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 A Hard Time Bucking the Dollar Wake-up call The market is having a hard time getting off the US Dollar and we come into Wednesday with the Buck leading the charge. As we look at the day ahead, key standouts come in the form of UK and Eurozone CPI data, US housing starts and building permits, another round of Powell testimony and the Fed Beige Book. Technical highlights EURUSD Daily bearish below GBPUSD Trying to work off 2018 low USDJPY Bigger trend suggests reversal EURCHF Breaks back to topside AUDUSD Enters corrective phase USDCAD Looking for next higher low NZDUSD Additional upside limited US SPX 500 Bullish move to stall out GOLD (spot) Signs of major base BTCUSD Inverse H&S pattern triggered ETHUSD Holding up off the recent low Daily Video Fundamental highlights EURUSD Eurozone CPI data stands out GBPUSD UK PM under serious Brexit pressure USDJPY Upbeat Powell, run in stocks drive gains EURCHF SNB policy faces tough challenges ahead AUDUSD Aussie to digest the latest RBA Minutes USDCAD Falling OIL adds to Loonie disruption NZDUSD Fourth consecutive negative GDT print US SPX 500 Fed model will be important to watch GOLD (spot) Unstable macro picture inspires bids BTCUSD Growing pains persist despite recovery ETHUSD Extended equities a worry for Ethereum Five day performance v. US dollar Suggested reading These Investors Aren t Spooked by Trade Wars, M. Winkler, Bloomberg (July 16, 2018) Mind the Trap Door, J. Hussman, Hussman Funds (July 16, 2018) Page 1 of 15

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 Figure Medium R Jul high Strong S Jul low Medium S May/2018 low Medium EURUSD fundamental overview A lot of chopping around in the FX market right now, with the Euro under pressure on Tuesday, largely on the back of Fed Chair Powell testimony highlighting his outlook for gradual rate hikes, solid growth and ongoing robustness in the labor market, while at the same time, downplaying concerns about risks associated with US trade policy. Looking ahead, Wednesday's calendar features Eurozone CPI data, US housing starts and building permits, another round of Powell testimony (this time in front of the House panel) and the Fed Beige Book. EURUSD Technical charts in detail Watch now Page 2 of 15

3 GBPUSD technical overview Overall, the structure still remains constructive on a medium to longer term basis, despite this latest round of intense setbacks to a fresh 2018 low. 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 Jul high Strong R Figure Medium S Jul low Medium S Jun/2018 low Strong GBPUSD fundamental overview The Pound had no time to consider a relatively solid UK employment report on Tuesday, with all of the attention on hawkish Fed Powell testimony and renewed tension with respect to the path forward on Brexit and ability for Theresa May to put a deal together that she can negotiate with the EU. Governor Carney warned of the serious risks to the economic outlook if the Brexit process could not move forward in a productive manner. There was some minor relief into end of day as the PM narrowly succeeded in avoiding efforts to tie her hands, though there needs to be a lot more achieved on the PM s side right now to reduce all of the stress that has arisen in recent weeks. Looking ahead, all things Brexit will continue to dictate the flow, though the economic calendar should not be overlooked with UK CPI, US housing starts and building permits, another round of Powell testimony and the Fed Beige Book all due. Page 3 of 15

4 GBPUSD Technical charts in detail Watch now Page 4 of 15

5 USDJPY technical overview Rallies continue to be very well capped, with the medium-term outlook still favouring lower tops and lower lows. Look for the recovery run off the 2018 low to stall out in the sessions ahead, with additional upside to struggle in trying to establish above Key support comes in at and a break back below this level will strengthen the outlook, opening the door for the start to a move back down towards which guards against the area 2018 low. R Jan/2018 high Medium R Jul high Medium S Jul low Medium S Jul low Strong USDJPY fundamental overview The major pair continues with its run out from the 2018 low, benefiting from the combination of broad based US Dollar demand and ongoing support for US equities. Tuesday s hawkish round of testimony from Fed Chair Powell was already enough to inspire fresh multi-month highs, though the concurrent run up in US stocks only added further fuel to the market s bid tone. Looking ahead, key standouts on the calendar come in the form of US housing starts and building permits, another round of Powell testimony (this time in front of the House panel) and the Fed Beige Book. Watch now Page 5 of 15

6 EURCHF technical overview The market is working off an intense round of setbacks from earlier this year. Overall however, the rate has been trending higher and only a sustained break back below the , 2018 low would suggest otherwise. Look for this latest close back above to accelerate gains towards next resistance in the area. R May high Strong R Jul high Medium S Jul low Medium S Jul 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 in 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 sustained risk liquidation in the second half of this year, will likely invite a very large wave of demand for the Franc, which will put the SNB in the more challenging position of needing to prevent appreciation in the Franc. Page 6 of 15

