Global FX Insights by LMAX Exchange Research & Analytics Comprehensive daily market research and analytics, with insightful commentary and charts

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1 Get Global FX Insights via - click here Global FX Insights by LMAX Exchange Research & Analytics Comprehensive daily market research and analytics, with insightful commentary and charts Back to Reality Wake-up Call The market is back to focusing on reality now that the French election is out of the way and this reality has led to a pullback in a Euro. Looking ahead, key standouts for the remainder of the day include German industrial production, German trade, US JOLTS job openings and some more Fed speak. Technical highlights EURUSD Considers filling gap GBPUSD Setbacks to be supported USDJPY Looking to extend gains EURCHF Bullish break exposes AUDUSD Gravitating to 2017 low USDCAD Minor correction underway NZDUSD Consolidates off yearly base US SPX 500 Room for another push GOLD (spot) Higher highs and lows Feature USDTRY Turning back up Daily Video Fundamental highlights EURUSD Back to focusing on monetary policy GBPUSD Brexit negotiations and UK election USDJPY BOJ Kuroda reaffirms dovish stance EURCHF SNB trying to build cushion with Franc AUDUSD Aussie takes another hit on retail sales USDCAD Loonie keeping a close eye on OIL action NZDUSD Position adjusting into Thursday RBNZ US SPX 500 Investors buying until proven wrong GOLD (spot) Unsteady risk outlook to prop metal Feature USDTRY Lira falling post hawkish moves Five day performance v. US dollar Suggested reading China Credit Squeeze Dents Global Growth, G. Davies, Financial Times(May 7, 2017) Whistling Past the Geopolitical Graveyard, N. Roubini, Project Syndicate (May 8, 2017) Page 1 of 12

2 EURUSD technical overview The market has now cleared major resistance at , breaking to a fresh 2017 high, while confirming a higher low at The break strengthens the case for a major bottom and opens the next upside extension towards the area. Setbacks at this point are to be expected but should also be very well supported ahead of , with only a break back below to compromise the constructive outlook. But there is risk the market does trade down towards in an effort to fill a recent gap before pushing back up again. R Nov 2016 high Strong R May/2017 high Medium S May low Medium S Apr low Strong EURUSD fundamental overview The French election has come and gone and is now an afterthought, with the Euro selling the fact and back to focusing on the more traditional fundamentals. With monetary policy accommodation fully exhausted, the main focus over the coming months will be how both the ECB and Fed move forward. The Fed has already set out on its normalisation, while discussions have begun to swirl about the timing of an ECB reversal. How aggressive or passive these central banks are going forward will likely dictate the direction on the major pair. Most recently, we ve seen offsetting hawkish comments from ECB Weber and Fed Mester. Early Tuesday, Weber said the ECB would likely remove explicit easing policy guidance in June that will pave the way for a tapering announcement in September. On Monday, Mester talked about full employment and the need to stay ahead of the curve. Of course, politics will continue to influence, with the market feeling out the new US administration and preparing for what are likely to be tough negotiations between the EU and UK on Brexit. As far as today goes, key standouts on the calendar are German industrial production, German trade, US JOLTS job openings and some more Fed speak. Page 2 of 12

3 GBPUSD technical overview This latest push through , the December 2016 peak, is a significant development as it potentially ends a period of bearish consolidation, warning of the formation of a more meaningful longer-term base. The break ends a multi week consolidation mostly ranging between with the bullish move paving the way for a measured moved upside extension equal in size back into the area in the days ahead. Still, there is rise for a short-term pullback, though any declines are now classified as corrective and should be well supported ahead of in favour of a higher low and bullish resumption. R Psychological Strong R May/2017 high Medium S May low Medium S May low Strong GBPUSD fundamental overview The Pound continues to hold up well, with market participants now considering a legitimate bottom in place and targeting moves back towards the area. Meanwhile, economic data has been solid of late, highlighted by last week s run of PMIs. Of course, the upcoming election and Brexit negotiations are things that should keep bulls from getting too aggressive, though there has been a clear shift in sentiment towards the UK currency from sell rallies to buy on dips. Looking ahead, absence of first tier UK data will leave the market thinking about the BOE decision later this week, while also taking in US JOLTS job openings and more Fed speak later today. Page 3 of 12

