Today’s report: Strong NFPs and Fed Implications
The economic calendar is exceptionally light this week, with the most critical standouts coming later in the form of Thursday's RBNZ decision and Friday's US retail sales. In the interim, we're likely to see a carry over reaction from Friday's very strong US employment report. German IP and Eurozone Sentix investor confidence ahead.
Download complete report as PDF
Chart talk: Major markets technical overview video
EURUSD
GBPUSD
USDJPY
EURCHF
AUDUSD
USDCAD
NZDUSD
US SPX 500
GOLD
Feature
Eurozone confidence
Brexit overhang
risk sentiment
SNB smoothing
Medium-term players
record deficit
Stiff headwinds
Goldilocks world
Heavy demand
USDTRY
Charts: Technical & fundamental highlights
Choose pair:
EURUSD
GBPUSD
USDJPY
EURCHF
AUDUSD
USDCAD
NZDUSD
SPX500
GOLD
Feature
EURUSD – technical overview
The market remains confined to a broader downtrend with any rallies classified as corrective. This latest bounce has stalled out into the 100-Day SMA, setting up the possibility for a lower top and bearish resumption towards 1.0912. At this point, only back above the 100-Day SMA at 1.1234 will delay the outlook and give reason for pause.
R2 1.1234 – 2Aug high – Strong
R1 1.1162 – 5Aug high – Medium
S1 1.1046 – 5Aug low – Medium
S2 1.1000 – Psychological – Strong
EURUSD – fundamental overview
The Euro extended its run of declines on Friday after the US employment report came in much better than expected. Still, setbacks were propped well ahead of psychological barriers at 1.1000, seemingly on the belief the data won’t do much to alter the Fed’s course. Looking ahead, the market will continue to assess the Fed implications from this latest jobs report, while also taking in German industrial production, Eurozone Sentix investor confidence and the US labor market conditions index.
GBPUSD – technical overview
The latest break below internal range support at 1.3057 ends a period of bearish consolidation and opens the door for a direct retest of the +30 year low from July just under 1.2800. A daily close below 1.3055 will strengthen the bearish outlook, while ultimately, only back above 1.3372 would take the immediate pressure off the downside.
R2 1.3281 – 3Aug low – Strong
R1 1.3175 – 5Aug high – Strong
S1 1.3021 – 5Aug low – Medium
S2 1.2972 – 12Jul low – Strong
GBPUSD – fundamental overview
The Pound has come back under pressure in recent trade, with the UK currency taking a hit on the back of last Thursday’s dovish BOE decision and Friday’s blowout US employment report. Sell stops were triggered on the break below 1.3050 and from here there is risk for a full retracement back to the +30 year low just under 1.2800 from July. Ongoing uncertainty surrounding Brexit, BOE growth downgrades and willingness to do even more and the prospect for a sooner Fed rate hike are all variables that should keep this market well capped into any rallies coming from profit taking from shorter-term accounts. Looking ahead, there is no data on the UK calendar and the only notable release on the day comes in the form of the US labor market conditions index.
USDJPY – technical overview
The latest topside failure sets up a prospective lower top at 107.49 ahead of the next major downside extension below the recent yearly and multi-month low at 98.99. At this point, only a break back above 107.49 would negate this outlook and give reason for pause. In the interim, look for any rallies to be well capped ahead of 104.00.
R2 103.99 – 26Jul low – Medium
R1 102.83 – 2Aug high – Strong
S1 101.00 – Figure – Medium
S2 100.68 – 2Aug low – Strong
USDJPY – fundamental overview
The burst of Yen gains seen in recent days has stalled out for a moment, with the Japanese currency consolidating post BOJ stimulus letdown. But also factoring into the Yen pullback over the past few sessions is this ongoing demand for US equities, with the fresh record highs supporting the risk correlated USDJPY pair. Not much of a reaction to the slight miss on Japanese trade data early Monday. Looking ahead, risk sentiment flow will be important to watch in a calendar light Monday session. The only other notable release on the day is the US labor market conditions index.
