Special report: BOE Preview – Just How Hawkish?
Next 24 hours: Bank of England Gives Pound a Nice Boost
Today’s report: Central Bank Decisions and US Inflation Data
The US Dollar is up across the board as we move into the latter half of the week and the sustained gains, even if for a short period of time, are turning heads. Sustained periods of strength have been few and far between for the Buck in 2017. SNB, BOE and US CPI ahead.
Wake-up call
Chart talk: Major markets technical overview video
- sell stops
- BOE decision
- risk sentiment
- SNB meeting
- Strong employment
- US CPI
- Softer China
- Tax reform
- Buy side
- USDSGD
Peformance chart: Five day performance v. US dollar
Suggested reading
- The Mystery of the Missing Inflation, N. Roubini, Project Syndicate (September 13, 2017)
- Emerging Market Debt Boils Down to the USD, L. Abramowicz,  Bloomberg (September 12, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
Last week’s push to a fresh 2017 and +2.5 year high hasn’t been able to garner much momentum thus far, though the breakout does expose the next measured move extension objective in the 1.2300s. However, weekly studies are well overextended, already warning that additional upside could soon be limited in favour of a significant bearish reversal. But a daily close back below 1.1824 would be required at a minimum to take the pressure off the topside.
EURUSD – fundamental overview
The Euro is finally coming under pressure after rallying to another +2.5 year high in the previous week. There hasn’t been any major driver of the weakness, with reduced risk in the US post weekend, profit taking , technical extension and optimism around upcoming US tax reform all attributed to US Dollar gains. As far as today goes, the Eurozone calendar is empty and the key focus will be on fallout from the SNB and BOE decisions and reaction to US CPI. Dealers report decent stop below 1.1820.
GBPUSD – technical overview
The latest bullish push out from very strong previous resistance turned support at 1.2775 has opened the door for a healthy rally to fresh 2017 highs. Still, with technical studies looking a little stretched on the daily chart, any additional upside could be limited for the time being, ahead of another reversal to the downside. Overall, the structure is now constructive, favoring an eventual push into the 1.3500-1.4000 area over the medium-term. But short-term, we still could see some more choppy consolidation that leads to a more pronounced topside failure in the sessions ahead and drop back down below 1.3000.
GBPUSD – fundamental overview
All eyes on the Bank of England decision. Which way the Bank of England leans is likely to have a healthy impact on price action, with anything to the hawkish side to push the Cable rate back towards and possibly through the recent 2017 high from this week. However, if the central bank is more dovish, this latest wave of impressive demand could be wiped out quickly. The Pound had been bid up this week on positive progress on the Brexit front and hot UK CPI, but was knocked back on Wednesday on the combination of softer UK wage growth and broad based US Dollar demand. Later in the day, US initial jobless claims and US CPI are due, with the US inflation data to get more of the attention.
USDJPY – technical overview
Despite the latest run up out from last week’s sub-108, 2017 low, the overall pressure is still on the downside, with the market capable of stalling out ahead of 111.00 and rolling back over. At this point, it would take a clear break above 111.00 to suggest the market has bottomed out and is looking for a more significant run to the topside back towards the 115.00 area.
USDJPY – fundamental overview
No damage from an early Thursday earthquake outside Tokyo and no major reaction from the Yen. Overall, the major pair continues to track along with traditional correlations. The combination of an equity market back at record highs and broad based demand for the US Dollar on the back of weekend fears averted and optimism surrounding upcoming tax reform have really helped to propel the major pair back into some key resistance ahead of 111.00. Looking ahead, the market will continue to monitor the performance in US equities and broader macro themes while also taking in US CPI later in 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, 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 SNB will be out with its latest monetary policy decision today, though nothing new is expected and the central bank will likely continue to lean to the dovish side while aggressively talking down the Franc. Overall, the sell-off in the Franc in 2017Â 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 what could be a tougher battle ahead. The record run in the US stock market has been a big boost to the SNB’s strategy, which means 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
Despite rallying to a fresh +2 year high the other week, the market has been unable to hold onto gains, quickly reversing course and trading back below 0.8000. There is now risk for the formation of a more meaningful top. This would be confirmed if setbacks extend back below what looks to be neckline support at 0.7808. Back above 0.8126 would negate and keep the pressure on the topside.
