Special report: Fed Minutes Preview
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Today’s report: UK Budget, US Durable Goods, Fed Minutes
Today's calendar features the UK budget, US durable goods and the Fed Minutes. At the same time, today is also the day where many in the US will be heading off the desks early for the Thanksgiving long holiday weekend, which will make for thinner trade into the end of the week.
Wake-up call
Chart talk: Major markets technical overview video
- consumer confidence
- UK Budget
- Yellen comments
- SNB exposure
- RBA Lowe
- NAFTA outlook
- sour GDT
- red flags
- Macro accounts
- USDZARÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- Bitcoin is Growing on Jamie Dimon, D. Fickling, Bloomberg (November 12, 2017)
- Hard to Call the Credit Market Cycle’s Turn, D. McCrum,  FT (November 21, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The major pair pushed back above a consolidation high at 1.1690 in the previous week, and this takes the immediate pressure off the downside, while introducing the prospect for a resumption of the broader uptrend in 2017. At this point, it would be premature however to get too bullish and a break back above the right shoulder of the head and shoulders top at 1.1880 would likely be what is required to really encourage bullish prospects. For now, it’s more about going from short-term bearish to neutral.
EURUSD – fundamental overview
The Euro is sitting back and waiting for that next big driver in markets to determine whether it is done with a run of sideways trade or if it wants to ease off some more from its 2017 high before getting going again. There is a more upbeat outlook in the Eurozone right now and ECB officials have been decidedly less dovish than the tone from the last ECB Meeting. There has been a bit of a drag on the single currency in light of the Germany coalition talk breakdown and prospect for a snap election, though this hasn’t been too much of a drag. The Euro has also been held back a bit from optimism surrounding US tax reform, but it looks like a lot of this has been priced in at this point. Looking ahead, we get some Eurozone consumer confidence data, US durable goods and the Fed Minutes. US initial jobless claims are out today on account of tomorrow’s Thanksgiving holiday in the US, while Michigan confidence has also been bumped up. There isn’t much change expected from the Fed Minutes, though the outgoing Fed Chair’s worry about inflation being something more than transitory, has been helping to prop the Euro into Wednesday.
GBPUSD – technical overview
The market has eased off quite a bit since topping out at a fresh 2017 high in September, with the price dropping back into the 1.3000 area thus far. However, while there is risk for another drop, setbacks should be limited below the psychological barrier, with the greater risk for the formation of that next meaningful higher low ahead of a continuation of the newly formed uptrend in 2017. Ultimately, only a weekly close back below 1.2775 will delay the constructive outlook. At the same time, the major pair is capable of chopping around some more and it’s going to take a run back above 1.3338 to send a signal the market is ready to start moving back up again.
GBPUSD – fundamental overview
The market will be taking in the UK Budget today and this will likely dictate the Pound’s direction. Overall, the UK currency has done a great job holding up, with confidence Theresa May will be able to get that Brexit bill through helping to comfort investors looking for the exit process to keep moving forward now that we’re here. Later today, we get US durable goods, initial jobless claims, Michigan confidence and the Fed Minutes.
USDJPY – technical overview
The major pair has been confined to a range trade for much of 2017, with rallies well capped ahead of 115.00 and dips well supported below 108.00. There are now signs of the market wanting to adhere to the range trade after stalling out yet again above 114.00. But a daily close back below 111.65 will be required to send a message that this could in fact be the case. Rallies should be well capped for now, with only a push back above 114.00 to delay the outlook.
USDJPY – fundamental overview
Interestingly, the major pair has been weighed down on Wednesday despite record high US equities, with the market seemingly paying more attention to yield differentials. Janet Yellen’s comments about inflation possibly being something more than transitory, have shaken the US Dollar a bit and this could be what’s driving price action. Later today, we get US durable goods, initial jobless claims, Michigan confidence and the Fed Minutes.
EURCHF – technical overview
A period of multi-day consolidation has been broken, with the market pushing up to a fresh 2017 high. 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 1.1400, while only back below 1.1260 would delay the overall constructive tone.
EURCHF – fundamental overview
The SNB will need to be careful right now as its strategy to weaken the Franc could face headwinds from the US equity market. The record run in the US stock market has been a big boost to the SNB’s strategy with elevated sentiment encouraging Franc weakness. Of course, the SNB is no stranger to this risk, given a balance sheet with massive exposure to the US equity market. But any signs of capitulation on that front, will likely invite a very large wave of demand for the Franc, which will put the SNB in a more challenging position to weaken the Franc.  And so, we speculate the SNB continues to be active buying EURCHF in an attempt to build some cushion ahead of what could be a period of intense Franc demand ahead.
AUDUSD – technical overview
Despite rallying to a fresh +2 year high in September, the market has been unable to hold onto gains, quickly reversing course and extending declines into the 0.7500s thus far. It’s worth noting technical studies are starting to look overextended and the market could soon look for some support around the 0.7500 barrier. But overall, the pressure is on the downside and rallies are viewed as corrective while below 0.7900.
AUDUSD – fundamental overview
On Tuesday, the Australian Dollar perhaps got an added boost from an RBA Lowe comment the next move in rates would likely be a hike, though we wouldn't throw too much weight behind those words given how broad they are and the fact that it could still be some time before that happens. Janet Yellen’s concerns about inflation could also be helping to prop Aussie a little off the recent lows. But overall, the Australian Dollar remains weighed down on the back of the recent recovery in the US Dollar and diverging monetary policy, with the Fed on track to follow through with guidance and the RBA moving in the other direction, given the ongoing strain of low inflation and tepid wage growth. Later today, we get US durable goods, initial jobless claims, Michigan confidence and the Fed Minutes.
