Today’s report: Position Squaring Into Major Event Risk
Risk markets have done a good job recovering in the lighter Monday trade, taking advantage of a Japanese market closure and position squaring into this week's major central bank event risk. There isn't a whole lot of data out Monday, with the Eurozone current account, German Buba review and US NAHB housing the only notable standouts.
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Chart talk: Major markets technical overview video
EURUSD
GBPUSD
USDJPY
EURCHF
AUDUSD
USDCAD
NZDUSD
US SPX 500
GOLD
Feature
Deutsche Bank
FinMin Hammond
holiday closure
risk sentiment
Carry traders
BoC Gravelle
Consumer confidence
FOMC decision
Macro players
USDZAR
Charts: Technical & fundamental highlights
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Feature
EURUSD – technical overview
The broader downtrend remains firmly intact, with the recent topside failure above 1.1300 setting the stage for the next major downside extension towards 1.0900. Look for a fresh lower top in place at 1.1367, while ultimately, only a break back above this level delays the bearish outlook. Any rallies while below 1.1367 are classified as corrective.
R2 1.1250 – 16Sep high – Strong
R1 1.1199 – 9Sep low – Medium
S1 1.1124 – 31Aug low – Medium
S2 1.1046 – 5Aug low – Strong
EURUSD – fundamental overview
The Euro is in the process of consolidating off Friday’s nasty sell-off which came on the back of hotter US CPI, existential risk associated with a messy UK separation from the EU and yet another hit to Deutsche Bank’s stocks, down 8.5% on news the DOJ is seeking a $14 Billion sub-prime settlement. Still, with the Euro now dropping into key support around the 200-Day moving average and with some major central bank event risk ahead this week, additional downside may prove difficult, with the single currency perhaps thinking about position squaring more than anything else. Looking at today’s docket, we get the Eurozone current account balance, German Buba monthly report and US NAHB housing.
GBPUSD – technical overview
The market remains confined to an intense downtrend and is in the process of consolidating just off the recent +30-year low from July. Any rallies are classified as corrective ahead of what should be the next major break below 1.2800 and towards 1.2500. Only back above 1.3533 will take the immediate pressure off the downside and force a shift in the structure.
R2 1.3138 – 14Sep low – Strong
R1 1.3050 – Mid-Figure – Medium
S1 1.2978 – 17Aug low – Medium
S2 1.2796 – 6Jul/+30 Year Low – Strong
GBPUSD – fundamental overview
The Pound took a real hit on Friday, with the UK currency underperforming across the board. The combination of hotter US CPI and comments from UK FinMin Hammond were attributed to most of the selling. The UK FinMin ruffled many feathers after saying the UK would be prepared to give up EU single-market access to have control over immigration. However, the market is doing its best to stabilise into the new week, with profit taking and position squaring kicking in ahead of FOMC and BOJ event risk. Looking at today’s calendar, there is very little in the way of anything meaningful that could impact the currency, with only US NAHB housing standing out.
USDJPY – technical overview
Although we’ve seen an impressive bounce in recent trade, overall, the pressure remains on the downside with a lower top sought out ahead of 107.49 in favour 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 105.00 would delay this outlook and give reason for pause. Below 99.00 exposes the next major support level in the 95.00 area.
R2 103.36 – 14Sep high – Strong
R1 102.75 – 15Sep high – Medium
S1 101.42 – 13Sep low – Medium
S2 101.20 – 7Sep low – Strong
USDJPY – fundamental overview
Japanese markets are closed for holiday on Monday and the market is welcoming the off day with open arms as it prepares for what is sure to be a volatile week with both the BOJ and FOMC due Wednesday. As far as the BOJ decision goes, there has been plenty of speculation over the implementation of additional stimulus measures, but at the same time, there has also been plenty of critique associated with the effectiveness of such measures at this stage. As such, look for the Yen to find a comfortable consolidation range in the initial part of the week until further clarity is offered. No change is expected from the Fed, but here as well, the market will want to know just how interested the central bank really is in trying to hike rates this year.
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 1.1001 – 1Sep high – Medium
S1 1.0870 – 24Aug low – Medium
S2 1.0778 – 16Jun low – Strong
EURCHF – fundamental overview
No major reaction to the latest SNB decision which came in as expected, with the central bank echoing its usual mantra. Overall, SNB smoothing activity to prop the EURCHF rate has been helping to elevate the cross, but at the same time, any upside moves haven’t been sustainable with the cross rate continuing to get sold aggressively into rallies towards 1.1000. Ultimately, this is a market going nowhere right now and it seems stops need to get taken out below 1.0750 or above 1.1000 for clearer insight. US stocks have been supporting EURCHF but are now looking extended which could invite additional Franc demand if the market continues to roll over from record highs in the sessions ahead.
AUDUSD – technical overview
The market has struggled on rallies above 0.7700 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 towards 0.7000 in the days ahead. Ultimately, only back above 0.7758 will negate the bearish outlook and invite a retest of the 2016 highs.
R2 0.7569 – 13Sep high – Strong
R1 0.7527 – 16Sep high – Medium
S1 0.7443 –13Sep low – Medium
S2 0.7421 –27Jul low – Strong
AUDUSD – fundamental overview
The Australian Dollar has done a formidable job recovering in early Monday trade, with the currency benefitting from a noticeable jump in risk sentiment. Last Friday’s hotter US CPI print had opened a fresh round of selling, but carry trade investors and margin accounts have been quick to swoop in and pick some Aussie up into the dip. It seems the market is now more comfortable looking to position square as it prepares for some major event risk ahead in the form of Wednesday’s BOJ and FOMC decisions. We also get the RBA Minutes tomorrow which should not be overlooked. As far as the remainder of today goes, US NAHB housing is the only notable standout.
