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 Volatility Around the Corner Wake-up call Markets will be looking to get back into a fuller swing on Thursday, as the US returns from the July 4th holiday. Most of the price action on Wednesday was subdued on account of the holiday, though with plenty of risk on the Thursday calendar, that next wave of volatility could be around the corner. Technical highlights EURUSD Bullish on break of GBPUSD Key resistance at USDJPY Well capped into rallies EURCHF Supported on dips AUDUSD Mild recovery off lows USDCAD Room for more upside NZDUSD Looking for rebound US SPX 500 Signs of major top GOLD (spot) Bigger picture base BTCUSD Recovery just corrective ETHUSD Holds up ahead of low Daily Video Fundamental highlights EURUSD News of hawkish leanings props Euro GBPUSD Services PMI beat caps run of solid data USDJPY Investors will be looking to Fed Minutes EURCHF SNB s job tougher as risk comes off AUDUSD China update on Yuan lifts Aussie USDCAD NAFTA uncertainty hangs in balance NZDUSD Soft business confidence, ugly GDT US SPX 500 Fed model will be important to watch GOLD (spot) Unstable macro picture inspires bids BTCUSD Growing pains as bubble bursts ETHUSD Shaky equities a worry for Ethereum Five day performance v. US dollar Suggested reading China Stabilizing Yuan is Remarkable, D. Moss, Bloomberg (July 3, 2018) Brexit at Chequers: What to Expect, G. Parker, Financial Times (July 4, 2018) Page 1 of 14

2 EURUSD technical overview While the pressure is clearly on the downside at the moment, the market has dropped back into a critical support zone in the form of a previous resistance area that had capped rallies from 2015 to This keeps the medium term focus on the topside with only a sustained break back below to compromise the constructive outlook. Still, a push back above will now be required to alleviate the shorter term bearish momentum. R Jun high Strong R Jun high Medium S Jul low Medium S Jun low Medium EURUSD fundamental overview It wasn t a surprise to see the market trading in a tight range on Wednesday, with the US shut down for the July 4th holiday. There were some headlines relating to more hawkish ECB leanings which may have been responsible for some of the boost, though for the most part, not a whole lot to grab onto. Eurozone services PMIs were mixed on the whole and didn t factor into price action. Overall, this week s news of a deal on migration in Germany has been the biggest catalyst for demand out from recent 2018 lows. Looking ahead, the US market will get back to business on Thursday and there will be a lot of attention given to the release of the Fed Minutes late in the day. Other standouts on the Thursday calendar include German factory orders, some ECB speak, US ADP and US ISM non-manufacturing. EURUSD Technical charts in detail Watch now Page 2 of 14

3 GBPUSD technical overview Overall, the structure still remains constructive on a medium to longer term basis, despite this latest round of intense setbacks. The market has been in the process of recovering out from the +30 year low from October 2016, with a higher low sought out, ideally above , ahead of a bullish continuation. Ultimately, only a sustained break back below would compromise the outlook. Key resistance comes in at and the market will be looking for a break of this level to reinforce this picture. R Jun high Strong R Figure Medium S Jul low Medium S Jun/2018 low Strong GBPUSD fundamental overview The Pound is trying to put in a recovery off the 2018 low, with the UK currency getting a lift on the back of an impressive string of data including solid GDP, manufacturing PMIs, construction PMIs and services PMIs. We ve also heard from BOE voting member Saunders this week, who was out with hawkish talk, warning rates could rise faster than the market expects. The market has however been worried about the Brexit overhang, something that has kept rallies contained for the moment. More colour on this front will come from Theresa May before the week is out. As far as Thursday s calendar goes, absence of first tier UK data will leave the focus on a BOE Carney appearance and some US risk in the form of ADP employment, ISM non-manufacturing and the Fed Minutes. Page 3 of 14

