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Thursday, June 7, 2018

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Global FX Insightsby LMAX Exchange Research & Analytics

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

Traders Look Ahead to Big Risk Events Wake-up call

Hawkish ECB speak and expectations for an ECB QE exit announcement next week have been behind this latest jumpin the Euro, with the rest of the currency market benefitting against the US Dollar as a result.

Technical highlights Daily Video

EURUSD Room for recovery to extend•GBPUSD Bullish back above 1.3620•USDJPY Overall structure still bearish•EURCHF Readying for return to 1.1500•AUDUSD Upside move corrective•USDCAD Plenty of choppy price action•NZDUSD Recovery within downtrend•US SPX 500 Expected to stall out•GOLD (spot) Well supported on dips•BTCUSD Retest of 2018 low possible•ETHUSD Loses bullish grip•

Fundamental highlightsEURUSD Upbeat ECB expectations fuel bids•GBPUSD Pound to watch Brexit headlines•USDJPY Investor sentiment fuels Yen decline•EURCHF SNB policy strategy to get tougher•AUDUSD Solid run of Aussie data helps•USDCAD Loonie contends with NAFTA risk•NZDUSD Yield differentials pose risk to Kiwi•US SPX 500 Fed model will be important to watch•GOLD (spot) Metal demand reflects uncertainty•BTCUSD Coinbase application submitted to SEC•ETHUSD SEC’s Szczepanik to oversee crypto•

Five day performance v. US dollar

Suggested readingItalians Play Russian Roulette with ECB, F. Giugliano, Bloomberg (June 6, 2018)•Who Are the Millennials?, V. Kortekaas, Financial Times (June 6, 2018)•

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Thursday, June 7, 2018 LMAX Exchange Global FX Insights

EURUSD – technical overview

Despite the latest round of setbacks into the 1.1500 area, the Euro remains confined to a medium term uptrend, with anyadditional weakness expected to be limited. Daily studies are already turning back up after the market finally droppedback to retest a major previous resistance turned support zone in the form of the breakout area from 2017. A daily closeback above 1.1830 will strengthen the constructive outlook.

R2 1.1855 – 16May high – Strong•R1 1.1830 – 22May high – Medium•S1 1.1713 – 6Jun low – Medium•S2 1.1618 – 1Jun low – Strong•

EURUSD – fundamental overview

There’s been renewed demand for the Euro after the currency had been hit hard since mid-April. More bids have comeinto the market since Wednesday, on the back of hawkish ECB speak and expectations for an ECB QE exit announcementat next week’s ECB meeting. A recent run of data out of the Eurozone has also been more encouraging, while defused riskassociated with Eurozone politics have done nothing to hurt the Euro’s cause either. Meanwhile, on the other side of theequation, the US Dollar has come under pressure of its own as the US moves ahead with its protectionist, soft Dollar policyplatform. Looking ahead, we get German factory orders, Eurozone GDP readings and US initial jobless claims.

EURUSD – Technical charts in detail

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Thursday, June 7, 2018 LMAX Exchange Global FX Insights

GBPUSD – technical overview

Overall, the structure remains constructive on a medium to longer term basis, despite a recent round of intense setbacks.The market will look to hold up above the weekly Ichimoku cloud and a higher low is sought out for a bullish continuation.Ultimately, only a sustained break back below 1.3000 would force a rethink, while a continued recovery and push backabove 1.3620 will strengthen the constructive outlook.

R2 1.3492 – 22May high – Strong•R1 1.3444 – 6Jun high – Medium•S1 1.3296 – 4Jun low – Medium•S2 1.3254 – 1Jun low – Strong•

GBPUSD – fundamental overview

The Pound has managed to extend its recovery out from a fresh 2018 low last week. The renewed demand comes on theback of more optimism surrounding the Brexit outlook, more upbeat and hawkish leaning talk from various officials, and abetter than expected run of UK data including retail sales, manufacturing PMIs and services PMIs. US protectionism hasalso worked its way back into the headlines, another supportive driver for the Pound given the soft Dollar policyimplications. Looking ahead, absence of first tier data out of the UK will put the focus on bigger picture stories surroundingBrexit and global trade. We also get US initial jobless claims.

