Next 24 hours: Markets to Heat Up Post Holiday Weekend
Today’s report: Reflection and Anticipation in Light Monday
Today is going to be a thin day of trade, with North American markets still out for the long weekend. Most of the day will likely be spent reflecting on this latest round of soft US employment data and reports the ECB may delay its tapering decision, while looking ahead to central bank event risk later this week.
Wake-up call
Chart talk: Major markets technical overview video
- Euro officials
- Brexit overhang
- North Korea
- SNB strategy
- Tuesday’s RBA
- 40% chance
- Deteriorating outlook
- US jobs
- Macro players
- USDSGD
Peformance chart: Five day performance v. US dollar
Suggested reading
- Macro Winds Fill Gold’s Sails, E. Swarts, Market Anthropology (September 1, 2017)
- The Great Equity for Debt Swap, J. Felder,  The Felder Report (August 30, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The market has finally entered a period of correction after racing to a fresh +2.5 year high shy of 1.2100. Medium term studies have been tracking in overbought territory, warning of the need for a period of weakness and scope exists for additional setbacks over the coming sessions. Still, while above 1.1663, the uptrend remains firmly intact, with the market looking to put in a higher low above the level ahead of a bullish continuation. Only back below 1.1663 would trigger a more significant bearish shift.
EURUSD – fundamental overview
Any upside in Friday trade on the back of a most disappointing US jobs report was more than offset by comments from euro area officials warning the ECB may wait until December before making a final decision on tightening. There has been elevated concern over the strength of the Euro in recent weeks and this news only adds to that strain on the single currency, which has recently traded up to +2.5 year highs. Looking ahead, Monday’s calendar is light and North America is out enjoying the long holiday weekend. Eurozone Sentix investor confidence and Eurozone producer prices are the only notable standouts. It’s worth highlighting the fact that the ECB decision is due later this week.
GBPUSD – technical overview
The major pair 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 managed to rally on Friday, with the UK currency benefiting from the most disappointing US jobs report, which was a let down across the board. Still, overall, it seems the Pound is being supported on broad based US Dollar weakness in 2017, but at the same time, continues to be well offered into rallies, with the Brexit overhang a major point of stress. Looking ahead, with North America out for the long holiday weekend, it’s going to be a lighter day of trade. The only notable standouts on the calendar are UK construction PMIs and a speech from BOE Kumhof.
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 been exceptionally well supported ahead of the 2017 low range bottom at 108.13 and this could open the door for a resumption of the range trade, for that next big push back towards the 114.00 area. Still, while the market holds below 111.00 on a daily close basis, the pressure remains on the downside.
USDJPY – fundamental overview
There was a gap on the Monday open in reaction to the latest North Korea provocation over the weekend. But as has been the case whenever we see reaction to geopolitical risk, the follow through is either short lived or not there at all. The primary drivers of the major pair continue to be risk sentiment and the outlook for the US Dollar. A recovery in risk appetite has certainly been helping the major pair rally back in recent days, though at the same time, there has been a good amount of offsetting flow on broad based US Dollar weakness in 2017. On Friday, it was more of the same. Risk markets were supported, though the uninspired US jobs report offset demand for the Buck, resulting in a market that chopped around but didn’t really go anywhere at all. Looking ahead, it’s going to be a thinner day of trade with North America out for the long holiday weekend.
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, medium-term studies are unwinding from extended readings, warning of an additional consolidation 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. An 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 daily close back above 0.8000 would force a rethink.
AUDUSD – fundamental overview
Second tier data out of Australia isn’t factoring into trade and with North America out for the long holiday weekend, conditions will be thin today. But the focus will quickly shift to Tuesday, with the RBA decision due. The central bank is widely expected to leave the cash rate unchanged at 1.50%. Current OIS pricing is looking for that first hike to come until way out in September 2018. The leading RBA officials have expressed concern over the appreciation in the Aussie rate and this could continue to keep the currency well capped into the 0.8000 area.
USDCAD – technical overview
Despite this latest breakdown to a fresh 2017 and +2 year low, stretched medium-term technical studies continue to warn of the possibility for a significant bullish reversal to allow for these studies to unwind. Right now, the market would need to hold above 1.2400 on a daily close basis to encourage this prospect, while back above last week’s high at 1.2663 will strengthen the outlook.
USDCAD – fundamental overview
The North American market is closed for the long holiday weekend and activity isn’t likely to pick up until Tuesday. But it’s an important week ahead for the Canadian Dollar, which has posted yet another 2017 high on the back of a very impressive, above forecast GDP reading and a most disappointing US jobs report in the previous week. Data has been fairly upbeat in Canada in recent months and this has helped to increase the odds for another Bank of Canada rate hike this year. The central bank will meet on Wednesday to discuss. Right now, there is a 40% chance the Bank of Canada will hike. Later this week, we get Canada’s monthly employment report.
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 saw a major reversal of fortune in August, backing well off the late July plus two year high above that major psychological barrier at 0.7500. Last month’s news of the New Zealand government cut to growth forecasts and budget surpluses intensified declines. Meanwhile, economic data out of New Zealand has been less than impressive, as highlighted by recent GDP, CPI and employment readings, which is forcing the RBNZ to reconsider what had been a more hawkish stance. The only supportive driver right now is the broad based selling in the US Dollar, though even Friday’s major letdown in the US jobs report failed to really prop up the Kiwi rate.
US SPX 500 – technical overview
After extending the record run in early August, 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 US equity market continues to be well supported on dips. But at the same time, 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 fundamentals. Moreover, the fact that Fed monetary policy is normalising could be resonating a little more, with Fed balance sheet reduction coming into play and another rate hike still on the cards this year. We’ve also seen a strong trend of stocks rallying on softer US data given the implication it will slow the Fed’s normalisation process. But if the market fails to extend its record run after Friday’s US jobs disappointment, it could suggest that trend may be coming to an end, with the market more at risk to selling off on softer US data.
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 1.3507. 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, soft US Dollar policy talk, worry over the US debt ceiling negotiations outcome and Hurricane Harvey. But going forward, the Singapore Dollar’s run may be limited. Despite Friday’s jobs report setbacks, US economic data is moving back in the right direction which could speed up the Fed’s monetary policy reversal process and fuel renewed USDSGD demand as yield differentials widen in favor of the Buck. We are already seeing signs of this as the market bounces from last week’s yearly low that was unable to break back below a major psychological barrier at 1.3500. Dealers now report buy stops above 1.3700.