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 Another Look at the Trump Trade Wake-up Call The big event of the day is unquestionably the President Trump address to a joint session of Congress, where the market will be looking for more detail on policies that have been responsible for fueling a surge in risk assets and supporting the US Dollar on dips in US GDP is also due and should not be overlooked. Technical highlights EURUSD Possible inverse H&S GBPUSD Stops below USDJPY Gravitating to EURCHF Well capped on rallies AUDUSD Below shifts USDCAD Holds above NZDUSD Looking for lower top US SPX 500 Refuses to relent GOLD (spot) Looking to 1300 Feature USDMXN 200-Day SMA Daily Video Fundamental highlights EURUSD France and Italy inflation readings due GBPUSD Dealers talking large stops below USDJPY Yen moving on external drivers, themes EURCHF Reduced Le Pen odds help SNB a bit AUDUSD Aussie keeping an eye on risk sentiment USDCAD Loonie thinking about Wednesday BoC NZDUSD Another round of softer Kiwi data US SPX 500 Investors on tenterhooks into Trump GOLD (spot) Shifting dynamics invite demand Feature USDMXN Risk for renewed Peso weakness Five day performance v. US dollar Suggested reading Tougher on Financial Equivalence Rules, W. Martin, Business Insider (February 27, 2017) What s Going On With the Stock Market?, D. Thompson, The Atlantic (February 24, 2017) Page 1 of 12

2 EURUSD technical overview A recent breakdown below suggests the market could be in the process of rolling back over in favour of a retest in the days ahead of the 14 year low from January at Consider the possibility of a lower top in place at to be confirmed on a break below , exposing the next drop through the massive parity barrier. At this point, a daily close back above would be required to take the pressure off the downside, while a daily close below further strengthens the bearish outlook. But if the market fails to establish below and breaks back above , it could reinforce the possibility of a bullish inverse head & shoulders formation. R Feb high Strong R Feb high Medium S Feb low Strong S Jan low Strong EURUSD fundamental overview The Euro has been bid up a bit into Tuesday but overall, still isn t really going anywhere as it mostly consolidates off Early on, the single currency will take in some France growth data along with France and Italy CPI. Then into North America, there is a healthy calendar, with the advanced goods trade balance, GDP and personal consumption, Chicago PMIs, consumer confidence and Fed speak all due. Of course, the market will then turn its attention to the main event of the day, the President Trump address to a joint session of Congress, where the market will be looking for more detail on policies that have been responsible for fueling a surge in risk assets and supporting the US Dollar on dips in Page 2 of 12

3 GBPUSD technical overview This latest impressive run to the topside has stalled out ahead of critical resistance in the form of the December peak at While we could still see a test and overshoot beyond in the sessions ahead, the market would need to establish a weekly close above this level to suggest a major base in place and force a bullish structural shift. Until then, expect any moves into or through to stall out. A daily close back below will increase bearish prospects. R Feb high Strong R Feb high Medium S Feb low Medium S Feb low Strong GBPUSD fundamental overview The Pound did a good job recovering from early Monday setbacks on the Times of London news that the UK PM was preparing for another Scottish referendum. But overall, the UK currency remains very well offered into rallies and dealers have been talking of major sell stops below Looking ahead, absence of first tier data in the UK will put the initial focus on the US calendar which features the advanced goods trade balance, GDP and personal consumption, Chicago PMIs, consumer confidence and Fed speak. Of course, the market will then turn its attention to the main event of the day, the President Trump address to a joint session of Congress, where the market will be looking for more detail on policies that have been responsible for fueling a surge in risk assets and supporting the US Dollar on dips in Page 3 of 12

4 USDJPY technical overview The short-term pressure remains on the downside in light of a recent break of multi-session consolidation that projects weakness into the area in the days ahead. At this point, it would take a push back above to officially alleviate short-term downside pressure and as such, any rallies are expected to stall out ahead of R Feb high Strong R Feb high Medium S Figure Medium S Feb low Strong USDJPY fundamental overview Flows in the Yen have been all about external drivers, namely yield differentials, Trump reflation bets and surging global equities, which have been Yen bearish, and Trump protectionism and fear of impending risk off flow, which have been Yen supportive. Last week s comments from US Treasury Secretary Steve Mnuchin knocked the US Dollar back across the board as he cast doubt on any imminence for both a Fed rate hike and clarity on US policy reforms and this has contributed to this run in the Yen. Looking ahead, the initial focus will be on the US calendar which features the advanced goods trade balance, GDP and personal consumption, Chicago PMIs, consumer confidence and Fed speak. Of course, the market will then turn its attention to the main event of the day, the President Trump address to a joint session of Congress, where the market will be looking for more detail on policies that have been responsible for fueling a surge in risk assets and supporting the US Dollar on dips in Page 4 of 12

