Tuesday, July 11, 2017
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Global FX Insights
by LMAX Exchange Research & Analytics
Comprehensive daily market research and analytics, with insightful commentary and charts
Central Bank Speak to Dominate Data Light Day
Wake-up Call
We're into Tuesday and it feels like the week hasn't even started yet after Monday's lackluster performance. The
combination of summer doldrums and a light economic calendar accounted for the snooze-fest and we could be in for
the same today, with the calendar once again rather thin.
Technical highlights
Daily Video
• EURUSD Limited upside ahead
• GBPUSD Happy to consolidate
• USDJPY Possible reversal looms
• EURCHF Through 1.1000 barrier
• AUDUSD Slowly rolling over again
• USDCAD No signs of bounce yet
• NZDUSD Confined to range trade
• US SPX 500 Still aiming higher
• GOLD (spot) Key inflection point
• Feature – USDZAR Carving base
Fundamental highlights
• EURUSD Euro holds up on solid local economic data
• GBPUSD BOE speak features Haldane, Broadbent
• USDJPY Diverging policy weighs on Yen for now
• EURCHF SNB trying to get ahead of risk liquidation
• AUDUSD Not much movement post NAB readings
• USDCAD Bloomberg poll shows 70% looking for hike
• NZDUSD Quiet calendar puts focus on Fed appearances
• US SPX 500 Central banks pulling plug on policy stimulus
• GOLD (spot) Plenty of demand from worried investors
• Feature – USDZAR SA manufacturing production due
Five day performance v. US dollar
Suggested reading
• FX Traders Face Setback as Doldrums Loom, L. Nguyen, Bloomberg (July 9, 2017)
• Andy Haldane’s Town Hall Blog, A. Haldane, Bank of England (July 7, 2017)
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Tuesday, July 11, 2017
LMAX Exchange Global FX Insights
EURUSD – technical overview
This recent break to fresh 2017 highs beyond 1.1300 has confirmed a higher low at 1.1110 opening the current extension
towards 1.1500, also coinciding with critical longer-term resistance in the 1.1500-1.1700 area. But daily studies are looking
stretched, suggesting any additional upside could be difficult, with the greater risk building for some form of a meaningful
bearish reversal in the sessions ahead. Still, the uptrend in 2017 is well intact and a break below back below a confirmed
higher low at 1.1110 would be required to officially shift the broader focus back to the downside.
• R2 1.1500 – Psychological – Strong
• R1 1.1446 – 29Jun/2017 high – Medium
• S1 1.1313 – 5Jul low – Medium
• S2 1.1292 – 28Jun low – Strong
EURUSD – fundamental overview
Monday trade was exceptionally quiet, though the Euro did manage to hold up on better than expected German trade
and Eurozone Sentix investor confidence data. Overall, the Euro has been well bid in 2017 on the back of softer US data,
protectionist policy from the US administration, a market that still isn’t entirely convinced the Fed will be able to follow
through with hawkish guidance and signs of the start to a reversal of monetary policy over at the ECB. Last week’s ECB
Minutes reaffirmed bets the ECB was in fact starting the policy reversal conversation, helping to prop the Euro. Looking
ahead, Tuesday’s calendar is light once again, with the only notable standouts coming in the form of central bank speak
from Fed speak from Williams, ECB Coeure and Fed Brainard. US JOLTS job openings are also due but aren’t expected to
make much of a dent.
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Tuesday, July 11, 2017
LMAX Exchange Global FX Insights
GBPUSD – technical overview
The market has entered a period of choppy consolidation over the past several sessions but is now expected to be very
well supported on dips in favour of a higher low and bullish continuation towards a measured move extension objective at
1.3500 in the weeks ahead. A breakout above critical resistance at 1.2775 back in April triggered a structural shift in the
major pair warning of a longer-term base. Only back below 1.2360 would compromise this outlook. Still, in the shorterterm, choppy consolidation in the 1.2500-1.3000 area should not be ruled out before the market ultimately breaks higher.
• R2 1.3048 – 18May/2017 high – Strong
• R1 1.2984 – 6Jul high – Medium
• S1 1.2831 – 6Jun high – Medium
• S2 1.2794 – 28Jun high – Strong
GBPUSD – fundamental overview
The Pound consolidated in light Monday trade but has come under renewed pressure after recently stalling out just shy
of the 2017 high from May. Last Friday’s round of across the board weaker than expected UK data in the form of industrial
production, manufacturing production, construction output and trade have been responsible for the latest slide.
Meanwhile,UK politics and the Brexit overhang are other major forces at play, keeping the Pound from wanting to get too
ahead of itself. Looking ahead, Tuesday is another quiet one, though we do get a round of central bank speak from Fed
Williams, BOE Haldane, BOE Broadbent, and Fed Brainard.
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Tuesday, July 11, 2017
LMAX Exchange Global FX Insights
USDJPY – technical overview
Despite the latest recovery rally, the overall pressure remains on the downside. In the interim, look for any additional
upside to remain capped around 114.00, with only a clear break back above the recent high at 114.37 to negate the
outlook and take the pressure off the downside.
