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Friday, July 6, 2018

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Global FX Insightsby LMAX Exchange Research & Analytics

Comprehensive daily market research and analytics, with insightful commentary and charts

Plenty of Risk as the Week Closes Out Wake-up call

The Fed Minutes have come and gone, though not without some interesting takeaways. The market will continue todigest the latest Fed release, while also looking ahead to updates on US protectionism, headlines relating to Brexitand the always anticipated US monthly employment report.

Technical highlights Daily Video

EURUSD Bullish on break of 1.1855•GBPUSD Key resistance at 1.3315•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•

Fundamental highlightsEURUSD US jobs report stands out on calendar•GBPUSD More updates to come from Brexit front•USDJPY BOJ Masai comments on inflation outlook•EURCHF SNB’s job tougher as risk comes off•AUDUSD RBA Heath talks economic expansion•USDCAD Canada takes in monthly job reports•NZDUSD Kiwi recovers despite gloomy outlook•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 readingBetter to Be Rich Than Right, M. Levine, Bloomberg (July 5, 2018)•How A Hard Brexit Would Hit these Carmakers, P. Campbell, Financial Times (July 5, 2018)•

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Friday, July 6, 2018 LMAX Exchange Global FX Insights

EURUSD – technical overview

While the pressure is clearly on the downside at the moment, the market has dropped back into a critical support zone inthe form of a previous resistance area that had capped rallies from 2015 to 2017. This keeps the medium term focus on thetopside with only a sustained break back below 1.1500 to compromise the constructive outlook. Still, a push back above1.1853 will now be required to alleviate the shorter term bearish momentum.

R2 1.1800 – Figure – Medium•R1 1.1721 – 26Jun high – Strong•S1 1.1621 – 3Jul low – Medium•S2 1.1592 – 2Jul low – Medium•

EURUSD – fundamental overview

The Euro held steady in the aftermath of the Fed Minutes which were somewhat balanced in that the Fed remainedcommitted to continued monetary policy normalization, but also was worried about downside risks associated with USprotectionism. On the data front, Eurozone retail PMIs came in slightly better than expected, while German factory ordersimpressed to the upside. We got some more ECB speak, though most of the attention relating to the ECB was on the earlierreports that members were not as dovish as the latest ECB meeting communication. Looking ahead, we get some Germanindustrial production data, followed by the anticipated monthly employment report out of the US and US trade data.

EURUSD – Technical charts in detail

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Friday, July 6, 2018 LMAX Exchange Global FX Insights

GBPUSD – technical overview

Overall, the structure still remains constructive on a medium to longer term basis, despite this latest round of intensesetbacks. The market has been in the process of recovering out from the +30 year low from October 2016, with a higher lowsought out, ideally above 1.3000, ahead of a bullish continuation. Ultimately, only a sustained break back below 1.3000would compromise the outlook. Key resistance comes in at 1.3315 and the market will be looking for a break of this level toreinforce this picture.

R2 1.3315 – 22Jun high – Strong•R1 1.3275 – 5Jul high – Medium•S1 1.3115– 3Jul low – Medium•S2 1.3050 – 28Jun/2018 low – Strong•

GBPUSD – fundamental overview

There’s been plenty of positives out of the UK over the past week or so, with economic data coming in consistently aboveforecast and BOE speak leaning more to the hawkish and upbeat side. This has helped the UK currency work its way outfrom recent 2018 lows, though the gains have been very much tempered by an ongoing worry about Brexit and a marketthat isn’t sure it wants to give up with its broad based demand for the Buck. More updates are expected today on the Brexitfront, which will factor into price action. As far as the economic calendar goes, absence of first tier UK data will put thefocus on the US jobs report and some US trade data.

GBPUSD – Technical charts in detail

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Friday, July 6, 2018 LMAX Exchange Global FX Insights

USDJPY – technical overview

Rallies continue to be very well capped, with the medium-term outlook still favouring lower tops and lower lows. A recenttopside failure ahead of 111.40 resistance has strengthened the outlook, which may set the stage for a drop back down toretest the 2018 low at 104.63. Next key support comes in at 108.11, while only back above 111.40 would take the pressureoff the downside.