USDCAD – technical overview
This market looks to be in the process of carving out a longer-term base off the 1.2461, 2016 low. Look for any additional weakness to be supported ahead of 1.2655 in favour of the next major upside extension through 1.3254 and towards a measured move objective into the 1.3500-1.4000 area. Ultimately, only back below 1.2655 would delay the constructive outlook.
R2 1.3300 – Figure – Medium
R1 1.3254 – 27Jul high – Strong
S1 1.3128 – 14Sep low – Medium
S2 1.3029 – 12Sep low– Strong
USDCAD – fundamental overview
Another big hit to the Canadian Dollar on Friday, with the Loonie knocked around on the combination of lower OIL prices and hotter US CPI. Still, USDCAD has stalled into some critical technical resistance in the form of the July high, with the Canadian Dollar rallying back early Monday on position squaring into some major central bank event risk this week and a notable rebound in OIL. Looking at today’s calendar, Bank of Canada’s Gravelle is slated to give a speech on the topic of negative rates, while in the US, the only notable release comes in the form of NAHB housing.
NZDUSD – technical overview
Finally signs of a potential top after the market stalled out at 2016 highs ahead of major psychological barriers at 0.7500. Daily studies had already traded up into overbought territory warning of the reversal and this latest bearish reversal strengthens the toppish outlook. Look for a break and close back below 0.7200 to confirm the structural shift and accelerate declines.
R2 0.7365 – 13Sep high – Strong
R1 0.7331 – 16Sep high – Medium
S1 0.7235 – 13Sep low – Medium
S2 0.7204 – 30Aug low – Strong
NZDUSD – fundamental overview
New Zealand Westpac consumer confidence and performance of services prints have come in stronger than previous and could be helping to prop Kiwi a bit into the new week. We’ve also been seeing a recovery in broad risk sentiment, which seems to be accounting for most of the early bid tone. Plenty of consolidation is expected in the sessions ahead as the market prepares for major central bank event risk which not only includes Thursday’s RBNZ decision but Wednesday’s BOJ and FOMC moves as well. Looking at the RBNZ, there’s a good chance the central bank will try to err on the dovish side, particularly with the exchange rate so elevated. As far as the remainder of today goes, US NAHB housing is the only notable standout.
US SPX 500 – technical overview
Signs of a potential top after the market recently broke below critical support at 2147. This now opens the door for a meaningful period of weakness exposing a more pronounced decline towards the June base at 1990. Look for any rallies to now be well capped ahead of 2180, with only a break back above this level to compromise the newly adopted bearish outlook. Below 2100 accelerates.
R2 2180.00 – 9Sep high – Strong
R1 2164.00 – 12Sep high – Medium
S1 2100.00 – Psychological – Medium
S2 2073.00 – 6Jul low– Strong
US SPX 500 – fundamental overview
It all feels like it’s starting to come to a head for the US equity market. In recent weeks, we have been hearing a lot about the limitations of monetary policy. We’ve also seen a notable shift in the overall tone out from Fed officials, with things moving over to the hawkish side, even in the face of softer US data and reduced odds for a September hike. Looking ahead, it will be interesting to see what comes of this week’s FOMC decision. The market is going to want to see just how serious the Fed is about trying to raise rates this year. Clearly anything that comes across as more hawkish will be an added weight for an equity market that has been artificially supported by monetary policy for so many years.
GOLD (SPOT) – technical overview
The structure remains highly constructive with dips continuing to be very well supported. A recent round of setbacks were propped ahead of the 100-Day SMA and it looks like a fresh higher low could be in place around 1300 in favour of the next major upside extension beyond the current 2016 peak at 1375 and towards 1450-1500 further up.
R2 1352.70 – 6Sep high – Strong
R1 1332.05 – 13Sep high – Medium
S1 1306.30 – 16Sep low – Medium
S2 1302.50 – 1Sep 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.
Feature – technical overview
USDZAR has come under a good deal of pressure in recent months, trading down to a fresh 2016 low around 13.2000. However, it now appears as though the market is finally ready to turn back up in favour of a resumption of the broader uptrend. In the interim, look for any setbacks to be well supported ahead of 13.2000, with fresh upside seen towards 15.0000 in the sessions ahead. Only back below 13.2000 gives reason for pause.
R2 15.0000 – Psychological – Strong
R1 14.7540 – 1Sep high – Strong
S1 13.8330 – 8Sep low – Medium
S2 13.2000 – 10Aug/2016 low – Strong
Feature – fundamental overview
The Rand has done a really good job holding up in recent trade in the face of the possibility of a South Africa ratings downgrade in the pipeline, particularly after Moody’s placed five South Africa state owned companies on watch. It seems this latest recovery in risk sentiment is helping to keep the correlated currency supported for now, though overall, there are still plenty of Rand sellers into rallies as the Fed looks to normalise policy and yield differentials move in the Bucks’s favour. Looking ahead, it is sure to be a busy week for the emerging market currency with South Africa CPI due along with a SARB interest rate decision. Of course, the market will also be intensely focused on the FOMC and BOJ decisions.
Peformance chart: Five day performance v. US dollar
Wake-Up Call
Suggested reading
A Conversation with Lakshman Achuthan, T. Keene, Bloomberg (September 16, 2016)
The Silent Rate Hike, J. Authers, Financial Times (September 15, 2016)
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