Next 24 hours: US Returns, Doesn’t Do Much for Buck
Today’s report: Markets Return to Full Form
The economic calendar is exceptionally thin in the early week, with no meaningful first tier releases until Wednesday. This will allow some time for the US market to digest important price action at the end of last week, while off the desks for the Thanksgiving long holiday weekend.
Wake-up call
Chart talk: Major markets technical overview video
- Political deadlock
- Buy stops
- China government
- equity exposure
- sentiment shift
- Loonie gainsÂ
- Kiwi outlook
- red flags
- Macro accounts
- USDTRYÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- The Tiger of Silicon Valley, N. Vardi, Forbes (November 21, 2017)
- The Uncertain Future of Bitcoin Futures, M. Levine,  Bloomberg (November 23, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The recent break back above 1.1880 is a significant development, as it undermines the prospect for a deeper correction, while opening the door for a more immediate resumption of a well defined uptrend that has taken form in 2017. Look for any setbacks to be well supported ahead of 1.1700, for the next major upside extension beyond the current yearly high of 1.2093 and towards the 1.2500 area further up. Only a daily close back below 1.1700 will delay this outlook.
EURUSD – fundamental overview
Back to full trade and the week gets off to a quiet start as far as the economic calendar goes. The Euro has however taken out an important round of buy stops this past Friday, on the break above 1.1880, with many medium to longer term players now looking for that next big run into 2018. The Euro has been able to hold onto most of its Friday gains into Monday on the weekend news out of Germany that the political deadlock could be broken. Looking ahead, we get some housing data out of the US and perhaps some updates relating to the Senate’s efforts to get tax reform done ahead of year end.
GBPUSD – technical overview
The market has broken out to the topside, signaling the end to a range that had defined price action since early October. The push back above 1.3340 now suggests the market is poised for a continuation of the 2017 uptrend, with a higher low possibly in place at 1.3027, to be confirmed on a break of the 2017 high at 1.3658, opening the door for a push over the coming weeks and months back above 1.4000. Any setbacks should not be well supported ahead of 1.3000, though ultimately, only back below 1.2775 would negate the constructive outlook.
GBPUSD – fundamental overview
The Pound has done well of late and could be looking to build on 2017 gains after the Cable rate cleared buy stops above 1.3340 on Friday after the market had been consolidating below the level for many weeks. The combination of a more favourable outlook relating to the Brexit negotiation process and prolonged Fed subdued inflation concerns are the primary drivers behind the UK currency’s latest run. Looking ahead, we get a BOE Haldane speech, some housing data out of the US and perhaps some updates relating to the Senate’s efforts to get tax reform done ahead of year end.
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. The latest break below 111.65 reaffirms this outlook, encouraging the next big drop all the way back to the range lows in the 107-108 area. Look for rallies to be well capped below 113.00.
USDJPY – fundamental overview
The Yen continues to trade off broader external drivers and themes, with sentiment towards the US Dollar and global risk as the big ones here. With that said, it’s no surprise to see USDJPY much lower of late, with a wave of broad based US Dollar declines on upgraded Fed subdued inflation concerns, fueling Yen gains in the previous week, while early Monday, worry out of China is inspiring some profit taking on elevated equity markets. The Chinese government has been warning about frothy share prices and the risk deleveraging efforts will result in a rotation from an assault on the bond market to a collapse in China stocks. Looking ahead, we get some housing data out of the US and perhaps some updates relating to the Senate’s efforts to get tax reform done ahead of year end.
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
The market has been under a lot of pressure over the past several weeks, extending declines into the 0.7500s thus far. It’s worth noting technical studies are in the process of unwinding from oversold readings, resulting in this latest minor bounce. But overall, the pressure is on the downside and rallies are viewed as corrective while below 0.7900.
AUDUSD – fundamental overview
Aussie has been knocked back a bit early Monday on profit taking and worry out of China over a frothy equity market. This follows a week of decent gains for the Australian Dollar, with the currency getting a boost from an intense wave of US Dollar bearishness on the back of upgraded Fed concerns about prolonged subdued inflation and discouraging US economic data. Looking ahead, we get some housing data out of the US and perhaps some updates relating to the Senate’s efforts to get tax reform done ahead of year end.
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. Last week’s disappointing Canada retail sales was a testament to this fact. BoC Governor 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. When considering the broad based US Dollar bearishness in the previous week, some NAFTA news that should have been Loonie supportive and another run up in OIL to +2 year highs, the Canadian Dollar strength all of a sudden looks a lot less impressive. Looking ahead, we get some housing data out of the US and perhaps some updates relating to the Senate’s efforts to get tax reform done ahead of year end.
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 support from May 2016 at 0.6676, though with daily studies turning up from oversold, the market is taking time to allow those studies to unwind a bit so the market can carve out a lower top. While below 0.7200, the structure remains bearish.
NZDUSD – fundamental overview
Last week, was a welcome week of trade for the ailing New Zealand Dollar, with the Kiwi rate recovering out from 2017 lows against the Buck. Demand was driven off an intense wave of US Dollar bearishness on the back of upgraded Fed concerns over a prolonged period of subdued inflation and discouraging US economic data. Better than expected Kiwi retail sales were welcome, though a GDT auction miss and trade data dissapointment were offsetting, clearly reflecting the demand coming from the US Dollar side. Overall, we would caution against getting overly optimistic about Kiwi’s prospects. Data has been less than impressive on the whole and this should keep the RBNZ erring on the side of accommodation. Looking ahead, we get some housing data out of the US and perhaps some updates relating to the Senate’s efforts to get tax reform done ahead of year end.
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 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. But for now, 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
USDTRY has extended its record run, with the market contemplating the establishment above major psychological resistance at 4.0000. At the same time, with medium technical studies looking extended, risk is building for a healthy corrective reversal in the sessions ahead. Ultimately, any setbacks should be well supported ahead of 3.6500, with only a break back below this level to force a shift in the structure.
Feature – fundamental overview
Last week’s run of intense, broad based US Dollar selling was a big relief for the CBRT, with the central bank in a nasty battle to try and stop the Lira from a continued drop to fresh record lows. The Turkish central bank is in that awful position of needing to decide between reacting to a free fall in the currency through tightening measures or reacting to a sluggish economy that is strained by the removal of any accommodation in place. Of course, the situation is even more stressful for the CBRT, with President Erdogan consistently calling for more accommodation. Tensions with the US in recent week’s revolving around Turkish businessman Reza Zareb, accused of evading sanctions against Iran, have only intensified negative sentiment towards the emerging market currency, while inspiring a wave of Lira outflows.