Today’s report: Global Risk Appetite in Focus
Although the US Dollar has been benefiting from the overall improvement in US economic data over the past few weeks, the currency remains under broad pressure in 2017, with attempts to push its recovery in the previous week met with stiff resistance.
Wake-up call
Chart talk: Major markets technical overview video
- ECB messages
- Softer inflation
- risk appetite
- SNB strategy
- rallying metals
- Hotter inflation
- Kiwi outlook
- revolving door
- hard asset
- USDSGD
Peformance chart: Five day performance v. US dollar
Suggested reading
- How the Next Quant Fund Meltdown Will Unfold, A. Brown, Bloomberg (August 17, 2017)
- What Will it Take for a Market Crash?, D. McCrum, Financial Times (August 18, 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 1.1700 will strengthen this prospect. Back above 1.1900 will delay.
EURUSD – fundamental overview
The Euro spent a lot of the previous week chopping around, unable to determine its next move. While US economic data has been more upbeat of late, ongoing drama out of the White House is seemingly offsetting some of the US Dollar demand from the stronger data. There appears to be more room for the Euro to correct lower from the recent two and a half year high above 1.1900, especially with safe haven flow coming back into play as equity markets show signs of weakness. Meanwhile, last week’s ECB Minutes were less hawkish. Still, the major pair would need to establish below 1.1700 on a daily close basis to strengthen the prospect for a more meaningful bearish reversal. Technically, the Euro closed lower last week, but was well supported on dips. Looking ahead, today’s calendar is thin and the focus will be on broader themes.
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. But 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
Economic data out of the UK wasn’t all that bad in the previous week, with retail sales and employment readings even impressing. But the market’s focus right now is more on the inflation side of things and last week’s softer inflation readings easily offset any of the positives from the other data. The lower inflation readings have cast serious doubt over the timing of the next Bank of England rate hike, something that many had been looking for this year. Meanwhile, US economic data has been more upbeat of late, which has helped the Buck on the yield differential front. Looking ahead, there isn’t anything on today’s calendar that stands out and the focus will be on the broader macro themes.
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. But while below 111.00, the pressure remains on the downside.
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. The White House revolving door and last week’s terror attack in Spain were sourced as catalysts for some of the risk off flow, though with equity valuations elevated and monetary policy reversal also hanging over investor heads the market should need much to get it moving in this direction. Looking ahead, the economic calendar is light and risk appetite will be the major focus.
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. In early August, the EURCHF rate traded 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 a wave of unwanted Swiss Franc demand on the safe haven flow. And so, building a cushion in anticipation of this risk 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
The Australian Dollar has been showing signs of weakness off a plus two year high above 0.8000 but managed to hold up rather well on dips in the previous week. Risk off flow and a pickup in US economic data didn’t do much to weigh on Aussie and it seems rallying metals prices and the revolving door at the White House helped to keep the commodity currency supported. Last week’s solid headline Aussie employment reading may have been another source of Aussie support, though the data was somewhat misleading, with full time jobs falling off. On Friday, the price of GOLD pushed up to a fresh 2017 high. At the same time, if the risk liquidation continues into this week, it will be hard to see Aussie continuing to hold up, with a greater risk for renewed downside pressure. Looking ahead, absence of first tier data will leave the market focused on macro themes.
USDCAD – technical overview
Technical studies are in the process of turning up from oversold territory, warning of the possibility for a more significant bullish reversal to allow for these studies to unwind. A recent break above 1.2575 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. Back above 1.2780 will strengthen this outlook and accelerate gains.
USDCAD – fundamental overview
The Canadian Dollar did a fabulous job holding up in the previous week, with the Loonie outperforming across the board. A lot of that had to do with Friday’s price action, after a confluence of events were all Canadian Dollar supportive. Initially, it was the hotter than expected Canada inflation readings that got the Loonie going, and this was the accompanied by a sharp recovery in the price of OIL and more turbulence at the White House. Still, the reduction in global risk appetite is something that could have a more weighing influence on the Loonie if last week’s pullback in the equities market continues into this week. Looking ahead, we get Canada wholesale sales, though this isn’t likely to make any waves. Instead, it will be about OIL and broader sentiment.
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 a Kiwi rate correlated to risk appetite. Looking ahead, the quiet Monday calendar will leave the focus on risk appetite and broader macro 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
The on the surface catalysts for this latest retreat come from the White House revolving door drama and the Barcelona terror attack. But underneath, it seems this market has been readying for a more significant reversal with the record run so extended and prices 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 keep the good times going.
GOLD (SPOT) – technical overview
Setbacks have been well supported, with the latest push to a fresh 2017 high just over 1300 setting the stage for a bullish continuation towards the 2016 peak at 1375 further up. A higher low is now in place around 1265 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 recent 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 last week, with emerging markets selling off across the board as US equities came under intense pressure. The Singapore Dollar was actually already under pressure after the anticipated Singapore NODX data disappointed. Still, setbacks in the Singapore Dollar will well supported, with the market perhaps not wanting to get too ahead of itself just yet. Looking ahead, the focus will be on global risk appetite and economic data out of Singapore later this week featuring CPI and industrial production.