R2 111.40 – 21Jun high – Strong•R1 111.14 – 3Jul high – Medium•S1 110.28 – 4Jul low – Medium•S2 109.37 – 25Jun low – Strong•

USDJPY – fundamental overview

The major pair has been supported on dips, trading just off some multiday resistance, with BOJ Masai perhaps helpingthings along a little after saying it might take ‘some time’ to achieve the bank’s goal of 2% inflation, and that it wasnecessary to carefully watch the JGB market, which had seen a drop in volume. But overall, the major pair is still very muchcorrelated to broader macro themes and risk sentiment. A balanced Fed Minutes hasn’t really done much to factor intoprice action, with the Fed keeping with its plan to move forward with rate hikes but also concerned about downside risksto the economy from US trade policy. Looking ahead, the US jobs report, updates on US-China tariffs and some US tradedata are the key standouts for the day.

Watch now

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Friday, July 6, 2018 LMAX Exchange Global FX Insights

EURCHF – technical overview

The market is working off an intense round of setbacks resulting in a fresh 2018 low. Overall however, the rate has beentrending higher and only a sustained break back below the 1.1369 2018 low would suggest otherwise. Look for a daily closeback above 1.1658 to strengthen the outlook.

R2 1.1700 – Figure – Strong•R1 1.1658 – 11Jun high – Medium•S1 1.1481 – 21Jun low – Medium•S2 1.1369 – 29May/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 equitymarket. The record run in the US stock market has been a big boost to the SNB’s strategy with elevated sentimentencouraging Franc weakness. Of course, the SNB is no stranger to this risk, given a balance sheet with massive exposure toUS equities. But any signs of a more intensified liquidation in 2018, will likely invite a very large wave of demand for theFranc, which will put the SNB in a more challenging position to prevent appreciation in the Franc.

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Friday, July 6, 2018 LMAX Exchange Global FX Insights

AUDUSD – technical overview

The market remains under intense pressure, extending declines to multi-month lows below the 2017 low. This nowexposes the next key level of support in the form of the December 2016 low at 0.7160. At this point, it would take a rallyback above 0.7445 to take the immediate pressure off the downside.

R2 0.7445 – 22Jun high – Strong•R1 0.7425– 4Jul high – Medium•S1 0.7311 – 2Jul/2018 low – Medium•S2 0.7274– 5Jan 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 manyhad expected, have helped to inspire a recovery in a beaten down Australian Dollar. In the RBA decision, the expectationinflation would pick up gradually as the economy strengthened was something that caught many Aussie bears off guard.RBA Heath has also come out on the wires saying that a surge in spending by firms outside the resources industry has beenhelping to support Australia’s economic expansion. Looking ahead, updates relating to US protectionism and tariffs onChina will be monitored, while the market will also take in the latest monthly jobs report out of the US and some US tradedata.

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Friday, July 6, 2018 LMAX Exchange Global FX Insights

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 at1.3794. Daily studies are however starting to roll from stretched readings, which could open deeper setbacks ahead. Butlook for any weakness to be well supported ahead of 1.2700, with only a break back below this level to negate theconstructive outlook.

R2 1.3270– 29Jun high – Strong•R1 1.3226 – 2Jul high – Medium•S1 1.3113 – 4Jul low – Medium•S2 1.3094 – 15Jun 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 inthe price of OIL and better than expected Canada data helping the Loonie’s cause. Overall however, the Canadian Dollarremains under pressure in 2018. The weakness comes on the back of tension surrounding US protectionism anduncertainty over the fate of NAFTA. Looking ahead, Friday will be a busy session for the Loonie as it monitorsdevelopments on the global trade front, keeps a close eye on the price of OIL and also contends with a bunch of economicdata. We get the monthly employment reports out of both Canada and the US and we also get Canada Ivey PMIs and UStrade.

