Special report: Fed Preview – What to Expect
Today’s report: Countdown to Central Bank Risk Underway
We get UK retail sales and US existing home sales today, both capable of moving markets, though we shouldn't expect too much movement until much later in the day when the Fed comes out with its latest decision.
Wake-up call
Chart talk: Major markets technical overview video
- Reuters report
- retail sales
- snap election
- more cushion
- RBA Ellis
- Soft manufacturing
- GDT auction
- FOMC decision
- Big picture
- USDZARÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- The Risk of a New Economic Non-Order, M. El-Erian, Project Syndicate (September 19, 2017)
- Pain Buttons and Moral Engagement, M. Levine,  Bloomberg (September 18, 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
A Tuesday Reuters report that ECB policy makers disagreed over whether or not to set a firm end date for the bond buying program in October had knocked the Euro back for a short period, before the market was exceptionally well bid on the dip, with more broad USD weakness and a solid German ZEW survey helping to prop the major pair to a weekly high back above 1.2000. Looking ahead, the day will mostly be about the Fed and positioning into the event risk. We do however get some German producer prices data and US existing home sales ahead of the FOMC.
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 for a short term pullback. But any 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 been well bid over the past week, with the UK currency trading off a fresh 2017 high after the BOE produced a hawkish decision, highlighting the market’s underpricing of rate hike expectations. But into this week, there has been some profit taking and reconsideration of the motives behind the BOE hawkishness, after Governor Carney offered up reasons that were not grounded in optimism, but fear of dangers associated to the balance of things if the BOE didn’t come out as hawkish, considering the broader monetary policy adjustment around the globe in this direction and the need to keep up, in order to avoid dislocation. UK growth, wages and even inflation are not exactly where they need to be, while the Brexit overhang is just another worry still hanging around, which could make the Pound outlook a little less rosy than what we’ve been seeing. But for now, the focus will be on digesting this latest UK retail sales data, US existing home sales into North America and of course, the highly anticipated FOMC decision late in the day.
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 above 111.00 in the sessions ahead to strengthen this outlook. Until then, there is still risk for another bearish break and retest back down towards and below the 2017 low in the 107.00s.
USDJPY – fundamental overview
Japanese fundamentals aren’t really of interest to the USDJPY market, as the traditional drivers continue to dictate directional moves. Impressive Japan trade data has been shrugged off and the market isn’t expecting much from the Bank of Japan tomorrow. All of the focus right now is on today’s FOMC decision. Even a rumoured plan PM Abe will be looking to dissolve the lower house next week and call for a snap election on October 22 hasn’t done anything to move the major pair. It’s really been all about a combination of an equity market back at record highs and some renewed demand for the US Dollar. As far as today’s calendar ahead of the Fed goes, US existing home sales are the only notable standout.
EURCHF – technical overview
A period of multi-day consolidation has been broken, with the market pushing up to a fresh 2017 high beyond 1.1540. The bullish break could now get the uptrend thinking about a test of that major barrier at 1.2000 further up. In the interim, look for any setbacks to be very well supported ahead of 1.1200, while only back below the figure would delay the overall constructive tone.
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 Australian Dollar has been chopping around post this week’s RBA Minutes which failed to offer any new insights. The RBA is keeping with a balanced tone, though one could argue that if it is leaning slightly more in one direction, it’s to the dovish side as it remains concerned about fundamentals that include subdued inflation and an elevated Aussie exchange rate. RBA Ellis was on the wires today, but the central banker hasn’t offered any comments relating to monetary policy. RBA Lowe is due to speak tomorrow and will get more attention. For now, the market will take a quick glance at US existing home sales before hunkering down into the FOMC decision.
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 1.2415 to really encourage this prospect.
USDCAD – fundamental overview
Monday’s BoC Lane warnings about getting overly hawkish, have been followed up by a round of soft manufacturing data on Tuesday. This already comes on the heels of a discouraging Canada employment report the other week. And so, while the market has been buying Canadian Dollars aggressively in 2017 on what has been a dramatic turnaround in the BoC outlook, it now feels like a lot of this has been aggressively priced in, leaving room for some correction and profit taking. As far as today goes, absence of Canada data will leave the focus on US existing home sales and the highly anticipated FOMC decision.
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, like this latest one into Wednesday, on the back of a well received GDT auction. 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 market will take in US existing home sales and the highly anticipated FOMC decision. It’s worth noting that there will be more to chew on shortly after the Fed, with Kiwi growth data out early Thursday.
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 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. But for now, it’s more of the same. It will take a breakdown in this market back below 2400 to turn heads. All eyes on the FOMC decision later today.
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.
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. Dealers are now reporting demand in size ahead of 1260.
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 range high in the days ahead. But 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 worry over rating agency downgrades and ongoing tension on the political front, as President Zuma is incapable of escaping controversy. This has made the Rand one of the least attractive emerging market currencies out there, at a time when many are buying back into the group. The strained political environment has also had some out there calling for 50bps of rate cuts when the SARB meets tomorrow. The consensus at the moment is for a 25bp reduction. 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. Looking ahead, the market will be positioning into upcoming FOMC and SARB risk.