• R2 114.37 – 10May high – Strong
• R1 114.30 – 10Jul high – Medium
• S1 113.10– 7Jul low – Medium
• S2 112.74 – 4Jul low – Strong
USDJPY – fundamental overview
The combination of a broad based US Dollar recovery over the past week and an ongoing bid in US equities have helped
to keep the major pair in demand, rallying back to multi-day highs in the 114.00 area. Yield differentials are also playing
their part, particularly after the BOJ made it clear in the previous week that it wasn’t going to be falling into line with other
major central banks adopting a more hawkish policy outlook. Still, dealers do report solid offers from macro accounts,
with these players worried about signs of an imminent liquidation in US equities, which could invite a fresh wave of Yen
demand (USDJPY) on traditional correlations with safe haven flow. BOJ Kuroda was out on Monday but offered nothing
new for the market to contemplate. Looking ahead, absence of first tier data today will leave the market focused on
broader macro flow and central bank speak from Fed’s Williams and Brainard.
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Tuesday, July 11, 2017
LMAX Exchange Global FX Insights
EURCHF – technical overview
The market has pushed up to a fresh 2017 high through a critical psychological barrier at 1.1000 which could now open
the door for an extension to retest the major peak from 2016 at 1.1200. However, inability to hold above 1.1000 in the
sessions ahead would suggest a false break and put the pressure back on the downside for an acceleration of declines
towards 1.0600.
• R2 1.1130 – May 2016 high – Strong
• R1 1.1020 – 10Jul high/2017 high – Medium
• S1 1.0910 – 19Jun high – Medium
• S2 1.0834 – 23Jun low – Strong
EURCHF – fundamental overview
Overinflated, record high US equities should be a worry for the SNB as any capitulation on the equity front is likely to
invite massive safe haven Franc demand the central bank will have an extremely difficult time offsetting, irrespective of the
central bank’s negative rate policy and intervention efforts. The SNB is hoping global sentiment will remain artificially
elevated and the ECB will continue to paint a more hawkish picture as has been seen over the past two weeks through
Draghi and the ECB Minutes. But it looks like it really should come down to the performance in US equities given the
influence on broader sentiment. Any signs of risk liquidation will likely invite a pickup in Franc demand and unwanted
downside pressure on EURCHF. For now, it looks like the SNB is growing increasingly worried about a shift in global
sentiment, as reflected through this latest push higher in an attempt to get the market back above a critical barrier at
1.1000.
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Tuesday, July 11, 2017
LMAX Exchange Global FX Insights
AUDUSD – technical overview
Despite the latest rally, the market continues to be very well capped into medium-term resistance around 0.7800.
Ultimately, any moves to the topside are therefore classified as corrective with the market expected to stall out and roll
over again. Look for a break back below 0.7536 to strengthen this outlook and accelerate declines.
• R2 0.7713 – 30Jun high – Strong
• R1 0.7633 – 5Jul high – Medium
• S1 0.7572 – 5Jul low – Medium
• S2 0.7536 – 22Jun low – Strong
AUDUSD – fundamental overview
The Australian Dollar’s 2017 recovery stalled out last week, with most of the renewed downside pressure coming from
the RBA decision, which failed to follow in the footsteps of other central bank decisions of late that have been leaning
more towards the hawkish side. Of course, the US Dollar has also found some renewed demand, which further contributed
to to the Aussie pullback. Looking ahead, the calendar is light once again, with only Fed speak from Williams and Brainard
and US JOLTS job openings standing out. Earlier today, Aussie NAB business confidence and business conditions came
out on the stronger side of expectation, though there wasn’t much of a reaction.
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Tuesday, July 11, 2017
LMAX Exchange Global FX Insights
USDCAD – technical overview
The latest round of setbacks have taken the pressure off the topside for now, with the market trading back into a longerterm range. The recent break below 1.3000 has opened the door for a more pronounced decline to fresh 2017 lows below
the barrier. Ultimately however, the longer-term uptrend remains intact and with technical studies tracking in oversold
territory, risk is building for an imminent bullish reversal. Still, we would now need to see a bounce in the sessions ahead
and break back above 1.3044 at a minimum to strengthen the constructive outlook.
• R2 1.2994 – 7Jul high – Strong
• R1 1.2913 – 4Jul low – Medium
• S1 1.2860 – 7Jul/2017 low – Medium
• S2 1.2823 – Sep 2016 low – Strong
USDCAD – fundamental overview
The Canadian Dollar was able to extend its 2017 run last Friday after Canada employment data came in much
stronger than expected, contrasting with a mixed US jobs report that produced subdued hourly earnings. Overall, the ten
big figure explosion in the Canadian Dollar since May, when it was trading at a 2017 low against the Buck, has come from
strong signals from the Bank of Canada that it is now ready to begin the policy reversal process, with 70% of analysts
polled on Bloomberg calling for a rate hike when the Bank of Canada meets tomorrow. There has however been some talk
of profit taking into the event risk, given a technically overbought Loonie, depressed OIL, still subdued Canada inflation
and a holdout call from Goldman Sachs, expecting the BoC to wait until October. Today’s data light calendar will leave the
market focused on the pre-event risk positioning, though we also get Fed Brainard speak, Canada housing starts and US
JOLTS job openings.
