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 The US Dollar s Next Move Wake-up Call It hasn't been an exciting market over the past 24 hours, with the US Dollar run stalling out and the economic calendar exceptionally thin. And so, currencies have been left consolidating, waiting for that next big break. Technical highlights EURUSD Room for deeper drop still GBPUSD Solid support into USDJPY A little higher before lower EURCHF Not doing much right now AUDUSD Thinking about next drop USDCAD Additional upside ahead NZDUSD Well capped into rallies US SPX 500 Unwilling to relent GOLD (spot) Risk for bullish turn Feature USDZAR Eyes yearly high Daily Video Fundamental highlights EURUSD ECB Draghi on the wires late Wednesday GBPUSD UK construction PMIs on the docket USDJPY Election polls have Abe losing ground EURCHF SNB has little to worry about right now AUDUSD Aussie shrugs off softer services PMIs USDCAD Canadian Dollar outlook sours NZDUSD Another disappointing GDT auction US SPX 500 Stocks pushing on blind momentum GOLD (spot) Plenty of institutional demand Feature USDZAR Political mess bad for Rand Five day performance v. US dollar Suggested reading Navigating Uncertain Rewards and Certain Risks, B. SeaWright, ThinkAdvisor (October 2, 2017) Dispelling a Myth About Stock Market Volatility, A. Brown, Bloomberg (October 2, 2017) Page 1 of 12

2 EURUSD technical overview The Euro has broken down below an important support level at that represented the 50-Day SMA and neckline of a head and shoulders top off the recent +2.5 year high. This has been the first time the market has traded back below the 50-Day SMA since the Euro broke out earlier this year and the measured move extension off the head shoulders top projects a possible acceleration into the s. Next support comes in at and only a break back above will negate the current outlook favouring a deeper correction. R Sep high Strong R Sep high Medium S Oct low Medium S Aug low Strong EURUSD fundamental overview The Euro is finding some support into dips, with the market recovering in what has been mostly quiet trade into the midweek. The primary source for the gains have been on the US front with the Buck taking a hit as the market takes the chatter of a more hawkish Fed Chair Warsh less seriously, while giving more weight to the reports that President Trump will favour the more dovish leaning Fed Powell as the replacement at the helm, given the fact that the President s policies align more with a dovish leaning Fed Chair. Otherwise, the market has been careful not to get too bullish the Euro, still worried about downside risks associated with the Catalan independence referendum. As far as today s docket goes, we get services PMI data out of the Eurozone, Eurozone retail sales, US ADP employment, US ISM non manufacturing and important central bank speak from Fed Yellen and ECB Draghi. Page 2 of 12

3 GBPUSD technical overview The market has traded back down into some previous resistance turned support from August as it unwinds from stretched readings that propelled it to fresh 2017 highs in the s back in September. But overall, the outlook is now highly constructive on a medium-term basis, which means any additional setbacks are viewed as corrective as the market looks to put in the next higher low ahead of a bullish continuation. Ultimately, any dips into the area are now viewed as a formidable support zone and the market is not expected to trade below the psychological barrier for any meaningful period of time. R Oct high Strong R Sep low Medium S Figure Medium S Sep low Strong GBPUSD fundamental overview The Pound has come back under pressure over the past week, with the UK currency underperforming against its peers. The weakness has come from a combination of factors that include a loss of confidence in the PM, renewed Brexit fears on a less certain path forward, a recently decidedly less hawkish Carney and softer PMI data. Dealers do however report healthy demand demand in size down towards and we have already seen bids into this latest dip, helped along by talk that the next Fed Chair could be the more dovish leaning Fed Powell. Looking ahead, we get UK services PMIs, US ADP employment, US ISM non manufacturing and appearances from BOE Woods and Fed Chair Yellen. Page 3 of 12

