Next 24 hours: A Poetic Move
Today’s report: US Dollar Has More Fight
Geopolitical fears have faded and risk appetite has come roaring back. The renewed demand for these assets has been a welcome development for the SNB and BOJ, two central banks very happy to see their respective currencies trading lower. Germany GDP, UK CPI and US retail sales ahead.
Wake-up call
Chart talk: Major markets technical overview video
- Fed Dudley
- UK CPI
- US stocks
- equity investors
- RBA Minutes
- OIL drop
- GDT auction
- Soft CPI
- macro dynamics
- USDSGDÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- Not Contrarian to Be Contrary, D. Kass, Real Clear Markets (August 14, 2017)
- Fed’s Job About to Become Much Harder, L. Summers, Washington Post (August 13, 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
Eurozone industrial production came in much weaker than expected on Monday and didn’t do the single currency any favours. However, the US Dollar was back on the bid across the board, perhaps helped along by hawkish leaning comments from Fed Dudley, after the central banker said he expected the Fed would start reducing the balance sheet next month, while hiking rates one more time this year. Looking ahead, the calendar picks back up today with German GDP due up ahead of a batch of US data that features, retail sales, empire manufacturing, business inventories, NAHB housing and TIC flows.
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
The Pound has mostly been moving along with broader market flows of late, and on Monday, the Cable rate was under a little pressure as the US Dollar was in demand across the board. Some of the latest bid in the Buck was attributed to hawkish leaning comments from Fed Dudley, after the central banker said he expected the Fed would start reducing the balance sheet next month, while hiking rates one more time this year. Things should get more exciting today with UK CPI out initially, followed by a batch of US data that features, retail sales, empire manufacturing, business inventories, NAHB housing and TIC flows.
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
The Yen has come back under some pressure into the new week. The combination of a large bounce in the US stock market and across the board demand for the US Dollar, have been behind the move, with USDJPY looking like it may want to push back above 110.00. Some of the latest bid in the Buck was attributed to hawkish leaning comments from Fed Dudley, after the central banker said he expected the Fed would start reducing the balance sheet next month, while hiking rates one more time this year. Looking ahead, the focus will also continue to be on risk sentiment. The market will also take in a batch of US data that features, retail sales, empire manufacturing, business inventories, NAHB housing and TIC flows.
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. Monday’s Fed Dudley comments have also weighed on the Australian Dollar after the central banker said he expected the Fed would start reducing the balance sheet next month, while hiking rates one more time this year. Early Tuesday, the RBA has come out with its latest Minutes, though there hasn’t been much going on there to offer any surprises. Looking ahead, the market will continue to monitor broader sentiment flow while also taking in a batch of US data that features, retail sales, empire manufacturing, business inventories, NAHB housing and TIC flows.
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, Canada data has been a little softer, while OIL is back under pressure. This has inspired a decent recovery in USDCAD. Monday’s Fed Dudley comments have also weighed on the Canadian Dollar after the central banker said he expected the Fed would start reducing the balance sheet next month, while hiking rates one more time this year.Looking ahead, key standouts on today’s calendar include Canada existing home sales, and a batch of US data that features, retail sales, empire manufacturing, business inventories, NAHB housing and TIC flows.
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
The combination of a soft run of Kiwi data, less hawkish RBNZ and signs of a pickup in US economic data, have all opened renewed downside pressure on the Kiwi rate over the past several days. Although last Friday’s US CPI data came in soft and Monday’s New Zealand retail sales beat, the commodity currency is still finding offers into rallies, with the US Dollar holding up on a broad basis. Monday’s Fed Dudley comments have added to downside pressure on the Kiwi rate after the central banker said he expected the Fed would start reducing the balance sheet next month, while hiking rates one more time this year. Looking ahead, a lot of the direction in Tuesday trade will depend on the latest GDT auction results and a batch of US data that features, retail sales, empire manufacturing, business inventories, NAHB housing and TIC flows.
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 wash away 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. Looking ahead, we get a healthy batch of data that features, retail sales, empire manufacturing, business inventories, NAHB housing and TIC flows.
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 is having a tougher time holding onto gains despite the latest round of impressive Singapore GDP and retail sales data. It seems broad based US Dollar demand is playing a larger role right now, with emerging market currencies once again worrying about the prospect for a significant yield differential move back in the US Dollar’s favour. Looking at the Singapore calendar, the market will be looking forward to Thursday’s NODX.