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Tuesday, July 11, 2017
LMAX Exchange Global FX Insights
NZDUSD – technical overview
Despite the intense surge over the past several days, the overall pressure remains on the downside with the market
expected to be very well capped in the 0.7300s. The longer-term chart is reflective of this fact as it looks like we’re seeing
the formation of a major top off the 2016 high. Only a clear break back above 0.7400 would compromise the outlook, while
back below 0.7186 strengthens the bearish case.
• R2 0.7346 –30Jun high – Strong
• R1 0.7311 – 7Jul high – Medium
• S1 0.7244 – 6Jul low – Medium
• S2 0.7186 – 15Jun low– Strong
NZDUSD – fundamental overview
The New Zealand Dollar has put in an impressive rally in recent weeks, but is starting to show signs of exhaustion. Last
week’s wave of US Dollar demand and another negative GDT auction showing have factored into the mild Kiwi selloff.
Earlier today, New Zealand credit card retail sales came in softer on the whole. Meanwhile, fear of vulnerability in global
equities is acting as an additional strain for the risk correlated Kiwi. As far as today’s price action goes, absence of first tier
data today will leave the market focused on broader macro flow and central bank speak from Fed’s Williams and Brainard.
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Tuesday, July 11, 2017
LMAX Exchange Global FX Insights
US SPX 500 – technical overview
Any setbacks have been exceptionally mild thus far and at a minimum, a daily close back below 2400 would be required
to take the immediate pressure off the topside, though only a break below 2320 would signal a meaningful shift in the
structure. But for now, until we see a daily close below 2400, the market is capable of extending its record run towards the
next measured move extension target at 2480 further up.
• R2 2480.00 – Measured Move – Strong
• R1 2454.00 – 20Jun/Record high – Medium
• S1 2403.00 – 31May low – Medium
• S2 2346.00 – 18May low – Strong
US SPX 500 – fundamental overview
The US equity market has done a good job proving it’s easily supported into any dip and can keep pushing to record
highs as it focuses on rates staying lower for longer and the Fed continuing to underdeliver on forward guidance. But this
bet will be put to the test in a big way going forward, with the Fed upgrading its commitment to policy normalisation and
other major central banks jumping on the monetary policy reversal bandwagon. The major takeaway is that central banks
are sending a clear message that an era of artificial support is finally coming to an end. Look for stocks to continue to
struggle into rallies from here.
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Tuesday, July 11, 2017
LMAX Exchange Global FX Insights
GOLD (SPOT) – technical overview
The recent breakdown below a previous confirmed higher low at 1214 compromises the constructive outlook for the
yellow metal, with the move potentially flagging deeper setbacks below 1200 ahead. The market will now need to establish
back above 1230 to reverse the bearish momentum, while inability to do so opens the door for a significant bearish
structural shift.
• R2 1258.90 – 23Jun high – Strong
• R1 1229.20 – 6Jul high – Medium
• S1 1204.90 – 10Jul low – Medium
• S2 1195.00 – 10Mar low – Strong
GOLD (SPOT) – fundamental overview
Despite the latest sharp round of setbacks, 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 supported around 1200,
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 is adding 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, GOLD will hold up on risk off macro
implications.
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Tuesday, July 11, 2017
LMAX Exchange Global FX Insights
Feature – technical overview
USDZAR is showing signs of the formation of a meaningful base since bottoming out around 12.30 earlier this year. The
latest push back above 13.21 strengthens this outlook and sets the stage for a continuation of gains towards next key
resistance at 13.71 further up. Any setbacks should ideally be well supported ahead of 12.55, with only a break back below
this level to negate the constructive outlook.
• R2 13.71 – 9May high – Strong
• R1 13.59 – 18May high – Medium
• S1 12.98 – 30Jun low – Medium
• S2 12.80 – 27Jun low – Strong
Feature – fundamental overview
The South African Rand is finally succumbing to a wave of negative drivers on the domestic front, with the currency
dropping to multi-day lows against the Buck in the previous week. The latest Rand slide has been attributed to jitters from
last week’s ANC conference, after the ruling party proposed nationalising the central bank and expropriating land without
compensation. The proposals are viewed as quite radical, something that is unsettling to an investor base already nervous
about political uncertainty, including a never ending string of Zuma corruption charges. Throw in persisting South Africa
recessionary forces, yield differentials shifting in favor of the major central banks and the prospect for a material reversal in
elevated global equities and it all points to the greater risk for additional Rand weakness going forward. Looking at the
calendar, South Africa manufacturing production data is due today.
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Tuesday, July 11, 2017
LMAX Exchange Global FX Insights
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