4 USDJPY technical overview The market has been confined to a range trade for much of 2017, with rallies well capped ahead of and dips well supported below The recent run up is therefore expected to stall out yet again into the resistance zone ahead of renewed downside pressure and bearish decline back towards the range low. Only a clear break above or back below would negate the outlook. R Jul high Strong R Sep high Medium S Oct low Medium S Sep low Strong USDJPY fundamental overview There has been some talk this week of the latest Japanese election polls results that show Abe losing ground, though this hasn t factored into price action. For one thing, Abe is still expected to win out and coast to a majority victory, while at the same time, the Yen isn t a currency that really reacts all that much to domestic fundamentals. The real driver of this pair comes from external factors, including broader risk sentiment and developments on the US front. An ongoing bid in US equities at record highs and US Dollar positives, including a more hawkish leaning Fed, solid US data and a revival of the Trump reflation trade, have been behind a lot of this latest rally. We have seen some Yen demand into Wednesday, with the price action attributed to US Dollar selling from speculation the next Fed Chair will be the dovish leaning Fed Powell. Looking ahead, we get US ADP employment, US ISM non manufacturing and an appearance from Fed Chair Yellen. Page 4 of 12

5 EURCHF technical overview A period of multi-day consolidation has been broken, with the market pushing up to a fresh 2017 high beyond The bullish break could now get the uptrend thinking about a test of that major barrier at further up. In the interim, look for any setbacks to be very well supported ahead of , while only back below the figure would delay the overall constructive tone. R Sep/2017 high Strong R Sep low Medium S Oct low Medium S Sep low Strong EURCHF fundamental overview The SNB kept with its general policy line when it met last month and there were no major waves from the event risk. The one notable exception was the language relating to the strength of the Franc, with the SNB viewing the Franc as highly valued rather than significantly overvalued. This was a downgrade to the level of concern over the currency s strength, but again, not much of a reaction. Overall, the sell-off in the Franc in 2017 has been a welcome development for the SNB. Still, the central bank will need to be careful as the record run in the US stock market has been a big boost to the SNB s strategy. Any signs of capitulation on that front, will likely invite a very large wave of demand for the Franc, which could put the SNB in a more challenging position to weaken the Franc. Interestingly, the latest surge in stocks has failed to bolster the exchange rate. Page 5 of 12

6 AUDUSD technical overview Despite rallying to a fresh +2 year high in September, the market has been unable to hold onto gains, quickly reversing course and trading back below There is now risk for the formation of a more meaningful top opening the door for the next downside extension towards Look for rallies to now be well capped ahead of , with only a close back above the psychological barrier to put the pressure back on the topside. R Sep high Strong R Sep high Medium S Oct low Strong S Jul low Medium AUDUSD fundamental overview An early Wednesday round of second tier Aussie services PMIs have come in softer, though the data hasn t factored into price action. Instead, the Australian Dollar has been trying to recover, mostly on the back of renewed US Dollar selling as the market considers the possibility of a dovish replacement at the helm of the Fed. Tuesday s RBA decision wasn t a big market mover, with the central bank maintaining its balanced to slightly more accommodative policy outlook that includes concern over a stronger Aussie. Looking ahead, we get US ADP employment, US ISM non manufacturing and an appearance from Fed Chair Yellen. Page 6 of 12

7 USDCAD technical overview Despite the September breakdown to a fresh 2017 and +2 year low, stretched medium-term technical studies continue to warn of the possibility for a significant bullish reversal to allow for these studies to unwind. Look for a daily close back above to encourage this prospect and accelerate the recovery to next key resistance at further up. R Figure Medium R Oct high Strong S Sep low Medium S Sep low Strong USDCAD fundamental overview It hasn t been a good run of developments for the Canadian Dollar since the Bank of Canada opted to catch the market off guard and hike rates for a second consecutive time last month. Last Friday s softer Canada GDP result will only make the Canadian Dollar less attractive after a string of discouraging data that s included the employment report, manufacturing, exports, retail sales and below forecast inflation readings. Remember, Bank of Canada Governor Poloz was also out last week singing a much different tune that s making last month s rate hike look like a mistake. At the same time, the Fed s more hawkish leaning decision, revival of the Trump reflation trade and healthy US data are giving the US Dollar a bid of its own. Canada manufacturing data did come in ok this week but has been overshadowed by the more impressive US ISM manufacturing and pullback in the price of OIL. Looking ahead, absence of data on the Canada calendar will leave the focus on US ADP employment, US ISM non manufacturing and an appearance from Fed Chair Yellen. Page 7 of 12

