Next 24 hours: A Day for the Dollar
Today’s report: European Calendar in Spotlight
It's a busy day on the European economic calendar. We get Eurozone and German ZEW surveys, along with Eurozone consumer confidence, and UK inflation readings in the form of CPI and PPI. Elsewhere, reports have surfaced of new US tariffs on China later this week.
Wake-up call
Chart talk: Major markets technical overview video
- ECB officials
- Brexit transition
- Traditional drivers
- SNB decision
- RBA Minutes
- NAFTA risk
- GDT auction
- Red flags
- Metal demand
- BITCOINÂ
Suggested reading
- Andrew Bailey Defends FCA Record on Cases, R. Fitzgerald, Financial Times (March 19, 2018)
- Money Manager Compensation is a Mystery, N. Smith, Bloomberg (March 19, 2018)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The major pair has stalled out after trading up to a +3 year high above 1.2500. Daily studies have been in the process of consolidating off stretched readings, though setbacks continue to be exceptionally well supported into dips. A daily close back above 1.2400 will suggest the market wants to extend the run up through the 2018 high and towards a massive falling trend-line off the record high, which comes in around 1.2650. But if the market can’t hold above 1.2400 and rolls back over, look out for a drop below 1.2155 to accelerate setbacks towards a retest of the 2018 low around 1.1915.EURUSD – fundamental overview
There have been reports of the ECB shifting more to the hawkish side and this has helped to keep the Euro supported on dips. As far as today’s calendar goes, key standouts come in the form of Eurozone and German ZEW prints, along with Eurozone consumer confidence later in the day.GBPUSD – technical overview
The market has entered a corrective phase since pushing to a 2018 high at around 1.4350 and rallies should be well capped ahead of the 2018 high for additional corrective activity. There is still scope for additional declines into the 1.3400-1.3600 area, though setbacks should then be very well supported in favour of that next meaningful higher low and bullish continuation.GBPUSD – fundamental overview
The Pound has been well bid in recent sessions, with the news of a Brexit transition deal fueling the outperformance. A signing off of this deal is expected at the EU summit on the 22nd and 23rd of the month. Still, there are substantive issues yet to be worked out here and as per EU Barnier's comments, there is still a considerable amount of work that needs to get done. Looking ahead, volatility is expected as the market digests the latest round of UK inflation data, with PPI and CPI due. The outcome here will take on added meaning given the proximity to Thursday’s Bank of England decision.USDJPY – technical overview
A multi-month range trade was broken in February after the market sunk below 107.30. This has opened the door for deeper setbacks in the days ahead, possibly down towards the 102-103.00 area, an area that coincides with a measured move extension target and the 78.6% fib retrace off the 2016 low to high move. At this point, a daily close back above 107.91 would be required to take the immediate pressure off the downside.USDJPY – fundamental overview
Political scandal surrounding Abe and ongoing trade tension between the US and the rest of the world, have been sources of Yen demand in recent sessions. At the same time, the major pair continues to be well supported on dips, with medium and longer term accounts continuing to look to build long USD exposure on fundamentals that do not bode well for the Japanese currency. This week’s Fed decision could bring this further into the light, if yield differentials widen further in the Buck’s favour and the possibility for four rate hikes from the Fed in 2018 remains on the table. Looking ahead, absence of first tier data will leave the focus on the broader macro themes. Certainly the latest reports that President Trump will be announcing $60B worth of Chinese tariffs this Friday, is something to be monitored, while any headlines out from the G20 will also be on radar screens.EURCHF – technical overview
Despite this latest round of setbacks, overall, the market continues to trend higher, recently extending gains to a fresh multi-month high. The bullish price action has the market thinking about a retest of that major barrier at 1.2000 further up. In the interim, look for the current round setbacks to be very well supported, while only back below 1.1448 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 in 2018. 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 US equities. But any signs of capitulation on that front into this new year, 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. There were no surprises from Thursday’s SNB decision.AUDUSD – technical overview
The market has been in the process of rolling over after failing to sustain a break above the 2017 high. The recent daily close below 0.8000 strengthens this outlook and opens the door for a renewed wave of declines towards 0.7500. At this point, only a daily close back above 0.8000 would delay.AUDUSD – fundamental overview