GBPUSD – Technical charts in detail

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Thursday, June 7, 2018 LMAX Exchange Global FX Insights

USDJPY – technical overview

Rallies continue to be very well capped in the major pair, with the medium-term outlook still favouring lower tops andlower lows. A recent topside failure resulting in a bearish outside week has strengthened the outlook, which may have setthe stage for a drop back down to retest the 2018 low in the 104s. A break back above 111.40 would now be required totake the pressure off the downside.

R2 110.46 – 15May high – Strong•R1 110.24 – 6Jun high – Medium•S1 109.38 – 4Jun low – Medium•S2 108.73 – 1Jun low – Strong•

USDJPY – fundamental overview

Overall, the major pair is still very much correlated to risk sentiment. Investor appetite has been running strong despiteongoing worry of global trade wars, which has helped to inspire Yen declines. Yield differentials also play a part here andlast week’s US jobs report makes a compelling argument for a 4th rate hike from the Fed in 2018, yet another driver of Yenweakness. Nevertheless, we caution against sustained rallies in the major pair, with the risk rally in question amidst globaltension and US administration soft Dollar policy. Looking ahead, the market will continue to focus on the bigger picture,while also taking in US initial jobless claims.

Watch now

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Thursday, June 7, 2018 LMAX Exchange Global FX Insights

EURCHF – technical overview

The latest round of intense setbacks off the 2018 high are now looking extended and due for a push back to the topside.Overall, the market has been trending higher and only a sustained break back below this recently established yearly low inthe 1.1300s would suggest otherwise.

R2 1.1700 – Figure – Strong•R1 1.1653 – 24May high – Medium•S1 1.1508 – 5Jun 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 on that front in 2018, will likely invite a very large wave ofdemand for the Franc, which will put the SNB in a more challenging position to prevent appreciation in the Franc.

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Thursday, June 7, 2018 LMAX Exchange Global FX Insights

AUDUSD – technical overview

Overall, it’s been a sequence of lower tops and lower lows on the daily chart, with setbacks extending below the 0.7500barrier and exposing a possible retest of the 2017 low at 0.7330 further down. Any rallies are classified as corrective insearch of a lower top for bearish continuation, with only a break back above 0.7815 to take the immediate pressure off thedownside.

R2 0.7700 – Figure – Strong•R1 0.7677 – 6Jun high – Medium•S1 0.7561 – 4Jun low – Medium•S2 0.7477– 30May low – Strong•

AUDUSD – fundamental overview

The Australian Dollar has been in recovery mode over the past week, with the commodity currency getting a boost frombroad based USD weakness, healthy risk appetite and solid local data including retail sales and GDP. Tuesday’s RBAdecision offered no surprises and hasn’t factored into price action. Overall, Aussie will be most focused on the biggerpicture drivers and this leaves the currency in a position where it will need to decide if it wants to be rallying on the back ofrenewed broad based weakness in the US Dollar on account of US protectionism and soft Dollar policy, or selling off onwhat could be resulting deterioration in global sentiment. For now, with stocks bid up along with USD weakness, Aussie isbenefiting. Looking ahead, the market will continue to focus on the bigger picture stories, while also taking in US initialjobless claims.

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Thursday, June 7, 2018 LMAX Exchange Global FX Insights

USDCAD – technical overview

Overall, there are signs of basing after months of downside pressure. Look for any setbacks to now be well supportedahead of 1.2700, in favour of the next major upside extension through 1.3125 and towards 1.3500 further up. Ultimately, abreak back below 1.2730 would be required to negate the medium term constructive outlook.