5 EURCHF technical overview A recent close below which had been defined as the bottom of a multi-week range has strengthened the bearish outlook, opening the door for additional declines below the 2016 low at and towards psychological barriers at further down. A descending triangle formation on the daily chart is strengthening the bearish outlook. At this point, a daily close back above would be required to take the immediate pressure off the downside. R Dec high Strong R Feb high Medium S Feb low Medium S Jun/2016 low Strong EURCHF fundamental overview The SNB is in a quiet battle with the market, forced to contend with an ongoing wave of demand for the Swiss Franc in a less certain global environment, especially with the weapon of monetary policy worn down. The central bank has been committed to its mandate of ensuring the Franc does not appreciate further. But despite all efforts, the Franc continues to want to appreciate. It seems the central bank s strategy has been to sell Francs when risk comes off and to do nothing when risk is back on and natural flows should be CHF bearish. But the trouble is, even with global equities elevated, arguably reflecting global appetite for risk, the Franc barely depreciating, if at all. This is an added concern with the SNB s holding of US equities at record highs. Of course, the reemergence of Eurozone political risk as reflected through elections in France, Holland and Italy, and renewed Greek debt concerns, are only further contributing to SNB stress, with the Franc finding even more demand on the back of these developments. So if equities start to come off and demand for the Franc ramps up, this SNB headache could turn into a migraine. Monday s SNB Zurbruegg comments supporting policy and educed odds for a Le Pe victory have helped but offers are once again waiting into the area. Page 5 of 12

6 AUDUSD technical overview The market has entered a healthy bullish phase after setbacks stalled shy of key medium-term support at in late December. Still, overall, rallies continue to be very well capped on a medium-term basis, with only a daily close back above to compromise this outlook. Look for a daily close below to officially put the pressure back on the downside. R Nov high Strong R Feb high Medium S Feb low Medium S Feb low Medium AUDUSD fundamental overview Firmer Aussie sovereign bond yields, supported base metals and an ongoing push in global equities have all been helping to keep the Australian Dollar well supported in Still, with the market running so far and fast, with Fed policy divergence a major potential weight and with risk rising for some form of a correction in the stock market, the commodity currency could be vulnerable to weakness in the days ahead. Looking ahead, the initial focus will be on the US calendar which features the advanced goods trade balance, GDP and personal consumption, Chicago PMIs, consumer confidence and Fed speak. Of course, the market will then turn its attention to the main event of the day, the President Trump address to a joint session of Congress, where the market will be looking for more detail on policies that have been responsible for fueling a surge in risk assets and supporting the US Dollar on dips in Page 6 of 12

7 USDCAD technical overview Despite recent setbacks, look for the market to continue to be well supported on dips into the area ahead of the next major upside extension back towards the December peak at In the interim, a daily close back above will help take the immediate short-term pressure off the downside. R Feb high Strong R Feb high Medium S Feb low Medium S Feb low Strong USDCAD fundamental overview The Canadian Dollar hasn t really go anywhere in recent days. Economic data out of Canada has been mixed with recent softer retail sales offset by hotter CPI. Meanwhile, the price action in the OIL market has become much less relevant to the Canadian Dollar now that the commodity has deferred to range trade. Looking ahead, the initial focus will be on Canada industrial product and raw materials prices and a US docket featuring the advanced goods trade balance, GDP and personal consumption, Chicago PMIs, consumer confidence and Fed speak. Of course, the market will then turn its attention to the main event of the day, the President Trump address to a joint session of Congress, where the market will be looking for more detail on policies that have been responsible for fueling a surge in risk assets and supporting the US Dollar on dips in The Loonie will then have to quickly turn attention to Wednesday s BoC decision. Page 7 of 12

