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 Eurozone Growth and Inflation, Canada GDP Wake-up Call Market activity is expected to pick up today, with the economic calendar featuring a healthy round of data out of Europe and participants starting to focus in on Wednesday's big event risk in the form of the Fed decision. Canada GDP and US consumer confidence also ahead. Technical highlights EURUSD Rallies corrective right now GBPUSD Plenty of sideways chop USDJPY Slowly rolling back over EURCHF Pauses to take a breather AUDUSD Next support at USDCAD Recovery well intact NZDUSD Averts break of 2017 low US SPX 500 Risk builds for reversal GOLD (spot) Sights set on fresh high Feature USDZAR Looking up Daily Video Fundamental highlights EURUSD Eurozone GDP and inflation taken in GBPUSD Pound rallies on negative USD drivers USDJPY BOJ meeting produces as expected result EURCHF Getting harder to weaken the Franc AUDUSD Softer China PMIs a concern for Aussie USDCAD Canada GDP, BoC Poloz testimony ahead NZDUSD Kiwi still struggling in election aftermath US SPX 500 US tax reform phase in chatter weighs GOLD (spot) Macro backdrop supports demand Feature USDZAR Risk for more downgrades Five day performance v. US dollar Suggested reading The Dollar s Enjoying a Renaissance, J. Schenker, Bloomberg (October 30, 2017) Halloween in Fixed Income Markets, M. Johnson, Financial Times (October 30, 2017) Page 1 of 12

2 EURUSD technical overview The breakdown below has triggered the formation of a major H&S top on the daily chart that now opens the door for a possible measured move downside extension into the s. Next key support comes in the form of a smaller H&S top objective at , off a formation that had triggered in September, which coincided with the 50-Day SMA break. Any rallies should be very well capped below , with only a break back above to take the immediate pressure off the downside. R Oct low Strong R Oct high Medium S Oct low Medium S Smaller H&S objective Strong EURUSD fundamental overview It s been a quiet start to the week, though activity is expected to pick up today with a healthy docket on tap including Eurozone GDP and inflation readings, ECB speak and US consumer confidence. The Euro did manage to find some support on Monday, with the single currency bid up on what appeared to be a diffusing situation in Spain. Meanwhile, concerns over the planning and execution of US tax reform also helped to prop the Euro, as chatter made the rounds about a corporate tax cut that would be gradually worked in over a 5 year period. Another story that could also help the Euro this week is the Fed Chair appointment, now widely expected to be the more dovish leaning Jerome Powell. The announcement could come Thursday. Page 2 of 12

3 GBPUSD technical overview The market has eased off quite a bit since topping out at a fresh 2017 high in September, with the price dropping back into the area thus far. However, while there is risk for another drop, setbacks should be limited below the psychological barrier, with the greater risk for the formation of that next meaningful higher low ahead of a continuation of the newly formed uptrend in Look for a daily close back above to confirm the constructive outlook and accelerate gains. Ultimately, only back below would delay the outlook. R Oct high Strong R Oct high Medium S Oct low Medium S Oct low Strong GBPUSD fundamental overview The UK calendar is quiet at the start of the week and most of the moves have been driven on developments out of the US. We ve since seen a minor rally, with the Pound benefitting from the news of a US tax cut phase in over a 5 year period that would undermine the effectiveness of such a plan. The Pound has also been supported on the expectation that the dovish leaning Jerome Powell will be confirmed on Thursday as the President s pick for next Fed Chair. Looking ahead, Brexit negotiation headlines and US consumer confidence data are the main standouts. The market will also be thinking about major event risk over the next couple of days in the form of the Fed and BOE policy decisions. Earlier today, UK GfK consumer confidence readings came in soft. Page 3 of 12

4 USDJPY technical overview The major pair has been confined to a range trade for much of 2017, with rallies well capped ahead of and dips well supported below The market has been in rally mode over the past several days, taking the rate back into the range highs. At this point, look for the market to adhere to the range and stall out yet again for the start to a drop back towards the range lows. A daily close back below would strengthen this outlook. R Jul high Strong R Oct high Medium S Figure Medium S Oct low Strong USDJPY fundamental overview The Bank of Japan meeting has come and gone and as was widely expected, we got no surprises from the central bank. Policy was left unchanged and the vote produced an 8-1 split with Kataoka dissenting in favour of tweaking yield curve controls to focus on targeting 15 year JGB yields at less than 0.2%. The focus here will quickly shift back to the broader macro themes and US Dollar story. Risk sentiment and how things play out with US tax reform and the next Fed Chair appointment will likely influence the next big move here. Monday s talk of a tax cut phase in period over a 5 year period fuelled broad based US Dollar selling, which helped to benefit the Yen. Looking ahead, we get US consumer confidence data and positioning ahead of Wednesday s FOMC risk. 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. 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 would delay the overall constructive tone. R Figure Medium R Oct/2017 high Medium S Oct low Medium S Oct 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 both the US equity market and the ECB. The record run in the US stock market has been a big boost to the SNB s strategy with elevated sentiment encouraging Franc weakness. But any signs of capitulation on that front, will likely invite a very large wave of demand for the Franc, which will put the SNB in a more challenging position to weaken the Franc. The Franc has dropped to another yearly low against the Euro last week on what looked to be ramped up SNB activity. This would make even more sense after the ECB delivered a very dovish, Euro bearish monetary policy decision last week. And so, we speculate the SNB was active buying EURCHF in an attempt to build some cushion ahead of what could be a period of intense Franc demand ahead. 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 be well capped ahead of , with only a close back above the psychological barrier to put the pressure back on the topside. Last week s break below has strengthened the bearish outlook. R Oct high Strong R Oct high Medium S Oct low Medium S Jul low Strong AUDUSD fundamental overview A quiet start to the week for the Australian Dollar, which had recently been under pressure from broad based US Dollar demand and softer Aussie inflation data in the previous week, increasing the likelihood the RBA would remain on hold for a longer period of time. Into Tuesday, developments have been mixed for Aussie, with the currency weighed down on the softer PMI data out of China, but supported on bearish USD developments relating to US tax reform and increased odds Powell will be the next Fed Chair. Looking ahead, we get US consumer confidence data and positioning ahead of Wednesday s FOMC risk. Page 6 of 12