R2 1.3125– 19Mar/2018 high – Strong•R1 1.3068 – 5Jun high – Medium•S1 1.2858 – 6Jun low – Medium•S2 1.2819 – 31May low – Strong•

USDCAD – fundamental overview

The Canadian Dollar is trying to figure out if it should be rallying in reaction to a US protectionism initiative thatultimately should lead to a softer US Dollar by design of the US administration, or if it should be selling off given the directimpact on the Canadian economy. Canada has not been happy with the US tariffs announced last week and reports ofadditional penalties, which opens the door to more uncertainty over the fate of NAFTA. Wednesday’s softer Ivey PMIs anddiscouraging building permits data offset a solid trade print and haven’t done anything to help the Loonie. Ultimately, allof this should keep the Canadian Dollar well capped into rallies, despite the soft US Dollar policy. Looking ahead, absenceof first tier data out of Canada will leave the market focused on the bigger picture headlines and some US initial joblessclaims data.

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Thursday, June 7, 2018 LMAX Exchange Global FX Insights

NZDUSD – technical overview

The market is in the process of turning up after trading down to a fresh 2018 low. But any rallies are now expected to bevery well capped ahead of 0.7200, with only a break back above the barrier to negate the bearish outlook.

R2 0.7097 – 27Apr high – Strong•R1 0.7061 – 6Jun high – Medium•S1 0.6961 – Figure – Strong•S2 0.6900 – Figure – Medium•

NZDUSD – fundamental overview

The New Zealand Dollar has held up surprisingly well of late, given an outlook for the Kiwi rate that is decidedly less rosyon account of diverging monetary policy and yield differentials. The RBNZ has pushed back its timeline for rate hikes, whileGovernor Orr has also welcomed New Zealand Dollar weakness. The RBNZ also released a paper in May outlining itswillingness to consider a more dovish course. At the same time, US data continues to point to higher rates as reflectedmost recently in last Friday’s US jobs report, while Kiwi data has been softer, as evidenced by this week’s negative GDTauction result. The one positive out there for Kiwi that has factored into its recovery out from a recent 2018 low, is thebroad based selling of the US Dollar as the US administration pushes its soft Dollar policy agenda. Still, we expect there tobe a fallout in risk sentiment as a consequence, which could weigh on a correlated commodity currency already notlooking as hot in light of diverging monetary policy. Looking ahead, the market will continue to focus on the bigger picturestories, while also taking in US initial jobless claims.

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Thursday, June 7, 2018 LMAX Exchange Global FX Insights

US SPX 500 – technical overview

A market is that has been extended on the monthly chart is finally showing signs of rolling over off the January recordhigh, allowing for stretched monthly readings to unwind. Any rallies should now be very well capped ahead of 2800 infavour of continued weakness back below the yearly low and eventually towards a retest of strong longer-term resistanceturned support in the form of the 2015 high at 2138.

R2 2807 – 13Mar high – Strong•R1 2800 – Psychological – Medium•S1 2704 – 15May low – Medium•S2 2656 – 8May 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 out there as the VIXstarts to rise from unnervingly depressed levels. The combination of Fed policy normalisation, US protectionism, fear ofsystemic risk out of Europe and geopolitical tension have been capping the market into rallies in 2018, with any renewedsetbacks at risk of intensifying on the prospect for the reemergence of inflationary pressure. Overall, we expect the biggerpicture theme of policy normalisation to continue to weigh on investor sentiment into rallies. The latest Fed decisionemboldens our view, with the central bank acknowledging inflation no longer running below target, something that makesequity market valuations far less attractive at current levels. We also recommend keeping a much closer eye on theequities to ten year yield comparative going forward as this could be something that inspires a more aggressive decline.

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Thursday, June 7, 2018 LMAX Exchange Global FX Insights

GOLD (SPOT) – technical overview

Setbacks have been well supported over the past several months, with the market continuing to put in higher lows andhigher highs. Look for some more chop followed by an eventual push above massive resistance in the form of the 2016high at 1375. This will then open the door for a much larger recovery in the months ahead. In the interim, setbacks areexpected to be well supported ahead of 1250.