4 GBPUSD Technical charts in detail Watch now Page 4 of 14

5 USDJPY technical overview Rallies continue to be very well capped, with the medium-term outlook still favouring lower tops and lower lows. A recent topside failure ahead of resistance has strengthened the outlook, which may set the stage for a drop back down to retest the 2018 low at Next key support comes in at , while only back above would take the pressure off the downside. R Jun high Strong R Jul high Medium S Jun low Medium S Jun low Strong USDJPY fundamental overview Overall, the major pair is still very much correlated to broader macro themes and risk sentiment. This week s reduction in investor appetite has reflected this fact, with USDJPY going into retreat mode after stalling out above Looking ahead, the market will take in US ADP employment and ISM non-manufacturing before looking to the release of the Fed Minutes late in the day. Watch now Page 5 of 14

6 EURCHF technical overview The market is working off an intense round of setbacks resulting in a fresh 2018 low. Overall however, the rate has been trending higher and only a sustained break back below the low would suggest otherwise. Look for a daily close back above to strengthen the outlook. R Figure Strong R Jun high Medium S Jun low Medium S May/2018 low Strong EURCHF fundamental overview The SNB will need to be careful right now, as its strategy to weaken the Franc could face headwinds from the US equity market. The record run in the US stock market has been a big boost to the SNB s strategy with elevated sentiment encouraging Franc weakness. Of course, the SNB is no stranger to this risk, given a balance sheet with massive exposure to US equities. But any signs of a more intensified liquidation in 2018, will likely invite a very large wave of demand for the Franc, which will put the SNB in a more challenging position to prevent appreciation in the Franc. Page 6 of 14

7 AUDUSD technical overview The market remains under intense pressure, extending declines to multi-month lows below the 2017 low. This now exposes the next key level of support in the form of the December 2016 low at At this point, it would take a rally back above to take the immediate pressure off the downside. R Jun high Strong R Jul high Medium S Jul/2018 low Medium S Jan 2017 low Strong AUDUSD fundamental overview This week s news that the PBOC would be looking for a stable Yuan and an RBA hold that wasn t as downbeat as many had expected, have been enough to inspire a recovery in the beaten down Australian Dollar. In the RBA decision, the expectation inflation would pick up gradually as the economy strengthened was something that caught many Aussie bears off guard. Looking ahead, volatility is expected to pick back up with the US market returning from holiday. The Thursday US calendar is active with the market initially taking in ADP employment and US ISM non-manufacturing before then turning its attention to the Fed Minutes late in the day. Page 7 of 14

8 USDCAD technical overview The market has been trending up in 2018, extending its run of gains and now focused on a retest of the 2017 high at Daily studies are however starting to roll from stretched readings, which could open deeper setbacks ahead. But look for any weakness to be well supported ahead of , with only a break back below this level to negate the constructive outlook. R Jun high Strong R Jul high Medium S Jul low Medium S Jun low Strong USDCAD fundamental overview There has been some relief for the Canadian Dollar since sinking to a fresh 2018 low in the previous week, with a rally in the price of OIL and better than expected Canada GDP helping the Loonie s cause. Overall however, the Canadian Dollar remains under pressure in The weakness comes on the back of tension surrounding US protectionism and uncertainty over the fate of NAFTA. Looking ahead, absence of first tier data out of Canada will put the focus on activity in the price of OIL, especially with President Trump trying to influence matters on this front. We also get a nice amount of US calendar risk with ADP employment and ISM non-manufacturing due ahead of the release of the Fed Minutes late in the day. Page 8 of 14

9 NZDUSD technical overview The market remains under intense pressure in 2018, breaking down to its lowest levels since May Deeper setbacks are on the cards with the next key level of support coming in the form of the May 2016 low at Any rallies are now expected to be very well capped, with only a break back above to take the immediate pressure off the downside. R Jun high Strong R Jul high Medium S Jul/2018 low Medium S May 2016 low Strong NZDUSD fundamental overview The New Zealand Dollar has been under pressure over the past several weeks, with the currency suffering in the face of broad based US Dollar demand, a reduction in global risk appetite, softer New Zealand data, and a more dovish leaning RBNZ that has outlined a commitment to maintain accommodative monetary policy for a considerable period of time. This week s drop in New Zealand business confidence to 7 year lows and a discouraging GDT auction result have only added to the souring Kiwi outlook. Nevertheless, Kiwi has managed to find some demand after initially extending to its lowest levels since May 2016, as broad based profit taking on US Dollar longs kicks in. Looking ahead, the US calendar is quite active on Thursday as we move out of holiday mode, with ADP employment, ISM non-manufacturing and the Fed Minutes all due for release. Page 9 of 14