7 USDCAD technical overview Clear signs of basing in this pair, with the recovery from plus two year lows back in September extending through an important resistance point in the form of the August peak. This sets the stage for additional upside in the days and weeks ahead, with the immediate focus now on a retest of the psychological barrier at In the interim, any setbacks should now be well supported ahead of R Psychological Strong R Oct high Medium S Oct low Medium S Oct high Strong USDCAD fundamental overview As much as the risk was flagged from our end, the market was still caught off guard by last week s dovish shift at the Bank of Canada meeting. The Canadian Dollar has since been hit hard, extending a run of recent declines that have come since economic data has deteriorated in the aftermath of the central bank s aggressive move of consecutive rate hikes in The BoC warned it would remain cautious when considering future rate hikes while also citing concern over the stronger currency. Another looming threat to the Canadian Dollar at the moment is the NAFTA uncertainty and possibility the agreement will be terminated as per President Trump s threats. Market odds for a December BoC hike have since declined and are now sitting down around 40%% from what had been about 80% in early September. Into Tuesday, there has been some renewed demand for the Loonie on technical related buying and US Dollar selling from less exciting news about how US tax reform will be phased in over a 5 year period. Looking ahead, it is going to be a busy day for the Loonie, with Canada GDP and BoC Poloz testimony on the docket. We also get US consumer confidence readings. Page 7 of 12

8 NZDUSD technical overview Medium term studies have turned down sharply after the market pushed up to a plus two year high through in late July. A recent break below has now opened a more meaningful reversal looking to retest the 2017 low at Any rallies should now be very well capped ahead of ahead of the next downside extension that would target R Oct high Strong R Oct high Medium S May/today/2017 low Strong S Figure Strong NZDUSD fundamental overview The New Zealand Dollar continues to struggle in the aftermath of a surprise election result that saw the emergence of Labour. Overall, the currency had already been under pressure in the lead up to the election, with economic data heading the wrong way and the market pricing a less hawkish RBNZ path forward. Calls to reform the RBNZ mandate to include employment would mean policy remain more on the accommodative side for a longer period of time, which would be bearish Kiwi. Into Tuesday, there has been some support off the lows, with the demand mostly coming from developments on the US side, with the Buck taking a hit on the latest chatter about a phase in of tax reform over a 5 year period, and on the expectation President Trump will select the dovish leaning Jerome Powell as the next Fed Chair. Looking ahead, we get US consumer confidence data and positioning ahead of Wednesday s FOMC risk. Page 8 of 12

9 US SPX 500 technical overview The market continues to shrug off overextended technical readings, with any setbacks quickly supported for fresh record highs. At the same time, it s worth noting that the market broke out in August after a 75 point consolidation, which projected a measured move to And now that this 2565 measured move objective has been met and slightly exceeded, it could warn of some form of a reversal to come, though we would need to see a daily close back below 2544 at a minimum to take the immediate pressure off the topside. Until then, the record run continues into unchartered territory, with the focus on the next major barrier at R Psychological Strong R Oct/Record high Medium S Oct 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, expectation of favourable US tax policy and the odds for a dovish leaning Fed appointee (Posell) are helping to keep the move going. But at the same time, there s 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, 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. At this point, it will take a breakdown in this market back below 2500 to turn heads. The market showed a tiny bit of distress on the chatter of what would be viewed as a less effective tax reform phase in over a period of 5 years, though nothing has been confirmed and the setbacks have been marginal. 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 this most recent dip to round out that next higher low around 1260 in favour of a 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 Oct 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 has been breaking out of a period of multi-month consolidation, with the price surging to fresh 2017 highs beyond 14.00, suggesting the run could have a lot more to go. The next major level of resistance comes in at 14.76, the high from August Setbacks should be well supported from here ahead of R August 2016 high Strong R Oct high Medium S Psychological Medium S Oct low Strong Feature fundamental overview The South African economy is in greater need for flexibility on rates on the basis of a near zero growth and a negative output gap, though rising inflation is forcing the SARB to think about going in the opposite direction. Meanwhile, the Rand remains exposed to ongoing tension on the political front which will persist into year-end on account of the upcoming ANC leadership election. Last Wednesday s Budget Statement dealt the emerging market currency another big blow, with the Rand sinking to a fresh 2017 low on the revelation of sharp revisions to debt and deficit projections, highlighting risk for further downgrade. The only supportive Rand driver at the moment has come from the record run in US equities, which is a positive for risk correlated emerging market currencies. However even here the Rand should be sitting uneasy as the prospect for a capitulation is looking increasingly realistic on overbought technicals and an unstable backdrop around the globe. Page 11 of 12

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