8 NZDUSD technical overview Medium term studies have turned down after the market pushed up to a plus two year high through in late July. A recent break below warns of the possibility for a more meaningful reversal, that could be setting the stage for a drop all the way back down towards the 2017 low in the s. From here, look for any rallies to be well capped below on a daily close basis in favour of the next downside extension towards the psychological barrier at R Sep high Strong R Sep high Medium S Oct low Medium S Aug low Strong NZDUSD fundamental overview There have been too many negative drivers for the market to ignore, which should continue to inspire Kiwi offers and underperformance. New Zealand government growth and budget cuts, discouraging economic data and this lingering uncertainty around the recent election result should continue to weigh. On Tuesday, Kiwi took another hit after the latest GDT auction results produced a disappointing negative print. The only saving graces for the Kiwi rate in 2017 have been the record run in US equities and an intense distaste for the US Dollar. But even on this front, while US equities continue to run, there is no denying fundamentals that have been more supportive of the Buck of late, including a revival of the Trump reflation trade, solid US data and a more hawkish leaning Fed. Looking ahead, we get US ADP employment, US ISM non manufacturing and an appearance from Fed Chair Yellen. Page 8 of 12

9 US SPX 500 technical overview The market continues to shrug off overextended longer term technical readings, once again pushing up to fresh record highs. The latest break now opens the door for the possibility of a measured move upside extension into the 2550 area. At this point, it would take a daily close back below 2487 at a minimum to take the pressure off the topside, while a break all the way back below 2400 would be required to force a bearish structural shift. R Psychological Strong R Oct/Record high Medium S Sep low Medium S Sep low Strong US SPX 500 fundamental overview The US equity market continues to be well supported on dips, pushing further into record high territory. It seems the combination of blind momentum and expectation of favourable US policies are helping to keep the move going into this week. But at the same time, there is a nervous tension out there as the VIX sits at unnervingly depressed levels. The fact that Fed policy is normalising, however slow, could start to resonate a little more, with stimulus efforts exhausted, wage growth still subdued, balance sheet reduction coming into play and another rate hike still on the cards this year. But for now, it s more of the same. It will take a breakdown in this market back below 2400 to turn heads. Page 9 of 12

10 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, opening a recent push to a fresh 2017 high up around And so, look for the latest round of weakness to once again be well supported on the dip, with a higher low sought out ahead of 1250 ahead of the next major upside extension and bullish continuation towards a retest of the 2016 peak at 1375 further up. Ultimately, only a drop back below 1200 would negate the outlook. R Sep high Strong R Sep high Medium S Aug low Medium S Aug 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 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 in 2017 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. Dealers are now reporting demand in size ahead of Page 10 of 12

11 Feature technical overview USDZAR is trying to poke back above a multi-week range that has capped gains in A clear break above will open the door for additional upside towards the 2017 high from early January just shy of At the same time, inability to establish a clear break through will suggest the range trade is still intact, setting up the possibility for a renewed downside extension towards the range low in the area. R Jan/2017 high Strong R Figure Medium S Sep low Medium S Sep low Strong Feature fundamental overview The Rand has been struggling of late, as ongoing tension on the political front prevents the emerging market currency from making any headway. The political mess has made the Rand one of the least attractive emerging market currencies out there at a time when risk correlated currencies are coming back under pressure on the reemergence of US Dollar demand from a more hawkish leaning Fed, solid US data and the revival of the Trump reflation trade. The only saving grace for the Rand has been September s more upbeat SARB decision. But even still, the emerging market currency is under pressure. Throw in the prospect for a capitulation in an extended US equities market and the outlook continues to favour additional Rand weakness. Page 11 of 12

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