8 NZDUSD technical overview Despite this latest upside correction in 2017, the overall pressure remains on the downside with the market expected to be very well capped on rallies into the area. The weekly chart is reflective of this fact as it looks like we are seeing the formation of a major top off the 2016 high. As such, expect the market to continue to roll over in favour of that next lower top. This latest weekly close below helps to strengthen the bearish outlook. R Figure Strong R Feb high Medium S Feb low Strong S Figure Medium NZDUSD fundamental overview There has been a notable shift in sentiment towards the New Zealand Dollar in recent days. Softer local employment, a more dovish RBNZ, a rotation into AUDNZD, hawkish Fed speak leaving the door open for a March hike, disappointing New Zealand retail sales and GDT and this latest soft activity outlook and business confidence are some of the major drivers behind the Kiwi bearishness. Of course, last Thursday s USD bearish Mnuchin talk, an ongoing bid for equities and rallying commodities have been helping to slow Kiwi declines. But ultimately, if the US Dollar pushes back to focusing on Trump reflation and hawkish Fed policy, and if US equities falter, we could very well see a more intense liquidation of Kiwi longs. Looking ahead, the market will get more colour on Trump policies when the President addressed the joint Congress later today. Ahead of this event, we also get a healthy US docket with the advanced goods trade balance, GDP and personal consumption, Chicago PMIs, consumer confidence and Fed speak standing out. Page 8 of 12

9 US SPX 500 technical overview The latest break to yet another record high following a healthy period of consolidation, has opened the door for the next big push towards While technicals are severely stretched and there are definitive signs of exhaustion on the horizon, given the intensity of this uptrend, a break back below 2300 would be required at a minimum to alleviate immediate topside pressure. R Psychological Strong R Feb/Record high Medium S Feb low Medium S Jan high Strong US SPX 500 fundamental overview The record run in US equities has been more than impressive, particularly at a time when the Fed is embarking on a hawkish path to policy normalisation and the Trump administration is lacking the type of stability that would inspire confidence. This leaves financial markets vulnerable to any shocks and exposed to intense periods of risk liquidation going forward. The fact that monetary policy around the rest of the globe is exhausted with very little left in the tank to artificially support risk assets is yet another major concern. Throw in systemic risk from Brexit and Eurozone structural issues, stretched valuation, and a market that hasn t dipped 1% in an disturbingly uncomfortable amount of time and the picture gets even uglier. Of course, expectation of fresh tax reform and the revival of the Trump reflation play have contributed to this latest record high push, but overall, there are plenty of red flags out there, warning of a major capitulation ahead. It s almost as if investors are now climbing a very dangerous stock market ladder more because they re being chased by red flags below, than on an actual desire to go higher. Looking ahead, there is a healthy batch of US data featuring GDP, but all of the attention will be focused on Trump s address to a joint session of Congress late in the day. If Trump fails to match the market s expectations for detail on proposed policies, it could weigh heavily on stocks. Page 9 of 12

10 GOLD (SPOT) technical overview The market has been very well supported since basing out around 1120 in This latest break to 1260 confirms a fresh higher low at 1216 and opens the next major upside extension towards a measured move into the 1300 area. Only back below 1216 would delay the constructive outlook, while ultimately, below 1180 would be required to negate. R Measured Move Strong R Feb high Medium S Feb low Medium S Feb low Strong GOLD (SPOT) fundamental overview 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 and systemic risk. All of this should 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. Page 10 of 12

11 Feature technical overview USDMXN has been in the process of correcting out from recent record highs earlier this year. The market has now dropped back into critical support in the area and is expected to be well supported around this area (61.8% fib retrace, 200-Day SMA) in favour of a resumption of the uptrend and push back through the record high just over Ultimately, only back below would give reason for pause and open the possibility for a more meaningful structural shift. R Nov high Strong R Feb high Medium S % Fub Strong S Day SMA Strong Feature fundamental overview The Peso has been getting a lot of help of late. A unanimously decided Banxico rate hike, reduction in Peso shorts and more conciliatory talk out of the White House have already been helping to rally the currency out from record lows against the Buck. And now this latest Banxico announcement of plans to hold FX hedge auctions in March as a means to further prop the Peso, is giving the Peso an additional boost, with USDMXN sinking back below the psychological barrier at and towards its longer run 200-Day moving average. Still, the Peso is far from out of the woods, with Trump uncertainty running high and the Fed on it policy normalisation path. Of course, the fact that global equities look like they could come off the rails is yet another serious variable that could undermine any recovery in the Peso and emerging market FX. For today, the market will be looking to see what Trump has to say in the joint session of Congress. Looking out, the market is pricing another 100bps of Banxico hikes in Page 11 of 12

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