Special report: Fed Minutes and the Dollar
Today’s report: USD to the Top of the Pack…But for How Long?
If we look at performance in the liquid currencies over the past week, all are down against the US Dollar into Wednesday. The Buck has finally decided to fight back after taking a big hit this year, though the recovery has been mild thus far. UK jobs and the Fed Minutes ahead.
Wake-up call
Chart talk: Major markets technical overview video
- Eurozone GDP
- Softer inflation
- Yen offers
- safety lure
- Yield differentials
- reconsidering exposure
- negative GDT
- Fed Minutes
- Demand remains
- USDSGD
Peformance chart: Five day performance v. US dollar
Suggested reading
- When Risk-Off Dominates, Economies Usually Suffer, B. Emons, Bloomberg (August 15, 2017)
- An Emerging World Power With Unfinished Business, A. Ayres, Forbes (August 14, 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
German GDP data came in mixed while US data continued to impress. This was the story for the Euro on Tuesday and ultimately what was responsible for another round of declines as the market continued to show signs of settling back since recently trading up to a plus two and a half year high against the Buck. Tuesday’s impressive US retail sales, empire manufacturing and NAHB data backed up hawkish comments from Fed Dudley on Monday and US Dollar bears have been forced to reconsider their bets. Looking ahead, key standouts on today’s calendar include Eurozone GDP and the Fed Minutes.
GBPUSD – technical overview
The market remains under pressure since topping out at a fresh 2017 high above 1.3200 the other week. From here, there’s scope for additional declines into previous resistance turned support in the 1.2700s before the market considers basing out. Ultimately, on a medium-term basis, the structure is now constructive following a breakout back in April, which suggests we’re seeing the start to a longer-term bullish structural shift. And so, the market should be well supported into this dip, with only a drop back below 1.2590 to give reason for pause.
GBPUSD – fundamental overview
Any hopes for a rate hike from the Bank of England this year have been compromised after Tuesday’s UK CPI data came in soft. This opened some intense downside pressure in the Cable rate, with the market extending declines after US data came in strong as highlighted by retail sales, empire manufacturing and NAHB. Looking ahead, we get some important UK employment data. This is then followed up by an anticipated Fed Minutes later in the day.
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 have once again been well supported down into the range low in the 108.00s which has set up the possibility for a resumption of this range trade and bounce back towards the 114.00-115.00 area in the days ahead.
USDJPY – fundamental overview
The Yen has come back under some pressure this 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. Some of the latest bid in USDJPY has been driven off Monday’s hawkish Fed Dudley comments and Tuesday’s impressive batch of US data as reflected through retail sales, empire manufacturing and NAHB. But risk sentiment will also continue to play a major role here, with any downside pressure in stocks to likely invite renewed Yen demand. Looking ahead, the Fed Minutes are due late in the day and will be the major focus on the calendar.
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 0.7500-0.7700 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 and Tuesday’s impressive US retail sales, empire manufacturing and NAHB have been the latest sources of Aussie weakness. Meanwhile, Tuesday’s RBA Minutes brought nothing new to the table and we haven’t seen much of a reaction to Wednesday’s Aussie wages. Looking ahead, the key forcus for the remainder of the day will be on the reaction to the Fed Minutes.
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 1.2775 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 and Tuesday’s impressive US data results have further substantiated this move back towards the Buck. Looking ahead, absence of Canada data will leave the market focused on the price of oil and the Fed Minutes due late in the day.
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, 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 pickup in US economic data, have all opened renewed downside pressure on the Kiwi rate over the past several days. Monday’s hawkish Fed Dudley comments were substantiated after Tuesday’s round of US data came in strong, while the latest GDT auction result produced another negative print. This opened more downside pressure in the commodity currency. Looking ahead, the key focus for today will be on the reaction to the Fed Minutes late in the day.
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 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, or if this is the start to a bigger reversal that has been long overdue. Investors will be looking to today’s Fed Minutes for more clarity and this could have an impact on direction.
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. The latest daily close back above 1.3650 strengthens this outlook and opens 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. Risk sentiment has also played a part in SGD weakness, with the recovery in stocks translating to USDSGD demand. Today’s Fed Minutes will be of interest, though the local market will also be thinking about Thursday’s Singapore NODX.