Next 24 hours: Will the Sleeping Bear Wake Again?
Today’s report: Dark Clouds, Unjustified Immunity
For the most part, trading conditions have been a little thinner this week, with markets deferring to sideways trade. The economic calendar will however pick up on Tuesday, following Monday's uneventful day. UK CPI ahead.
Wake-up call
Chart talk: Major markets technical overview video
- German ZEW
- UK CPI
- producer prices
- SNB strategy
- downbeat releases
- Rallying OIL
- RBNZ gov
- red flags
- Macro accounts
- USDTRYÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- Bitcoin Futures are No Bubble Bellwether, S. Gandel, Bloomberg (December 11, 2017)
- Bitcoin Futures Start Trading, J. Han,  Financial Times (December 11, 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 been confined to some sideways trade on the back of a lighter economic calendar to start the week and on some caution ahead of Wednesday’s Fed meeting and Thursday’s ECB risk. As far as today’s calendar goes, German and Eurozone ZEW readings and US producer prices stand out. The US Treasury has released a one page document on tax reform that has many investors worried about the effectiveness of the reform, which could be inspiring some Euro demand on dips.
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
The Pound has come under mild pressure into this week as many out there express concern about the broadness of the language on the Brexit bill deal, while thinking about the added strain this will put on the next stage of trade and transition talks, already expected 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. Overall, the Pound has been well supported and will look to take in an important batch of CPI data today. Still, with the Fed out tomorrow and the BOE decision and EU Brussels summit on Thursday, the UK currency may be more comfortable keeping within familiar ranges on caution ahead of the upcoming risk. US producer prices are out later in the day. It’s worth noting, the US Treasury has released a one page document on tax reform that has investors worried about the effectiveness of the reform, which could be inspire Sterling demand on dips.
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. The market will now be looking ahead to risk stacked up into the middle to latter portion of the week that includes central bank decisions from the Fed, BOE and ECB. Earlier today, Japan producer prices came in above forecast but haven’t factored into trade, while a downturn in sentiment over in China on government and regulatory investigations has also been largely shrugged off. Looking ahead, we get US producer prices.
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
Overall, data out of Australia on Tuesday was on the softer side, with only credit card purchases firming up. Q3 house prices missed, while business conditions and business confidence were disappointing. Meanwhile, worry out of China on growth concerns, government corruption and hedge fund transgressions were also negatives for the Australian Dollar. Still, with all of that taken in, Aussie still managed to find demand, perhaps reflecting a currency already overdone and ready for a return to the topside. The US Treasury has released a one page document on tax reform that has investors worried about the effectiveness of the reform, which could be inspire the Aussie demand as the currency market focuses more on the downbeat outlook for the US Dollar into 2018 ahead of tomorrow’s Fed decision. US Dollar positive tax reform has holes and US protectionism and soft Dollar policy are expected to come into play next year, which could support Aussie. Looking ahead, US producer prices are due later in the day.
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, absence of first tier Canada data will leave the focus on US producer prices and positioning ahead of Wednesday’s FOMC decision. Interestingly, a recovery in the price of OIL has done little to inspire demand for the Loonie.
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. However, daily studies are now looking stretched and there is risk building for some form of a meaningful correction, possibly back towards the 0.7200 area, before the market considers another round of declines.
NZDUSD – fundamental overview
The New Zealand Dollar has been outperforming this week, with most of the flow attributed to the market's vote of confidence of Adrian Orr as the next central bank governor of the RBNZ. However, the demand could also be a function of a currency that has been beaten down to 2017 lows and trying to recover a bit. Kiwi has done a good job holding up off recent 2017 lows, and could already be getting help from last week’s 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 keep the risk correlated currency offered into rallies. Looking ahead, the market will be looking at US producer prices while positioning into Wednesday’s FOMC risk.
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. Last week’s stopgap measure to avoid government shutdown and news there will be a fresh infrastructure spending announcements 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. This latest round of weakness below 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 1200.
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.