EURCHF – technical overview
Not much doing here over the past several days, with the market confined to a range trade, roughly between 1.0800 and 1.1000. At this point, a daily close above 1.1000 or back below 1.0800 will be required for clearer directional insight. Until then, look for dips to be supported and rallies well capped.
R2 1.1014 – 24Jun high – Strong
R1 1.0945 – 12Jul high – Medium
S1 1.0790 – 29Jul low – Medium
S2 1.0778 – 16Jun low – Strong
EURCHF – fundamental overview
SNB smoothing activity to prop the EURCHF rate has been helping into dips but hasn’t been all that effective with the cross rate continuing to get sold aggressively into rallies. Last week, the market wasn’t too bothered by SNB Jordan comments that there was still room to intervene, perhaps offset by his concern over the central bank’s large balance sheet. On balance, this is a market going nowhere and it seems sell-stops need to get taken out below 1.0750 or above 1.1000 for clearer insight. Looking ahead, Swiss CPI is the big event on Mondays calendar.
AUDUSD – technical overview
The market has struggled on rallies above 0.7600 and this suggests the rate could be looking to carve a lower top below the 2016 high at 0.7835, in favour of the next major downside extension. Look for a break back below 0.7421 to strengthen this outlook and accelerate declines. Ultimately, only a daily close back above 0.7677 would negate the newly adopted bearish outlook and invite a retest of the 2016 highs.
R2 0.7677 – 15Jul high – Strong
R1 0.7665 – 5Aug high – Medium
S1 0.7569 – 3Aug low – Medium
S2 0.7488 –2Aug low – Strong
AUDUSD – fundamental overview
The Australian Dollar is coming off a week where the currency performed remarkably well considering all of the bearish Aussie developments. A slew of softer economic data and an RBA rate cut and yet, the currency is higher over the past week. Still, there is plenty of medium-term sell orders up at current levels and the latest strong US employment report has opened renewed downside pressure after the data raised the chances for a Fed rate hike in either September or December of this year. Looking ahead, the economic calendar is exceptionally thin on Monday, with only the US labor market conditions index standing out. Softer Aussie job ads and solid China trade and foreign direct investment data haven’t really had much of an impact in early Monday trade.
USDCAD – technical overview
Finally a major breakout in this pair, with the price clearing critical range resistance at 1.3189. The break ends a period of multi-week basing off the 2016 low and opens the door for a fresh upside extension towards a measured move objective into the 1.3500-1.4000 area. Any setbacks from here should be very well supported ahead of 1.2862.
R2 1.3254 – 27Jul high – Strong
R1 1.3200 – Figure – Medium
S1 1.3100 – Figure – Medium
S2 1.2997 – 4Aug low – Strong
USDCAD – fundamental overview
The Canadian Dollar is coming off an awful Friday session of trade. The only slightly positive development for the Loonie was a modest push higher in the price of OIL. Otherwise, it wasn’t a pretty picture with the double dose of monthly employment reports and some trade data triggering a major sell-off in the Canadian Dollar. Whereas the US employment report was exceptionally strong, Canada employment was a major disappointment. Perhaps equally disappointing for Canadian Dollar bulls was the record Canada trade deficit. All of this has increases the odds of a sooner than later Fed hike and reopens the conversation about potential rate cuts from the Bank of Canada. Looking ahead, the economic calendar is exceptionally thin with only Canada building permits and the US labor market conditions index due for release.
NZDUSD – technical overview
Rallies to fresh 2016 highs above 0.7300 have been well capped, with the market looking to adhere to the broader downtrend. As such, look for this latest bounce to once again be well capped, in favour of a resumption of declines. Key support now comes in at 0.6952, with a break below to accelerate.
R2 0.7325 – 12Jul/2016 high – Strong
R1 0.7257 – 2Aug high – Medium
S1 0.7100 – Figure – Medium
S2 0.7062 – 28Jul low – Strong
NZDUSD – fundamental overview
Momentum for the New Zealand Dollar is starting to fade with the latest run cooling off in the aftermath of an impressive US employment report, that increases odds for a sooner Fed hike. Moreover, with the RBNZ expected to cut rates this week, there is increased bearishness around the currency as participants recall the recent unscheduled RBNZ economic assessment which was downbeat and bearish the New Zealand Dollar. Perhaps the BOE’s move to do more than many had thought is also getting some to think about a similar outcome from the RBNZ, which is only adding to this latest downside pressure. Looking ahead, the only notable release on Monday’s calendar comes in the form of the US labor market conditions index.