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Friday, July 6, 2018 LMAX Exchange Global FX Insights

NZDUSD – technical overview

The market remains under intense pressure in 2018, breaking down to its lowest levels since May 2016. Deeper setbacksare on the cards with the next key level of support coming in the form of the May 2016 low at 0.6676. Any rallies are nowexpected to be very well capped, with only a break back above 0.6923 to take the immediate pressure off the downside.

R2 0.6811 – 28Jun high – Strong•R1 0.6798 – 5Jul high – Medium•S1 0.6689 – 3Jul/2018 low – Medium•S2 0.6676 – 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 ofbroad based US Dollar demand, a reduction in global risk appetite, softer New Zealand data, and a more dovish leaningRBNZ 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 onlyadded to the souring Kiwi outlook. Nevertheless, Kiwi has managed to find some demand after initially extending to itslowest levels since May 2016, as broad based profit taking on US Dollar longs kicks in and risk markets recovery out fromtheir lows. Looking ahead, the key focus will be on updates relating to US protectionism and US data that features themonthly jobs report and the US trade balance.

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Friday, July 6, 2018 LMAX Exchange Global FX Insights

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 ofcontinued weakness back below the 2530 area yearly low and towards a retest of strong longer-term resistance turnedsupport in the form of the 2015 high at 2140.

R2 2807 – 13Mar high– Strong•R1 2795 – 13Jun high – Strong•S1 2693 – 28Jun low – Medium•S2 2678 – 29May 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. Thecombination of Fed policy normalisation (four rate hikes now signaled in 2018), US protectionism, geopolitical tension andunnervingly high levels of share buybacks are all warning of capitulation ahead. The Fed has also finally acknowledgedinflation no longer running below target, something that makes equity market valuations far less attractive at currentlevels, given the implication this could have on rates. We recommend keeping a much closer eye on the equities to tenyear yield comparative going forward as this could be something that inspires a more aggressive decline.

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Friday, July 6, 2018 LMAX Exchange Global FX Insights

GOLD (SPOT) – technical overview

Despite the latest round of declines, the overall outlook remains constructive, with the market in the process of carvingout a longer term base off the 2015 low. Look for any additional weakness to be well supported ahead of 1200 in favour ofthe next major upside extension back towards critical resistance in the form of the 2016 high at 1375.

R2 1310 – 14Jun high – Strong•R1 1285 – 19Jun high – Medium•S1 1238 – 3Jul/2018 low – Medium•S2 1236 – 12Dec 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 marketparticipants also fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes toan unnerving climax.

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Friday, July 6, 2018 LMAX Exchange Global FX Insights

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 ralliesare classed as corrective, ahead of the next major downside extension towards a now possible measured move extensiontarget 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 pressurein 2018, with ramped up regulatory oversight and government crackdowns forcing many holders to exit positions. Themarket is also coming back to earth after a euphoric 2017 run that had bubble written all over. Bitcoin has struggled on thetransaction side as well, with transactions per second still a major drawback, even with the Lightning network makingsome progress on this front. Still overall, while Bitcoin may be exposed against the US Dollar and other fiat, its store ofvalue lure should continue to make it highly attractive within the crypto space.

BTCUSD – Technical charts in detail

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Friday, July 6, 2018 LMAX Exchange Global FX Insights

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 thecoming 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.

R2 550– 19Jun high – Strong•R1 480 – 24Jun high – Medium•S1 405– 29Jun low – Medium•S2 355 – 1Apr/2018 low – Strong•

ETHUSD – fundamental overview

Overall, we would not rule out risk for deeper setbacks given ongoing regulatory oversight and a global macro backdropthat would seemingly expose risk correlated projects on the Ethereum blockchain. Monetary policy normalization and ananticipated reduction in global risk appetite could put a tremendous strain on ERC20 projects that have yet to evenproduce proper use cases and proof of concept.

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Friday, July 6, 2018 LMAX Exchange Global FX Insights

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