R2 1375 – 2016 high – Very Strong•R1 1326 – 11May high – Medium•S1 1289 – 1Jun low – Medium•S2 1282 – 21May/2018 low – Strong•

GOLD (SPOT) – fundamental overview

Solid demand from medium and longer-term players persists, with these players more concerned about exhaustedmonetary policy, extended global equities, political uncertainty, systemic risk and geopolitical threats. All of this shouldcontinue to keep the commodity well supported, with many market participants also fleeing to the hard asset as the granddichotomy of record high equities and record low yields comes to an unnerving climax. Certainly the US Dollar underpressure has added to the metal’s bid tone as well, but there is a growing sense that even in a scenario where the US Dollaris bid for an extended period, GOLD will hold up on risk off macro implications. The 2016 high at 1375 is a massive levelthat if broken and closed above, could be something that triggers a widespread panic and rush to accumulate more of thehard asset.

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Thursday, June 7, 2018 LMAX Exchange Global FX Insights

BTCUSD – technical overview

The overall pressure remains on the downside and a break back above 10,000 will be required at a minimum to alleviatethis pressure. Still, the market has done a good job holding up into this latest drop to keep the possibility open for higherbase off the yearly low and renewed upside momentum.

R2 8,590 – 21May high – Strong•R1 7,800 – Figure – Medium•S1 7,040 – 29May low – Medium•S2 6,000 – 6Feb/2018 low – Strong•

BTCUSD – fundamental overview

The Coinbase acquisition of Keystone Capital offers a refreshing twist to a beaten down market, with the cryptoexchange submitting an application to the SEC to become a fully regulated broker dealer. Also making headlines arecomments from the SEC chief that crypto designed to replace fiat currencies are not classified as securities. Still, overall,Bitcoin has come under pressure in 2018, with all of this ramped up regulatory oversight and potential governmentcrackdown forcing many holders to exit positions. The market is also coming back to earth after a euphoric 2017 run thathad bubble written all over. Bitcoin has struggled on the transaction side as well, with transactions per second a majordrawback, along with a mining community that has been less willing to process transactions due to the lower fees. TheLightning network has been a welcome development and is helping to ramp up transaction speed, which has been behindsome of the recovery off the 2018 low.

BTCUSD – Technical charts in detail

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Thursday, June 7, 2018 LMAX Exchange Global FX Insights

ETHUSD – technical overview

Signs of recovery, with the market rallying out from the 2018 low and trying to get back above the daily Ichimoku cloud. Ifthe market can establish back above the daily cloud, it will open the door for additional upside towards next criticalresistance around 840 further up. Setbacks should be well supported ahead of 500, with only a break back below to negatethe constructive outlook.

R2 838 – 6May high – Strong•R1 656 – 23May high – Medium•S1 540 – 30May low– Medium•S2 490 – 28May low – Strong•

ETHUSD – fundamental overview

The market has been watching the price of Ether with added interest as reports swirl of US deliberations regarding itsstatus and designation. The SEC has created a new oversight position for crypto and has appointed Valerie Szczepanik tohead up the initiative. Overall, despite a recent recovery, the cryptocurrency remains under pressure in 2018 and setbackshave been more intense than those of Bitcoin. Though both markets are going through a period of shakeup followingbubble activity in 2017, there has been a bigger exodus from ETH with this cryptocurrency more heavily correlated toregulatory oversight than its older cousin, and more vulnerable to risk in global markets. The reduction in global riskappetite has put a strain on the investment in projects on the blockchain and with most of the blockchain projects built onthe Ethereum protocol, it makes sense to see this market more negatively impacted than Bitcoin, which is considered tobe the store of value digital currency.

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Thursday, June 7, 2018 LMAX Exchange Global FX Insights

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