Next 24 hours: BOE Hawkishness Tempered by Carney Speak
Today’s report: Pound’s Star Shines Brightest…For Now
We come into the new week with the USD trying to claw its way back, but still struggling mightily in 2017. And even with the Buck making mild progress against many currencies, it’s the Pound’s star that’s shining brightest post BOE.
Wake-up call
Chart talk: Major markets technical overview video
- ECB speak
- BOE Vlieghe
- Diplomatic approach
- SNB
- Positioning
- BoC Lane
- Election uncertainty
- Blind momentum
- shifting dynamics
- USDZARÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- US Inflation Stokes Fed Expectations, R. Wigglesworth, Financial Times (September 15, 2017)
- Bull Market Switches from Dips to Tips, S. Gandel,  Bloomberg (September 15, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The market is trading just off a fresh 2017 and +2.5 year high, with the uptrend firmly intact. However, in recent days, there have been signs of exhaustion. Weekly studies are in overbought territory and there’s scope for the onset of a healthy corrective decline to allow for stretched studies to unwind. Still, we would need to see a daily close back below 1.1824 at a minimum to strengthen this outlook. Until then, the focus remains on the topside and on the possibility for another round of gains up towards a measured move in the 1.2300 area.
EURUSD – fundamental overview
The Euro was quiet in the previous week, but did go through a minor round of profit taking off recent 2.5 year highs. Setbacks were however well supported on the back of a healthy bid for the Pound on expectation the BOE’s more hawkish outlook would spillover to upcoming ECB decisions. ECB Lautenschlaeger’s latest comment that the central bank shouldn’t postpone policy decisions has helped prop the Euro as well, though ECB Praet has since come out with offsetting dovish remarks that substantial stimulus is still needed. Looking ahead, the focus will be on today’s round of Eurozone CPI as well as more central bank speak from ECB Lautenschlaeger.
GBPUSD – technical overview
The rally in this market has been impressive since it broke out above critical resistance at 1.2775 earlier this year. The breakout suggested the major pair had put in a longer term base and was in the process of turning back up, with an initial objective around 1.3500. That objective has now been met and exceeded, leaving daily studies quite stretched and at risk of rolling over. This also sets up risk for a short term pullback in the sessions ahead, though setbacks should be well supported on dips into the 1.3000 area in favour of a continuation of the newly established uptrend which now will be focused on 1.4000-1.4500.
GBPUSD – fundamental overview
The Pound has managed to build on the impressive hawkish BOE gains, with market implied odds of a BOE hike by November spiking to 61.3%. The post BOE rally and boost in rate hike odds has come from the comments of normally dovish BOE Vlieghe who said “the evolution of the data is increasingly suggesting that we are approaching the moment when the bank rate may need to rise.” Looking ahead, the big focus for this market today will be on a speech from BOE Carney, though looking out to Friday, there will be a lot of attention given to a speech from PM May on the topic of the Brexit strategy.
USDJPY – technical overview
The market has seen an impressive recovery out from a recent 2017 low at 107.32. This sets up the possibility for a bullish shift and run up towards multi-day range resistance in the 115.00 area. However, the market will need to establish a daily close above 111.00 to strengthen this outlook. Until then, while below 111.00 on a close basis, there pressure remains on the downside, leaving the door open for another big drop.
USDJPY – fundamental overview
The news that the US administration is committed to seeking a diplomatic approach with North Korea has been a relief to the market, with risk assets finding additional support and USDJPY getting a boost as well. Overall, the major pair continues to track along with traditional correlations. The combination of an equity market back at record highs and some renewed demand for the US Dollar, have really helped to bolster the major pair over the past week. Looking ahead, the economic calendar for Monday is exceptionally thin and the focus will continue to be on risk sentiment.
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 kept with its general policy line when it met last week and there were no major waves from the event risk. The one notable exception was the language relating to the strength of the Franc, with the SNB viewing the Franc as “highly valued” rather than significantly overvalued. This was a downgrade to the level of concern over the currency’s strength, but again, not much of a reaction. Overall, the sell-off in the Franc in 2017Â has been a welcome development for the SNB. Still, the central bank will need to be careful as the record run in the US stock market has been a big boost to the SNB’s strategy. Any signs of capitulation on that front, will likely invite a very large wave of demand for the Franc, which could put the SNB in a more challenging position to weaken the Franc.
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 latest CFTC positioning data shows Aussie longs scaling back, which could be warning of a deeper drop ahead, particularly with the RBA already talking about discomfort with the elevated exchange rate. Australian data also hasn’t been great of late, though we did get a decent round of employment data last week. Meanwhile, on the US side, expectation for tax reform and higher inflation are helping to inspire some broad US Dollar demand. Aussie has jumped back a bit on Monday with risk markets feeling good and Friday’s US data disappointing overall, but offers are sitting into the rally. Looking ahead, the economic calendar for Monday is exceptionally thin and the focus will continue to be on risk sentiment.
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 this month’s run to fresh +2 year highs. The recent Canada employment report was rather discouraging beneath the surface and this has been followed up by some broader demand for the US Dollar on the back of US tax reform expectations and hotter US CPI. 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 ahead, the economic calendar for Monday is exceptionally thin and the focus will continue to be on risk sentiment. But we do get a Bank of Canada speech from BoC Lane which should not be overlooked.
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
Overall, the Kiwi 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 rallies. New Zealand government growth and budget cuts, discouraging economic data and lingering uncertainty around the upcoming election continue to weigh. The only saving grace for the Kiwi rate in 2017 has been the intense distaste for US Dollar. But even here, we are starting to see some demand for the Buck on US tax reform expectation and hotter US CPI. Looking ahead, the economic calendar for Monday is exceptionally thin and the focus will continue to be on risk sentiment.
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, diminished geopolitical risk and expectation of favourable tax reform are helping to keep the move going into the new 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. But for now, it’s more of the same. It will take a breakdown in this market back below 2400 to turn heads.
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
USDZARÂ has been confined to a consolidation over the past several months, with the market unwilling to establish any new directional bias at the moment. In the interim, rallies are expected to be well capped towards 13.71, while dips should be supported towards 12.55. We have recently seen a bounce out from the range lows, which could open the door for a bigger recovery back towards the 13.71 in the days ahead. Only a clear break above 13.71 or back below 12.55 would force a shift in the structure.
Feature – fundamental overview
The Rand has been struggling of late and is coming off a week of poor performance on the back of ongoing tension between the SARB and public protector Mkhwebane, on news of a meeting between the watchdog and President Zuma’s lawyers before proposing a change in mandate that would have curtailed the central bank’s independence. All of this continues to call into question the strength of South African institutions and has been no help to the emerging market currency. Meanwhile, we have seen demand for the US Dollar after last week’s US CPI came in hot and the market grew more optimistic about US tax reform.