US SPX 500 – technical overview
The market continues to push to fresh record highs and there is scope from here for additional upside in the sessions ahead towards next key psychological barriers at 2200. Still overall, the prospect for the formation of a longer-term top is very much alive and any signs of exhaustion and a rolling back over below 2100 in the sessions ahead will strengthen this outlook and invite renewed downside pressure. But initially, we would need to see a daily close below 2150 to take the immediate pressure off the topside.
R2 2200.00 – Psychological – Strong
R1 2183.00 – 5Aug/Record – Medium
S1 2147.00 –2Aug low – Medium
S2 2136.00 – 12Jul low– Strong
US SPX 500 – fundamental overview
The stock market has done a marvelous job steering clear of underlying fundamentals, rallying at every turn and extending to fresh record highs. But with each passing day, there is a sense this artificial support from governments and central banks is running out, and even if there were more to pump in, there is no longer the same level of confidence this strategy will continue to be effective. But for now, we’re living in a Goldilocks world where investors are feeling good about US economic data, particularly after this super strong US employment report, but at the same time, aren’t expecting the Fed to move on rates. It will be interesting to see what Fed officials have to say post US jobs and if their comments change the trajectory of this market.
GOLD (SPOT) – technical overview
The recent break above the previous 2015 peak at 1307 strengthens the case for a longer term base with the market confirming a medium-term higher low in the 1200 area, opening the door for the next major upside extension towards a measured move at 1400. Any setbacks should be very well supported ahead of 1300, with only a break below 1250 to compromise the outlook.
R2 1375.20 – 6Jul/2016 high – Strong
R1 1367.30 – 2Aug high – Medium
S1 1310.90 – 21Jul low – Strong
S2 1303.90 – 1May low – Strong
GOLD (SPOT) – fundamental overview
Overall, GOLD has been very well supported in 2016, with the yellow metal finding solid demand from medium and longer-term players on the back of fears over the limitations of exhausted monetary policy and extended global equities. All of this will almost certainly continue to keep the commodity in demand, with many market participants fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax. It’s worth noting this latest round of setbacks has come from another push in stocks and concurrent surge in the US Dollar post US employment report. But again, strong bids are reported ahead of $1300.
Feature – technical overview
USDTRY has finally broken up to another fresh record high after a period of multi-month consolidation. The latest break through the previous peak from 2015 now opens the door for a measured move upside extension towards 3.3500 in the weeks ahead. At this point, a break back below 2.8390 would be required to take the immediate pressure off the topside.
R2 3.3500 – Measured Move – Strong
R1 3.0970 – 20Jul/Record – Medium
S1 2.9550 –6Jul high – Medium
S2 2.9260 – 18Jul low – Strong
Feature – fundamental overview
The Turkish Lira dodged a bullet on Friday after Moody’s avoided issuing any statement on Turkey, saying the review was ongoing and would be completed within 90 days of July 18th. Many had been worried about a downgrade on Friday, particularly after the recent S&P ratings downgrade post coup attempt. Otherwise, any setbacks from Friday’s very strong US employment report were offset by a push back to record highs in US equities. But overall, there is still plenty of risk associated with the Lira as the economy struggles and contends with rising inflation at the same time. Moreover, investors are proceeding with caution on fear Erdogan will be tightening up his grip going forward. Looking ahead, the economic calendar is thin and this market will likely trade off broader macro flows and sentiment.
Peformance chart: Five day performance v. US dollar
Wake-Up Call
Suggested reading
Week Ahead – Putin Meets Erdogan, V. Kortkaas, Financial Times (August 7, 2016)
Oil Majors' Debt Burden Doubles, J. Blas, Bloomberg (August 4, 2016)
The post Strong NFPs and Fed Implications appeared first on LMAX Exchange Opinions.