Nothing new from the RBA Minutes, which only reaffirms the central bank’s cautious outlook and more dovish leaning bias right now. Overall, the Australian Dollar has been very well offered into rallies, with the currency weighed back down on an escalation in global trade tension and White House drama. US protectionism, tariffs and soft Dollar policy are additional variables in the equation and ultimately, any signs of capitulation in risk assets, will be what drives this market, with the Australian Dollar at risk for additional declines. Looking ahead, absence of first tier data will leave the focus on the broader macro themes. Certainly the latest reports that President Trump will be announcing $60B worth of Chinese tariffs this Friday, is something to be monitored, while any headlines out from the G20 will also be on radar screens.USDCAD – technical overview
There are signs of basing after months of downside pressure, with the market racing back above critical resistance at 1.2921. A fresh higher low has been confirmed, with the market extending its 2018 run and now open for a push into a measured move extension objective around 1.3200. At this point, setbacks should be well supported above 1.2800.USDCAD – fundamental overview
The Canadian Dollar continues with its run of relative underperformance in 2018, with the currency extending decline in the previous week on the back of dovish comments from Bank of Canada Governor Poloz. Throw in a softer run of recent data and NAFTA uncertainty, and all of this will keep the Loonie from wanting to move higher. As far as today’s calendar goes, only Canada wholesale sales standout and broader macro themes will likely dictate flow.NZDUSD – technical overview
The market looks to be in the process of rolling over, with the daily chart showing a possible topping formation. Right now, it will take a clear break above 0.7400 to take the pressure off the downside. Until then, there is risk for continued weakness back towards 0.6900, with a break below 0.7178 to trigger the bearish formation and strengthen the outlook.NZDUSD – fundamental overview
Overall, rallies are still expected to be well capped, particularly in light of the RBNZ’s adoption of a more dovish leaning outlook. This coupled with signs of rising inflation in the US and increased tension around fallout from White House exits and US administration protectionist measures, could easily offset any demand from alternative flows that might otherwise be supportive of the Kiwi rate. As far as today’s calendar goes, the big focus will be on the latest GDT auction results and broader macro themes.US SPX 500 – technical overview
A severely overbought market is finally showing signs of relenting, allowing for stretched readings to unwind. There’s plenty of room for these setbacks to extend following the break back below the 2675 area January low, with the market at risk for a further intensification of declines. Any rallies should now be very well capped ahead of 2800.US SPX 500 – fundamental overview
Investor immunity to downside risk is not looking as strong these days and there’s a clear tension out there as the VIX starts to rise from 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 the Fed finally following through with forward guidance. Certainly, the Fed’s more hawkish tone and subsequent jumps in hourly earnings, CPI, and core PCE are the types of things that could weigh more heavily on sentiment in the sessions ahead, if there is more evidence confirming this bias. Of course, the added wrench of White House drama including a revolving door of personnel and ramped up US protectionism, should only intensify the negative sentiment if things continue along this path. Later this week, we get an important FOMC decision.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. Look for some more chop followed by an eventual push above massive resistance in the form of the 2016 high at 1375. This will then open the door for a much larger recovery in the months ahead. In the interim, setbacks are expected to be well supported around 1300.GOLD (SPOT) – fundamental overview
Solid demand from medium and longer-term players persists, 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 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. The 2016 high at 1375 is a massive level that if broken and closed above, could be something that triggers a widespread panic and rush to accumulate more of the hard asset.Feature – technical overview
Bitcoin has come under intense pressure since topping out at a record high just shy of 20,000 in December. The market has exceeded a measured move downside objective that had targeted a drop to $7,000, with deeper setbacks now on the cards for a move to retest the September 2017 peak around $5,000. At this point, it will take a daily close back above $13,000 at a minimum, to take the pressure off the downside.Feature – fundamental overview
The crypto asset has come under pressure in 2018, with ramped up regulatory oversight and potential government crackdowns forcing many holders to exit positions. The market is also coming back to earth after a euphoric 2017 run that had bubble written all over. Bitcoin has struggled on the transaction side as well, with transactions per second a major drawback, along with a mining community that has been less willing to process transactions due to the lower fees. The Lightning network has been a welcome development and will ramp up transaction speed, which has been behind some of the recovery off the 2018 low, though it seems the combination of a massive bubble, more regulatory oversight, a market that is still trying to convince of its proof of concept, and the threat of a reduction in global risk appetite, could all suggest even deeper setbacks ahead.