Next 24 hours: EURUSD Pushes to Fresh High Before Settling Down
Today’s report: USDJPY Drops, Euro Extends, North Korea Rattles
Activity has picked up into Tuesday, with a fresh wave of risk off flow hitting the market on news of North Korea missiles flying over Japan. USDJPY fell sharply in reaction, with the major pair stalling just shy of the 2017 low from April.
Wake-up call
Chart talk: Major markets technical overview video
- USD negatives
- Brexit negotiations
- North Korea
- Global stress
- consumer confidence
- OIL declines
- risk off
- Geopolitical tension
- Uncertainty
- USDSGD
Peformance chart: Five day performance v. US dollar
Suggested reading
- More Noise Than Signal, J. Calhoun, Alhambra Investments (August 24, 2017)
- Asset Allocation Implications of a Persistently Weak USD, B. Coward, Â KLCÂ (August 25, 2017)
Chart talk: Technical & fundamental highlights
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EURUSD – technical overview
A period of consolidation has come to an end, with the market choosing to break in the direction of the trend, pushing to fresh 2017 and +2.5 year highs. The bullish move could now open the door for an acceleration towards the 1.2150 area, a measured move extension projection following this latest 250 point consolidation, mostly between 1.1900 and 1.1700. Still, weekly studies remain quite overbought and warn that additional upside should be limited for the time being, to allow for these studies to unwind, which could expose the market to a more sizable correction lower in the days ahead.
EURUSD – fundamental overview
The Euro continues to benefit from a flurry of US Dollar negative drivers, with the list including fallout from last Friday’s Yellen and Draghi speeches, a possible US government shutdown, President Trump’s threat to cancel NATO and Hurricane Harvey. Dealers have also been reporting month end positioning out of the Buck. At the same time, the onset of a fresh wave of risk off flow from geopolitical risk associated with North Korea could be something that tempers the Euro. Economic data is another possible factor today, with the market digesting German Gfk consumer confidence and US Case Shiller.
GBPUSD – technical overview
The market has been very well supported back down into previous resistance at 1.2775. From here, look for the market to continue to be well supported, with any additional weakness limited to the 1.2600s in favour of an eventual push back up to fresh 2017 highs and towards the next key objective in the 1.3500-1.4000 area further up. Still, there is risk for an extended period of choppy consolidation before the bullish continuation plays out, which means rallies could be well capped below 1.3100.
GBPUSD – fundamental overview
The Pound has been a beneficiary of a run up in the Euro, while perhaps also taking in some of the inflows from this latest wave of risk liquidation on the North Korea news. At the same time, the Brexit overhang could keep the market from wanting to take the UK currency much higher. The division between EU and UK officials on the divorce bill is substantial, with the UK side trying to push for a better deal, while the EU side remains rigid. There was also news of France denying reports it was looking to break away from the EU and initiate trade talks of its own with the UK. Looking ahead, the UK calendar is empty with the only notable release on the day coming from US Case Shiller.
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
The major pair is doing its best to try and recover from an early round of sharp setbacks on Tuesday. The latest North Korea provocation has inspired the safe haven Yen demand, though somewhat ironically, it comes at a time when the North Korea missiles have been flying over Japanese airspace. But the Yen’s traditional correlation with safe haven flow is what has been driving price action and what will likely continue to dictate direction for the remainder of the day. If the market quickly forgets the event, USDJPY could see a nice recovery. At the same time, if risk continues to come off, the major pair could sink to a fresh 2017 low below 108.00. US Case Shiller is the only data of note due for the remainder of the day.
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 previous resistance turned support around 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 market hasn’t been able to spend too much time focusing on an improved Australia consumer confidence reading, with the North Korea provocation getting all of the attention early Tuesday. This has opened a round of setbacks in the risk correlated Aussie, though weakness has been tempered by the negative US Dollar outlook. Last Friday’s Yellen and Draghi speeches, a possible US government shutdown, President Trump’s threat to cancel NATO and Hurricane Harvey have all been added strains of stress for the Buck, which has been helping to prop Aussie declines. Looking ahead, risk sentiment is likely to dictate flow for the remainder of the day, with any recovery to potentially prop Aussie back up and any additional tension to open more downside. As far as data goes, US Case Shiller is the only notable release.
USDCAD – technical overview
Stretched medium-term technical studies are still warning of the possibility for a more significant bullish reversal to allow for these studies to unwind. A recent break above 1.2500 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 daily close below 1.2400 would compromise the recovery prospect and put the pressure back on the downside.
USDCAD – fundamental overview
Monday’s drop in the price of OIL has been one source of renewed Canadian Dollar selling, while risk off flow from the North Korea provocation and Trump threats of cancelling NATO have been some of the other negative drivers. Overall, the Canadian Dollar has been exceptionally well bid, with the Loonie benefiting in recent months from a more hawkish Bank of Canada outlook and expectation the Fed won’t lean as hawkish going forward. But if the market continues to exit risk correlated exposure, we could see an acceleration of Canadian Dollar declines in the sessions ahead, resulting in some form of a top for the Loonie. Looking ahead, we get Canada industrial product and raw materials prices along with the US Case Shiller.
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 break below 0.7200 has opened the door for a more meaningful reversal, that could be setting the stage for a drop all the way back down towards the 2017 low in the 0.6800s. From here, look for any rallies to be well capped below 0.7300 on a daily close basis in favour of the next downside extension towards the psychological barrier at 0.7000.
NZDUSD – fundamental overview
The New Zealand Dollar has come under pressure in August, backing well off the late July plus two year high above that major psychological barrier at 0.7500. Last week’s news of the New Zealand government cut of growth forecasts and budget surpluses intensified declines. Overall, economic data out of New Zealand has already been less impressive, as highlighted by recent GDP, CPI and employment readings, which is forcing the RBNZ to reconsider what had been a more hawkish stance. Of course, the RBNZ has also been talking down the Kiwi rate and this in conjunction with a more compromised risk environment offer an added layer of bearish Kiwi drivers. Looking ahead, the market will continue to monitor risk sentiment in light of the latest North Korea provocation. On the data front, US Case Shiller is the only notable standout.
US SPX 500 – technical overview
After extending the record run in early August, the market has finally relented, acknowledgingrun earlier this month, 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
There has been some added stress in the equity market following this latest North Korea provocation, though geopolitical risk hasn’t been able to have a lasting impact on stocks in recent years and the market remains well supported on dips. Still, there is a growing sense investors could be getting ready for a more significant reversal with the record run so extended and prices deviating from the fundamentals. Moreover, the fact that Fed monetary 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 another topside failure followed by a break and drop below 2400 could open the door for what has been a highly anticipated intensified liquidation.
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 1.3530. However, stretched studies are warning 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 break back above 1.3700 to encourage the recovery outlook, while only a close below 1.3500 negates.
Feature – fundamental overview
The Singapore Dollar has enjoyed a nice recovery in 2017. US Dollar selling has been a major supporter of the currency’s strength and we have seen some more of this on the back of White House instability, a dovishly perceived Jackson Hole speech from the Fed Chair, worry over the US debt ceiling negotiations outcome and Hurricane Harvey. Meanwhile, Friday’s much better than expected Singapore industrial production data and this latest North Korea provocation have further contributed to Singapore Dollar demand. At the same time, US economic data is mostly moving back in the right direction, which could speed up the Fed’s monetary policy reversal process and fuel USDSGD demand as yield differentials widen in favor of the Buck.