Next 24 hours: Markets Stand Still on Quiet Monday
Today’s report: Market Looking Ahead to Mid-Week Risk
Monday’s calendar is light and the market will spend most of its time thinking about upcoming central bank risk in the form of Wednesday's Fed decision and Thursday's BOE and ECB decisions. Wednesday also features President Trump making a closing argument on tax reform.
Wake-up call
Chart talk: Major markets technical overview video
- CB risk
- next stage
- Goldilocks report
- SNB strategy
- cross selling
- NAFTA fate
- RBNZ Gov
- red flags
- Macro accounts
- USDTRYÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- Year of Double Digit Gains is Normal, B.Carlson, Bloomberg (December 8, 2017)
- Trapped in the Headlights, K. Martin,  Financial Times (December 7, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
Despite minor setbacks off a recent recovery high, the outlook for the major pair remains highly constructive. The door is now open 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
The Euro has seen some mild weakness over the past week or so and comes into the new week thinking about upcoming central bank risk, with the Fed and ECB decisions due Wednesday and Thursday respectively. There isn’t anything to really speak of on today’s economic calendar, with only US JOLTS job openings standing out. We have however seen any dips in the Euro very well supported, with the single currency recovering nicely this past Friday after the US jobs report produced another subdued hourly earnings print.
GBPUSD – technical overview
The recent push back above 1.3340 now suggests the market is poised for a continuation of the 2017 uptrend, with a higher low in place at 1.3027, to be confirmed on a break of the 2017 high at 1.3658. This will then open the door for a measured move upside extension back above 1.4000 and towards 1.4200 into 2018. Any setbacks should now be well supported into that previous range resistance now turned support at 1.3340.
GBPUSD – fundamental overview
There was some underperformance in the Pound this past Friday, with the market selling the UK currency on the fact after the Brexit deal was sealed. Many traders were also concerned about the broadness of the language while thinking about the next stage of trade and transition talks, likely to be more contentious. However, the process is moving forward which ultimately keeps things moving in the right direction, allowing most of the Brexit downside risk to be slowly priced out. Last Friday’s round of UK data was also solid and this in conjunction with a US jobs report that produced still subdued hourly earnings, has helped to prop up the Cable rate into dips. Looking ahead, the only notable release on today’s calendar comes in the form of US JOLTS job openings. Earlier, there was no reaction to a slump in UK Rightmove house prices.
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 topside failure off the range high strengthens this outlook, though the market will ideally need to hold below 113.50 on a daily close basis to further encourage the bearish prospect.
USDJPY – fundamental overview
The major pair has been bid up over the past week, getting a lift on the back of risk supportive developments out of the US that include tax reform optimism, a stopgap measure to avoid a government shutdown and another Goldilocks US jobs report, with solid NFPs, a 17 year low unemployment rate and subdued wage growth. There isn’t much going on Monday, with the only standout coming in the form of US JOLTS job openings. The market will instead continue to track along with US Dollar flow and risk sentiment.
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 stretched readings, resulting in this latest consolidation, which could be well supported for the time being in the 0.7500 area. But overall, the pressure is on the downside and rallies are viewed as corrective while below 0.7900, with the possibility for another downside extension towards 0.7000 not to be ruled out.
AUDUSD – fundamental overview
Aussie has been getting a little boost after the US jobs report produced another soft hourly earnings print. However, gains have been less impressive on the back of heavy cross related selling in AUDNZD as the Kiwi market gets a boost from the news of RBNZ Orr as the next Governor. Last week’s upbeat retail sales, a less dovish outlook on inflation out from the RBA and stellar China trade data have also helped to prop additional setbacks off multi-day lows, though slumping iron prices, softer Aussie GDP and USD bids from tax reform and stopgap measures to avoid a US government shutdown have offset these gains. Looking ahead, only US JOLTS job openings stand out on Monday’s calendar.
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 1.2600.
USDCAD – fundamental overview
The Canadian Dollar has been under consistent pressure since topping out at a plus 2 year high against the Buck in September, with the market reconsidering bets after the BoC's move to hike rates consecutively this year was followed up by a run of softer economic data. Looking out to 2018, there could be more downside risk to the Loonie as the fate of NAFTA comes back into the spotlight, with any talk of a breakup to put more pressure on the Loonie. As far as today’s calendar goes, only US JOLTS job openings stand out.
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 looking stretched, the market is taking time to allow those studies to unwind before making the next move. While below 0.7200, the structure remains bearish.
NZDUSD – fundamental overview
The New Zealand Dollar has been outperforming on Monday, on the market's vote of confidence of Adrian Orr as the next central bank governor of the RBNZ. Also seen supporting the rally are comments from New Zealand FinMin Robertson who says he will widen RBNZ objectives to maximise employment in policy decisions. Last week, Kiwi was able to hold up off recent 2017 lows, getting some help from a positive GDT auction result and the softer hourly earnings component in the US jobs report. Still, the combination of an overall softer run of local data, downside pressure on commodities prices and worry about external factors associated with global risk appetite could continue to worry Kiwi into rallies. Looking ahead, only US JOLTS job openings stand out today.
US SPX 500 – technical overview
The market continues to shrug off overextended technical readings, with any setbacks quickly supported for fresh record highs. Still, technical readings are tracking well overbought and are in desperate need for a period of healthy corrective action.Ultimately however, it will take a break back below 2557 at a minimum to alleviate immediate topside pressure.
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. This latest stopgap measure relief and news there will be a fresh infrastructure spending announcement from the President certainly haven’t hurt the market. 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 month. But for now, it’s more of the same, with the market shrugging off any red flags. 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 in favour of a bullish continuation towards a retest of the 2016 peak at 1375 further up. Thursday’s break of 1250 is a setback but 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
The CBRT is in that awful position of needing to decide between reacting to rocketing inflation and a free fall in the currency, or 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. Monday’s inflation data came in hot yet again and has done nothing to help the central bank’s cause, though we have since seen the Lira recover a little, perhaps with the market feeling more confident in the CBRT taking action as the move will be more justified in the eyes of the government. How the CBRT decides to tighten policy is another question and we could see moves by way of alternative mechanisms.