4 USDJPY technical overview The recent break and daily close back above takes the immediate pressure off the downside, with the market also pushing through falling trend-line resistance from January. This opens the door for additional upside in the sessions ahead, though ultimately, a push through will be required for a more constructive outlook. In the interim, the market is confined to neutral territory. Back below would put the pressure back on the downside. R Figure Strong R Mar high Medium S May low Medium S May low Strong USDJPY fundamental overview Earlier, BOJ Kuroda said the central bank would need to continue with monetary easing and further adjustments were possible if needed, despite a strengthening in the economic and inflation outlooks. Meanwhile, Japan s labour cash earnings have declines, data that validates Kuroda s sentiment that the central bank needs to stay the course. Overall however, price action in the major pair continues to be dictated mostly on risk flow, with this latest record run in US equities helping to keep the major pair supported near multi-session highs. Looking ahead, the calendar is rather light for the remainder of the day, with only US JOLTS job openings and Fed speak standing out. Page 4 of 12

5 EURCHF technical overview The latest break back above takes pressure off the downside and could be warning of a more significant structural shift. Next key resistance comes in at , with the psychological barrier coinciding with a high from August The establishment above would strengthen the bullish outlook and open the door for fresh upside. Back below would now be required to put the pressure on the downside. R Psychological Strong R May/2017 high Medium S May high Medium S Apr low Strong EURCHF fundamental overview Now that Macron has been confirmed as the next President of France, the SNB will need to focus elsewhere for catalysts that support its efforts to weaken the Franc. Macron s win has been a big help to an SNB committed to weakening its overvalued currency. But with global risk sentiment highly elevated, as reflected through stock markets, there should be worry that any capitulation on that front could invite massive safe haven Franc demand the central bank will be unable to offset. For now, the SNB is hoping the ECB will take on a more hawkish policy approach, with ECB Weber s latest comments helping the cause. But with inflation in the Zone still running low, it s likely the ECB will keep with its more accommodative track for now. Page 5 of 12

6 AUDUSD technical overview The impressive rally in 2017 has stalled out into significant medium-term resistance ahead of A recent break back below strengthens the prospect for some form of a top and could open the door for a deeper drop back towards the area in the days ahead. Last week s drop below strengthens the bearish outlook and any rallies should be very well capped ahead of that previous support now turned resistance at R May high Strong R May high Medium S Mid-Figure Medium S Jan low Strong AUDUSD fundamental overview The Australian Dollar has been struggling in the early week with Monday s abysmal building approvals and distressing components in the China trade data followed up on Tuesday with an awful Aussie retail sales print. The Aussie Budget has also come out, though no surprises here and no meaningful impact on the market. Overall, the currency has already suffered of late on the drop in commodities prices and worry over the impact of the US administration s protectionist policies. Looking ahead, the calendar is rather light for the remainder of the day, with only US JOLTS job openings and Fed speak standing out. Page 6 of 12

7 USDCAD technical overview The uptrend in this market remains firmly intact, getting added confirmation following this latest break to a fresh 2017 high and through a key peak from December 2016 at But the market is looking super stretched at the moment which has invited this short-term correction. Still, any setbacks should now be very well supported in the area in favour of an eventual push towards the next measured move upside extension objective in the area. Ultimately, only back below would give reason for pause and delay the constructive outlook. R Feb 2016 high Strong R May/2017 high Medium S May low Medium S Apr low Strong USDCAD fundamental overview Finally some welcome relief for the Canadian Dollar which had been hit hard in recent weeks on a confluence of drivers including lower OIL, tariffs from the US and troubles at a Canada mortgage lending giant. But last Friday s softer components within the US jobs report managed to offset weakness in the Canada employment report, and an impressive recovery in the price of OIL, have resulted in a nice recovery for the ailing Loonie. Looking ahead, absence of first tier Canada data will leave the market watching OIL prices, while also taking in US JOLTS job openings and more Fed speak later today. Page 7 of 12

