Most currencies lost ground to the U.S. dollar as trade tensions increase pressure on Fed to ease.
Euro (ECU)
Session close: Settled at 1.1116, down 49 ticks
Fundamentals: The euro lost significant ground with the U.S. Dollar Index snapping back after President Trump said China called and wanted to restart trade talks. Now that pressure is on the Federal Reserve to loosen monetary policy amidst escalating trade tensions, the dollar has lost the safe haven trade war luster it once had. Also weighing on the euro was the worst read on German Ifo Business Climate since November 2012. U.S Durable Goods data was certainly nothing to write home about with the headline read missing at -0.4% but it was not enough to stop the recovery. Final German Q2 GDP data is due today at 1:00 am CDT and French Consumer Confidence is out at 1:45 am. From the U.S, we look to Case Shiller at 8:00 am CDT, Consumer Confidence at 9:00 along with Richmond Manufacturing.
Technicals: Aggressive bears had their opportunity on the open last night to fade the rally as it approached what we quoted as “strong resistance” at 1.1201. Throughout last week, the euro held below 1.11235-1.1149 for the most part and although this was weak price action, it was not gaining follow-through and the bulls were defending major three-star support at 1.1011-1.1050. In fact, as dollar bears defended the highs of the year and a crucial level at 98.25, the market remained contained and quiet ahead of Fed Chair Powell’s speech Friday, which was overshadowed by the trade war. We are only slightly bearish, but today’s closing level is not an attractive short.
Bias: Neutral/Bearish
Resistance: 1.1201**, 1.1254-1.1285***, 1.1325-1.1332**
Pivot: 1.11235-1.1149
Support: 1.1011-1.1050***, 1.089***
Japanese yen (JPY)
Session close: Settled at .94315, down 80.5 ticks
Fundamentals: The Japanese yen took an absolute beating yesterday, but the good news was despite the sharp reversal that finished a point and a half from the high, it was not an outside bearish reversal technically and fundamentally there is still a lot of uncertainty. Ongoing uncertainty has actually become overall concerns as global economic data is showing no signs of turning a corner any time soon. Yes, we have been calling for a light at the end of the tunnel, but this remains to be seen. Maybe its darkest before the dawn. For now, the fundamentals are favorable for the yen.
Technicals: The yen traded within an eyelash of the March 2018 high and yes risk-sentiment turned because of President Trump but the stock market was already off the lows. It is no coincidence that the S&P pinged its 200-day moving average and gold and the yen both were a hair from major levels at 1588 and .96145 before the tape shifted. The headwind is clear at .9478-.9516 and a move out above there is again immediate-term bullish. The tape remains near-term favorable above .9437. A break below major three-star support at .9360-.93705 is a failure and bearish. Because of the sharp reversal and achievement of .96145 we must reduce our Bullish Bias.
Bias: Neutral/Bullish
Resistance: .9478-.9516**, .96145***
Pivot: .9437
Support: .9360-.93705*** .9317-.9330**
Australian dollar (ADU)
Session close: Settled at .6779, up 21 ticks
Fundamentals: The Aussie dollar finished nearly a penny from its low of .6694; a higher low than the Aug. 7 reversal from .6685; the lowest level since March 2009. The Aussie is a barometer to the U.S-China trade war and although there are days where the headlines provide a relief to deeply embedded concerns as seen today, there has been no true progress on the issues of substance and this is why the Aussie is not seeing any true reprieve.
Technicals: If you have been searching for a reason to buy the Aussie, today’s higher low could fill that ongoing void. The settlement back above .6743 arguably keeps the bears on the sidelines but the true test is whether price action can close out above major three-star resistance at .6809-.6849 and that is a tall order. We are merely Neutralizing what has been a bearish position until further evidence of the freefall continuing given the technical landscape.
Bias: Neutral
Resistance: .6809-.6849***
Support: .6743*, .6685**, .6280-.6300***
Canadian dollar (CDU)
Session close: Settled at .75425, up 17.5 ticks
Fundamentals: The Canadian dollar, more than any other currency vs. the U.S. dollar, is seeing a light at the end of that tunnel. After tremendous groundwork, price action is firmly capitalizing on a wave of headline relief. Remember, the Bank of Canada has diverged in policy from other central banks around the world, at least for now. Canadian GDP is due Friday.
Technicals: After four direct tests to major three-star support at .7500, the Canadian dollar is responding and settled exactly at the 200-day moving average. The 50-day moving average crossed out above the 200-day on July 25 and this means that if the recovery can gain legs, the technical landscape can quickly bring a tailwind for those two aforementioned reasons. A close above first key resistance at .7572-.7595 will put this in motion. We are introducing an outright bullish bias in the loonie until a close below .7500 given the risk/reward in the case of a follow through.
Bias: Bullish
Resistance: .7572-.7595**, .7631-.7637**, .7685-.76915***, .78355***
Support: .7500***, .74575-.7466**, .7400***
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.