USDCAD – technical overview
Clear signs of basing in this pair, with the recovery from plus two year lows back in September extending through an important resistance point in the form of the August peak. This sets the stage for additional upside in the days and weeks ahead, with the immediate focus now on a retest of the psychological barrier at 1.3000. In the interim, any setbacks should now be well supported ahead of 1.2500.
USDCAD – fundamental overview
While there has been some improvement in economic data over the past couple of weeks, data overall has deteriorated in the aftermath of the central bank’s aggressive move of consecutive rate hikes in 2017. Moreover, while Poloz appearances post BoC have been less dovish than the tone from the latest BoC meeting, this doesn’t come as a surprise, as the central banker is going to do his best to justify the recent consecutive rate hikes. And Poloz and the Canadian government will have another big fear on their hands into 2018, with the possibility of a NAFTA breakup looking a lot more realistic than the market is giving it credit for. For now, there is optimism surrounding the outlook for NAFTA, with news on Tuesday of progress, helping to fuel some Loonie demand. But it’s way too early to be feeling comfortable about this risk. Later today, we get US durable goods, initial jobless claims, Michigan confidence and the Fed Minutes.
NZDUSD – technical overview
Medium term studies have turned down sharply after the market pushed up to a plus two year high through 0.7500 in late July. A recent break below 0.7000 has opened a more meaningful reversal that has accelerated declines to fresh 2017 lows below 0.6800. This sets the stage for a fresh downside extension to the 0.6500 area, though with daily studies now oversold, there could be a corrective bounce that plays out initially, so the market can carve out a lower top. But while below 0.7200, the structure remains bearish.
NZDUSD – fundamental overview
Tuesday’s disappointing GDT auction result didn’t hurt the ailing Kiwi rate all that much, with the currency perhaps getting a nice prop from Yellen’s concern about the possibility that subdued inflation is not transitory. Overall, the New Zealand Dollar has been under a good amount of pressure, dropping to fresh 2017 lows, even after this month’s RBNZ meeting, which revealed a bump in the rate hike path to Q2 2019, a quarter earlier than previous estimates. It seems the market isn’t too excited about the prospect for an accelerated rate hike timeline in 2019 when it’s contending with the more immediate concerns of a less than impressive run of data, and new government it’s still trying to figure out. Later today, we get US durable goods, initial jobless claims, Michigan confidence and the Fed Minutes.
US SPX 500 – technical overview
The market continues to shrug off overextended technical readings, with any setbacks quickly supported for fresh record highs. At the same time, it’s worth noting that the market broke out in August after a 75 point consolidation, which projected a measured move to 2565. And now that this 2565 measured move objective has been met and exceeded, it could warn of some form of a reversal to come, though we would need to see a daily close back below 2544 at a minimum to take the immediate pressure off the topside. Until then, the record run continues into unchartered territory, with the focus on establishing above this next major barrier at 2600.
US SPX 500 – fundamental overview
The US equity market continues to be well supported on dips, pushing further into record high territory. It seems, on a macro level, the combination of blind momentum, expectation US tax reform will ultimately work out well and the appointment of Jerome Powell as the next Fed Chair are helping to keep the move going. But at the same time, there’s a clear 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, balance sheet reduction coming into play and another rate hike still on the cards this year. There has been a little more in the headlines relating to the Russia probe fallout and possibility for more stress ahead for the US administration, while the President has just designated North Korea as a terror sponsor. But for now, no reaction to these stories and it’s more of the same. At this point, it will take a breakdown in this market back below 2500 to turn heads.
GOLD (SPOT) – technical overview
Setbacks have been well supported over the past several months, with the market continuing to put in higher lows and higher highs, opening a recent push to a fresh 2017 high up around 1357. And so, look for this most recent dip to round out that next higher low around 1260 in favour of a bullish continuation towards a retest of the 2016 peak at 1375 further up. Ultimately, only a drop back below 1200 would negate the outlook.
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
USDZAR has been breaking out of a period of multi-month consolidation, with the price surging to fresh 2017 highs beyond 14.00, suggesting the run could have a lot more to go. The next major level of resistance comes in at 14.76, the high from August 2016. Setbacks should be well supported from here ahead of 13.65.
Feature – fundamental overview
The South African economy is in greater need for flexibility on rates on the basis of a near zero growth and a negative output gap, though rising inflation is forcing the SARB to think about going in the opposite direction. SARB Gov Kganyago has said there is scope for counter-cyclical accommodative monetary policy to support the economy. Meanwhile, the Rand remains exposed to ongoing tension on the political front which will persist into year-end on account of the upcoming ANC leadership election. October’s Budget Statement dealt the emerging market currency another big blow, with the Rand sinking to a fresh 2017 low on the revelation of sharp revisions to debt and deficit projections, highlighting risk for further downgrade. The key focus will be on tomorrow’s SARB decision where the central bank should probably steer clear of rocking the boat ahead of Friday’s critical rating agency determinations. The only supportive Rand driver at the moment has come from the record run in US equities, which is a positive for risk correlated emerging market currencies. However even here the Rand should be sitting uneasy as the prospect for a capitulation is looking increasingly realistic on overbought technicals and an unstable backdrop around the globe.