8 NZDUSD technical overview The overall pressure remains on the downside with the market expected to be very well capped on rallies. The weekly chart is reflective of this fact as it looks like we re seeing the formation of a major top off the 2016 high, with outlook strengthened on this week s breakdown to a fresh 2017 low. As such, expect the market to continue to roll over in the days ahead, with setbacks projected towards medium-term support in the s. Only back above compromises the outlook. R Psychological Strong R May high Medium S May low Medium S Figure Strong NZDUSD fundamental overview Last week s run of data out of New Zealand was solid, as highlighted by the GDT auction, employment and inflation expectations. This has helped to prop an ailing Kiwi, weighed down on broader risk associated with declining commodities and worry over the impact of the US administration s protectionist policies. Meanwhile, softer components in Friday s US jobs report and a run to fresh record highs in US equities, have offered additional support. Looking ahead, the calendar is rather light for the remainder of the day, with only US JOLTS job openings and Fed speak standing out. The New Zealand Dollar will also be thinking about the RBNZ decision later this week. Page 8 of 12

9 US SPX 500 technical overview The market was unable to break down below major support at 2320, leaving the pressure on the topside and opening the door for this latest run to a fresh record high. The push back above 2400 opens a measured move extension to At this point, a break back below 2368 would be required at a minimum to alleviate immediate topside pressure. R Measured Move Strong R May/Record high Medium S Apr low Medium S Mar low Strong US SPX 500 fundamental overview Last Friday s US employment report was a Goldilocks report for the stock market. Investors got everything they wanted with NFPs and the unemployment rate looking healthy, while at the same time, the softer hourly earnings pointed to a Fed that would not be as pressured to be raising rates going forward. So in the end, strong headline numbers to bolster sentiment and softer underlying components to keep rates lower for longer. Page 9 of 12

10 GOLD (SPOT) technical overview The market has been very well supported since basing out ahead of 1100 in This latest break to another yearly high through 1265 strengthens the outlook, confirming the next higher low at 1195, while opening the door for the next major upside extension towards a measured move into the 1335 area. Look for any setbacks to be well supported ahead of 1215, with only a break back below 1195 to compromise the constructive outlook. R Apr/2017 high Strong R May high Medium S May low Medium S Mar low Strong GOLD (SPOT) fundamental overview The US Dollar recovery in recent sessions has contributed to this latest decline, with setbacks accelerating after the Fed downplayed a recent run of softer data, giving the Buck an added boost. Meanwhile, a broad based capitulation in commodities markets is adding to downside pressure. Still, solid demand from medium and longer-term players continues to emerge on dips, with these players more concerned about the limitations of exhausted monetary policy, extended global equities, political uncertainty, systemic risk and geopolitical threats. All of this should continue to keep the commodity in demand, 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. Page 10 of 12

11 Feature technical overview USDTRY has been in a period of choppy consolidation since topping out at a fresh record high earlier this year. At this point, despite the latest pullback, the structure continues to favour the topside, with scope still existing for a bullish continuation to yet another record high. At a minimum, a daily close back below would be required to potentially force a shift in the outlook and open the door for a more significant bearish corrective phase. R Mar high Strong R Apr high Medium S Psychological Strong S Dec low Strong Feature fundamental overview A lot of positives for the Lira of late including this latest news of S&P affirming Turkey s ratings (the rating agency was considering a downgrade) and string of hawkish moves by the CBRT. But overall, despite recent gains, the currency market is still taking time to digest the latest result in the Turkish referendum which produced a narrow Yes victory for President Erdogan. On the one hand, the result can be viewed as Lira supportive as it reduces political uncertainty which should translate into more stable economic policy. On the other hand, the move to grant an unlimited amount of power to the President could pose risk on the global stability front, which would be viewed as Lira bearish. Another major factor that could weigh on the emerging market currency is overall risk sentiment. Global equities are looking quite lofty, while geopolitical risk continues to swirl. Both of these themes could easily invite renewed selling in the risk correlated currency. Page 11 of 12

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Global FX Insights by LMAX Exchange Research & Analytics Comprehensive daily market research and analytics, with insightful commentary and charts

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