overview
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 well supported, 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 has added 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 for an extended period, GOLD will hold up on risk off macro implications.
Feature – technical overview
USDSGDÂ has been under pressure in 2017, with the market recently dropping down to a fresh yearly low at 1.3544. However, stretched studies are starting to turn back up and there are signs of the possibility for a meaningful bullish reversal to allow for these studies to unwind. Setbacks have also stalled out around an important 78.6% fib retracement off the 2016 to 2017 low to high move. Look for a daily close back above 1.3650 to strengthen this outlook and open the door for a more meaningful bounce towards 1.4000 further up. Only a close below 1.3500 negates.
Feature – fundamental overview
The Singapore Dollar had been under pressure last week on the back of some risk off flow and US Dollar demand from more upbeat data, but managed to recover late in the week. Initially, the emerging market currency got a jolt from better than expected Singapore data, with GDP and retail sales coming in above forecast. Then in the North America session, US CPI came in soft to fuel additional SGD demand. Looking ahead, the economic calendar is quiet and the market will trade off broader macro flows.