10 US SPX 500 technical overview A market that has been extended on the monthly chart is finally showing signs of stalling out off the January record high, allowing for stretched monthly readings to unwind. Any rallies should now be very well capped ahead of 2800 in favour of continued weakness back below the 2530 area yearly low and towards a retest of strong longer-term resistance turned support in the form of the 2015 high at R Mar high Strong R Jun high Strong S Jun low Medium S May low Strong US SPX 500 fundamental overview Investor immunity to downside risk is not looking as strong these days and there s a clear tension in the air. The combination of Fed policy normalisation (four rate hikes now signaled in 2018), US protectionism, geopolitical tension and unnervingly high levels of share buybacks are all warning of capitulation ahead. The Fed has also finally acknowledged inflation no longer running below target, something that makes equity market valuations far less attractive at current levels, given the implication this could have on rates. We recommend keeping a much closer eye on the equities to ten year yield comparative going forward as this could be something that inspires a more aggressive decline. Page 10 of 14

11 GOLD (SPOT) technical overview Despite the latest round of declines, the overall outlook remains constructive, with the market in the process of carving out a longer term base off the 2015 low. Look for any additional weakness to be well supported ahead of 1200 in favour of the next major upside extension back towards critical resistance in the form of the 2016 high at R Jun high Strong R Jun high Medium S Jul/2018 low Medium S Dec 2017 low Strong GOLD (SPOT) fundamental overview Despite this latest round of weakness, there continues to be solid demand from medium and longer-term accounts, with these players more concerned about exhausted monetary policy, extended global equities, political uncertainty, systemic risk and trade war 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. Page 11 of 14

12 BTCUSD technical overview The market is working hard to hold up after taking out the yearly low from February into this latest drop. Still any rallies are classed as corrective, ahead of the next major downside extension towards a now possible measured move extension target at 3,000. Back above 10,000 would ultimately be required to signal a bullish structural shift. R2 7,770 3Jun high Strong R1 6,890 12Jun high Medium S1 6,250 1Jul low Medium S2 5,755 24Jun/2018 low Strong BTCUSD fundamental overview Bitcoin has managed to hold up after sinking to a fresh 2018 low. But overall, the cryptocurrency has been under pressure in 2018, with ramped up regulatory oversight and government crackdowns forcing many holders to exit positions. The market is also coming back to earth after a euphoric 2017 run that had bubble written all over. Bitcoin has struggled on the transaction side as well, with transactions per second still a major drawback, even with the Lightning network making some progress on this front. Still overall, while Bitcoin may be exposed against the US Dollar and other fiat, its store of value lure should continue to make it highly attractive within the crypto space. BTCUSD Technical charts in detail Watch now Page 12 of 14

13 ETHUSD technical overview The market remains under pressure in 2018 with rallies well capped and risk for a retest of the 2018 low at 355 over the coming sessions. At this point, it would take a break back above 550 to take the immediate pressure off the downside, though a push back above 840 would be required to signal a bullish structural shift. R Jun high Strong R Jun high Medium S Jun low Medium S Apr/2018 low Strong ETHUSD fundamental overview Overall, we would not rule out risk for deeper setbacks given ongoing regulatory oversight and a global macro backdrop that would seemingly expose risk correlated projects on the Ethereum blockchain. Monetary policy normalization and an anticipated reduction in global risk appetite could put a tremendous strain on ERC20 projects that have yet to even produce proper use cases and proof of concept. Page 13 of 14

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