7 AUDUSD technical overview Signs of recovery after a drop to its lowest levels since January Overall, the pressure remains on the downside, though there is scope for the recovery to extend back into the s before the market thinks about a bearish resumption. Only back above would force a bullish shift in the structure. R Psychological Strong R Jul high Strong S Jul low Medium S Jul 2018 low Strong AUDUSD fundamental overview The Australian Dollar has been caught between diverging flow in recent days, with the pair supported into dips on the back of ongoing demand for US and global equities, but capped into rallies on broad based US Dollar demand from favourable yield differentials and declining metals prices. On Tuesday, upbeat testimony from Fed Chair Powell was the biggest driver of the day, resulting in Aussie weakness. Local developments have been less relevant to Aussie traders and this market will continue to monitor the broader macro themes and market drivers. Tuesday s RBA Minutes didn t have much of an impact, with the central bank offering up a balanced, yet cautious tone, which was expected. As far as Wednesday s calendar goes, key standouts come in the form of US housing starts and building permits, another round of Powell testimony (this time in front of the House panel) and the Fed Beige Book. Page 7 of 15

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 Figure Medium S Jul low Strong USDCAD fundamental overview The Canadian Dollar hasn t been able to muster generate positive momentum in the aftermath of last week s Bank of Canada rate hike. The Loonie s struggles come from tension around US protectionist rhetoric and the possible implications with respect to NAFTA. Meanwhile, a pullback in the price of OIL and upbeat testimony from Fed Chair Powell, have only further contributed to Canadian Dollar weakness. Looking ahead, absence of first tier data out of Canada on Wednesday will leave the focus on all things trade and the US calendar that features US housing starts and building permits, another round of Powell testimony (this time in front of the House panel) and the Fed Beige Book. Page 8 of 15

9 NZDUSD technical overview Signs of recovery after a drop to its lowest levels since May Overall, the pressure remains on the downside, though there is scope for the recovery to extend back towards before the market thinks about a bearish resumption. Only back above would force a bullish shift in the structure. R Jul high Strong R Jul high Medium S Jul low Medium S Jul/2018 low Strong NZDUSD fundamental overview New Zealand CPI came in a little softer than expected, while the GDT auction produced it s fourth consecutive negative print. These discouraging updates already follow a drop in June performances of services from earlier this week. All of this, along with Tuesday s round of upbeat Fed Chair testimony, have resulted in sizable Kiwi offers into rallies. Sliding commodities prices haven t helped the New Zealand Dollar s cause either, though it seems ongoing support for global equities has been able to offer itself as the one saving grace for the correlated commodity currency. Looking at the Wednesday calendar, Kiwi will continue to focus on the bigger picture macro drivers while taking in US housing starts and building permits, another round of Powell testimony (this time in front of the House panel) and the Fed Beige Book. Page 9 of 15

10 US SPX 500 technical overview A market that has been extended on the monthly chart is showing signs of stalling out off the January record high, allowing for stretched monthly readings to unwind. Any rallies should now continue to be very well capped below the record high on a weekly close basis, 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 Jan/Record high Strong R Jul high Medium S Jul low Strong S Jun 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 despite the ongoing support in the market. The Fed has also finally acknowledged inflation no longer running below target in 2018, something that could very well result in less attractive equity market valuations given the implication 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 15

11 GOLD (SPOT) technical overview Despite a recent run of 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 Psychological Strong R Jul high Strong S Jul/2018 low Medium S Psychological Strong GOLD (SPOT) fundamental overview 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 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 15

12 BTCUSD technical overview The market is working hard to hold up after taking out the yearly low from February into this latest drop. This latest daily close back above 6,830 takes the immediate pressure off the downside with an inverse H&S formation triggered that opens a push back towards and slightly beyond next key resistance at 7,770 further up. Still, overall, the downtrend remains intact and the rally at this point is classified as nothing more than a correction. R2 7,900 Measured Move Strong R1 7,770 3Jun high Strong S1 6,640 17Jul low Medium S2 6,075 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. Added institutional interest and positive reviews of the space from various organizations is also helping to stablise the market as we head into the second half of Page 12 of 15

13 BTCUSD Technical charts in detail Watch now Page 13 of 15

14 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 daily close back above 550 to take the immediate pressure off the downside, while a push back above 630 would be required to signal the possibility for a bullish structural shift. R Jun high Strong R Psychological Medium S Jun low Medium S Apr/2018 low Strong ETHUSD fundamental overview Overall, despite a resurgence in demand in recent sessions as prospects for crypto adoption ramp up, there is still legitimate risk for deeper setbacks in 2018 given technical hurdles within the Ethereum protocol, and 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 14 of 15

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