Today’s report: Stocks Stumble, Safe Haven FX Propped Up
We're into the final day of trade for the week and it's been a wild ride, especially for what is usually a dull month of August. The US Dollar has managed to hold up relatively well, perhaps getting some more help from another round of risk liquidation.
Wake-up call
Chart talk: Major markets technical overview video
- ECB Draghi
- retail sales
- traditional correlation
- necessary cushion
- Safe haven
- manufacturing shipments
- Diverging fundamentals
- Investor worry
- Diversification flow
- USDSGD
Peformance chart: Five day performance v. US dollar
Suggested reading
- Put A Woman in Charge, N. Smith, Bloomberg (August 15, 2017)
- Pocket Living in Tough London Market, M. Vlessing, Monocle (July 26, 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 turning down from highly extended territory, warning of the need for a more significant pullback ahead. From here, expect any rallies to be well capped in favor of a more pronounced corrective decline into the 1.1500 area. A daily close below short-term support at 1.1690 will strengthen this prospect.
EURUSD – fundamental overview
The Euro has been playing a game of ping pong this week, choppy around, seemingly unsure whether it wants to correct some more off the plus two and a half year high from the other week or if it wants to get back to pushing higher in 2017 on the broader macro flows that have been dominating to this point. On Thursday, the single currency was knocked down again on some domestic news. The combination of reports Draghi wouldn't be talking tapering at Jackson Hole and an ECB Minutes expressing concern about a higher Euro and softer inflation invited renewed downside pressure, though the market was once again well supported on dips below 1.1700. It seems the downside pressure in risk markets helped to offset some of the negative flow as risk correlated currencies were happy to diversify into the Euro as well. Looking ahead, the calendar is light today. We get some Eurozone construction data, followed by Michigan confidence readings later in the day.
GBPUSD – technical overview
The major pair 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, setbacks should be well supported into this dip, with only a drop back below 1.2590 to give reason for pause.
GBPUSD – fundamental overview
UK economic data this week has been a mixed bag, with employment and retail sales bettering expectation, but the heavily watched inflation readings offsetting with a below forecast print. Right now, a lot of where we're at in the recovery cycle comes down to inflation and so long as inflation remains subdued, it will keep the Bank of England from moving on rates, something that is a negative for the Cable rate. Meanwhile, there is still the outstanding risk associated with Brexit and political stability in the UK, also acting as a cap on gains and keeping the market from running too far and fast even in this period where the US Dollar has come under intense pressure. Looking ahead, absence of first tier data out of the UK will leave the market focused on broader flow and some Michigan confidence data out of the US late 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 extended back towards the range low, with scope for a retest of the 2017 base from April, just ahead of 108.00. A sustained break below 108.00 would compromise this outlook and open the door for a more pronounced decline, while inability to establish below 108.00 will keep the range intact and set the stage for a bounce, eventually back towards 114.00.
USDJPY – fundamental overview
Risk markets are clearly jittery right now and we've seen a lot of this over the past week or so, with things that investors have traditionally ignored in recent years, having a more significant impact. This continues to fuel Yen demand on the traditional correlation with risk off. On Thursday, unsettling rumours out of the White House relating to the resignation of Gary Cohn and a terror attack in Spain were sourced as catalysts for some of the risk off flow, though with equity valuations also elevated and monetary policy reversal also hanging over investor heads, this has only contributed to more Yen demand. Looking ahead, the economic calendar is light with only US Michigan confidence standing out. Instead, broader sentiment flow will likely dictate direction.
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 unwinding from extended 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
The sell-off in the Franc in recent weeks has been a welcome development for the SNB, with the central bank committed to weakening its overvalued currency. Signs of recovery in the Eurozone, more hawkish ECB expectations and ongoing SNB activity resulted in a big push in the exchange rate earlier in August, with EURCHF back up to its highest level since the great collapse of January 2015. However, the SNB may have also been taking extra measures to weaken the Franc in anticipation of a tougher battle ahead. A more intensified 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 and building a cushion may have been a part of the central bank’s strategy.
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 area. Rallies are now viewed as corrective, with a lower top sought out ahead of the next downside extension towards 0.7500. A break below 0.7800 will strengthen this outlook. Only a close back above 0.8000 would force a rethink.
AUDUSD – fundamental overview
Risk correlated currencies took a hit on Thursday, with US equities falling off sharply on the back of rumours of White House resignations and news of a terror attack in Spain. Aussie came under pressure as a result, though gains in metals helped to prop up setbacks somewhat. This follows a decent Aussie recovery after the Buck had taken a hit post Wednesday's Fed Minutes and a better than expected headline Aussie employment reading. Still, with the Minutes not really offering any new insights and with Aussie full time employment dropping off, it already looked like the Aussie rally could be exposed. Looking ahead, the economic calendar is thin, with only US Michigan confidence standing out.
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 an eventual 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
On Wednesday, the price of OIL came off hard and the Canadian Dollar rallied. On Thursday, OIL was up on the day and the Canadian Dollar sold off. Clearly there has been a break in this correlation for the moment, with the market more focused on broader macro themes. As far as data went, the US Dollar took in solid initial jobless claims and Philly Fed readings and only let down a little with industrial production. Meanwhile, Canada manufacturing shipments came in softer, perhaps adding to the Loonie's offered tone. Of course, risk off flow and resulting safe haven demand also was a factor opening renewed downside pressure in the Loonie.
NZDUSD – technical overview
Daily studies have turned down 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 over the coming days. As such, look for any rallies to now be well capped below 0.7400 on a daily close basis in favour of a lower top and fresh downside extension towards the psychological barrier at 0.7000.
NZDUSD – fundamental overview
The New Zealand Dollar has come under pressure over the past couple of weeks, backing well off its recent plus two year high above that major psychological barrier at 0.7500. Overall, economic data out of New Zealand has been less impressive, while US data has been turning back up. At the same time, there have been signs of added distress in risk markets and this isn't doing anything to help the Kiwi rate correlated to risk appetite. Looking ahead, the economic calendar is thin to close out the week, with only US Michigan confidence standing out. Instead, the greater focus will likely be on sentiment flow.
US SPX 500 – technical overview
After extending the record run in the previous week, the market has finally relented, acknowledging the need for a period of corrective decline 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
Over the past several days, there have been signs of vulnerability and on Thursday, the market took a hit, unable to extend the sharp recovery from earlier this week back to fresh record highs. The on the surface catalysts came from rumours of White House resignations and the terror attack out of Spain, but underneath, it seems this market has been readying for a more significant reversal with the record run so extended and prices arguably deviating from the fundamentals. Moreover, the fact that policy is reversing could be resonating a little more, with Fed balance sheet reduction coming into play as soon as next month and another rate hike still on the cards this year. It's too early to tell, though a break and weekly close below 2400 could open the door for a more intensified liquidation. Inability to do so, will however keep this market thinking about keeping the good times going.
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
Despite benefiting somewhat from risk off flow at times, the Singapore Dollar was ultimately exposed on Thursday, with emerging markets selling off across the board as US equities came under intense pressure. The Singapore Dollar was actually already under pressure earlier after the anticipated Singapore NODX data disappointed. Looking ahead, the focus will continue to be on broader macro risk and global sentiment, with any additional deterioration in sentiment and reduction in risk appetite to likely weigh more heavily on the Singapore Dollar.