AUDUSD – fundamental overview
The Australian Dollar has come back under pressure this week after surging up to fresh +2 year highs in the previous week. But the currency has struggled to hold gains above 0.8000 and a renewed demand for the US Dollar has contributed to this week’s round of weakness. Still, dips have been supported on Thursday after Aussie employment data came in strong. This follows a run of softer Aussie data and has been a welcome development down under. At the same time, the run up post data has been tempered in the face of the US Dollar run and a weaker round of China data. Looking ahead, risk sentiment flow and US CPI will be the key things this currency pair will be wanting to pay attention to.
USDCAD – technical overview
Despite this latest intense 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. But right now, the market would need to break back above 1.2242 to encourage this prospect.
USDCAD – fundamental overview
The Canadian Dollar has come under some pressure since last week’s run to fresh +2 year highs. Last Friday’s Canada employment report was rather discouraging beneath the surface and this has been followed up by some broader demand for the US Dollar this week. Still, the Loonie remains in the driver’s seat for the time being and USDCAD would need to clear buy stops above 1.2250 to really suggest the Canadian Dollar is relenting. As far as OIL goes, we haven’t seen much movement on that front of late, which has made this market less of a factor when looking at the price action. Looking at today’s calendar, second tier Canada housing data isn’t going to be a factor and the focus will be on broader macro themes and a US CPI reading.
NZDUSD – technical overview
Medium term 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 warns of the possibility 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 0.7400 on a daily close basis in favour of the next downside extension towards the psychological barrier at 0.7000.
NZDUSD – fundamental overview
Any Kiwi demand from a lift in consumer confidence readings early Thursday was offset by the weaker run of China data. Overall, the outlook is less encouraging right now, as there have been too many negative drivers for the market to ignore, which should continue to inspire offers into these rallies. New Zealand government growth and budget cuts, discouraging economic data and lingering uncertainty around the upcoming election continue to have a more significant impact, more than offsetting any optimism from one poll. The only saving grace for the Kiwi rate in 2017 has been the intense distaste for US Dollar and this hasn’t been a help this week as the Buck is back in demand. Wednesday’s optimism surrounding US tax reform has helped to give the US Dollar another boost. Looking ahead, risk sentiment flow and US CPI will be the key things this currency pair will be wanting to pay attention to.
US SPX 500 – technical overview
The market continues to shrug off overextended longer term technical readings, once again pushing up to fresh record highs. The latest break now opens the door for the possibility of a measured move upside extension into the 2550 area. At this point, it would take a clear break back below 2417 at a minimum to take the pressure off the topside and suggest we could finally be seeing the onset of a bearish structural shift.
US SPX 500 – fundamental overview
The US equity market continues to be well supported on dips, pushing further into record high territory. It seems the combination of blind momentum, weekend fears averted and expectation of favourable reforms from the US administration are helping to keep the move going this week. But at the same time, there is a nervous tension out there as the VIX sits at unnervingly depressed levels. The fact that Fed policy is normalising, however slow, could start to resonate a little more, with stimulus efforts exhausted, wage growth still subdued, balance sheet reduction coming into play and another rate hike still on the cards this year. Meanwhile, geopolitical tension and White House instability are other wild cards making an artificially supported run increasingly vulnerable. But for now, it’s more of the same keep pushing to record highs. There has been no confirmation of any bearish shift and it will take a breakdown in this market back below 2400 to turn heads. US CPI is out today and will be worth keeping an eye on as it relates to the Fed policy outlook.
GOLD (SPOT) – technical overview
Setbacks have been well supported, with the latest surge to fresh 2017 highs through 1300 setting the stage for a bullish continuation to 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. Look for any dips to be well supported now around 1300.
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 below 1.3500, stalling just shy of the 2016 base down at 1.3315. However, stretched studies are warning of the possibility for a meaningful bullish reversal, with the latest break back above 1.3500, strengthening that case for the formation of another base in favor of significant medium-term upside back above 1.4000.
Feature – fundamental overview
The Singapore Dollar has come under a little pressure this week, though the moves are less a function of any Singapore related weakness and more about a resurgence in demand for the US Dollar across the board. But overall, the Singapore Dollar has enjoyed a nice rally in 2017, extending its run this past week. US Dollar selling has been a major supporter of the currency’s strength this year 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, disappointing US data and the possibility for a more dovish leaning Fed. Meanwhile, data out of Singapore has been solid, with last week’s PMI readings coming in above forecast and this week’s retail sales beating as well. Dealers report buy stops above 1.3600.