Monday, July 25, 2016

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Global FX Insights
by LMAX Exchange Research & Analytics
Comprehensive daily market research and analytics, with insightful commentary and charts

G-20 Acknowledges Limitations of Monetary Policy

Wake-up Call

The market isn't accustomed to reacting to G20 headlines, but if it were to respond to this weekend's communique, it
would be feeling pretty good about the fact that the Group remains committed to using all available tools to combat
sluggish growth. At the same time, the Group acknowledges the limitations of monetary policy tools.

Technical highlights

Daily Video

EURUSD Nears major support

GBPUSD Consolidates off lows
USDJPY Signs of lower top
EURCHF Testing range base
AUDUSD Focus on downside
USDCAD Testing critical barrier
NZDUSD Additional upside limited
US SPX 500 Bullish above 2150
GOLD (spot) Fresh upside ahead
Feature USDTRY Record highs

Fundamental highlights
EURUSD German IFO featured Monday
GBPUSD Pound knocked on softer PMIs
USDJPY Solid Japan trade data shrugged off
EURCHF Easy times running out for SNB
AUDUSD A quiet start to week for Aussie
USDCAD Major buy-stops above 1.3190
NZDUSD Kiwi hungover from RBNZ
US SPX 500 Investors neglect geopolitical risk
GOLD (spot) Medium-term players buy metal
Feature USDTRY More downside risk for Lira

Five day performance v. US dollar

Suggested reading
The Exchange Rate Disconnect Puzzle', M. Wolf, ISER Discussion (July 13, 2016)
Showing Turkeys Markets Some Love, N. Kaissar, Bloomberg (July 22, 2016)

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Monday, July 25, 2016

LMAX Exchange Global FX Insights

EURUSD technical overview

The recent break below previous key support at 1.1098 puts the pressure on the downside, exposing a drop to next
medium-term support in the 1.0823 to 1.0912 area, which guards against the critical December 2015 multi-year base at
1.0521 further down. At this point, a daily close back above 1.1187 would be required to alleviate immediate downside
pressure.

R2 1.1187 5Jul high Strong

R1 1.1061 21Jul high Medium
S1 1.0952 25Jul low Medium
S2 1.0912 24Jun low Strong

EURUSD fundamental overview

Though it wasnt a first-tier data release, Fridays upbeat US Markit manufacturing PMI data proved to be enough of
a catalyst to open more downside pressure in the Euro. It seems the ongoing batch of healthy data releases out of the US is
doing a good job shifting Fed policy expectations, with many market participants now considering a more hawkish Fed
later this week. Looking ahead, there isnt a whole lot of data on Monday and its German IFO readings that will take centre
stage. Otherwise, the market will keep an eye on broader sentiment flow. Dealers have been talking HFTs and momentum
types on the offer.

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Monday, July 25, 2016

LMAX Exchange Global FX Insights

GBPUSD technical overview

A recent bullish reversal week ends a sequence of consecutive weekly lower tops and suggests that an interim base could
be in place at the +30 year low of 1.2797. Still, the overall downtrend remains well intact and any additional upside from
here is likely to run in formidable resistance ahead of 1.3800. Key levels to watch above and below over the coming
sessions come in at 1.3315 and 1.3065 respectively.

R2 1.3291 22Jul high Strong

R1 1.3200 Figure Medium
S1 1.3065 20Jul low Medium
S2 1.2972 12Jul low Strong

GBPUSD fundamental overview

The Pound has stabilised since finding a post Brexit low several days back, though rallies have been very well capped.
Fridays weaker than expected UK manufacturing and services PMIs have further contributed to downside pressure into
the new week, while solid US economic data only builds a stronger case for the short Sterling trade on favourable
US Dollar yield differentials. Looking ahead, the only notable release in Monday trade is some second tier UK CBI industrial
trends which shouldnt factor into trade. Look for any headlines relating to Brexit fallout and broader sentiment flow to
dictate trade.

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Monday, July 25, 2016

LMAX Exchange Global FX Insights

USDJPY technical overview

The latest topside failure suggests we could be seeing the end of a corrective rally in favour of the next major downside
extension below 100.00. At this point, only a break back above 107.49 would negate this outlook and give reason for pause.
A break below 103.90 will strengthen the outlook and accelerate declines.

R2 107.49 21Jul high Strong

R1 107.00 Figure Medium
S1 104.63 15Jul low Medium
S2 103.90 13Jul low Strong

USDJPY fundamental overview

Solid Japan trade data was out early Monday but didnt really have any impact on the Yen. For the most part, the market
has been supported in recent days on improving US economic data and expectations for a large stimulus package from
the BOJ this Friday. But it already seems the market may be starting to feel like it is getting a little ahead of itself in terms of
the size of the package the BOJ may deliver, which is leaving room for profit taking on USDJPY longs into rallies. The
revelation of the BBC Kuroda comment re not using helicopter money has also taken some of the wind out of USDJPYs
sails. Looking ahead, Mondays quiet calendar for the remainder of the day will leave the major pair trading on risk
appetite and macro flows.

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Monday, July 25, 2016

LMAX Exchange Global FX Insights

EURCHF technical overview

Dips continue to be very well supported despite a recent intense decline into the 1.0600s. From here, there is risk for a
more meaningful bounce that extends back to the range highs in the 1.1130 to 1.1200 area. Only a daily close below 1.0778
compromises the constructive outlook.

R2 1.0945 12Jul high Strong

R1 1.0905 21Jul high Medium
S1 1.0800 Figure Medium
S2 1.0778 16Jun low Strong

EURCHF fundamental overview

The SNB is feeling more relieved in recent trade, with the cross rate well supported on SNB intervention post Brexit, but
now benefitting greatly from a resurgence in risk appetite as Brexit risk pauses for a breather. The SNB remains committed
to stepping in to defend against unwanted Franc appreciation, but could have a difficult time down the road if risk
liquidation resumes. While fear of Brexit has subsided somewhat, there is still way too much uncertainty surrounding the
event to rule out the possibility for another sharp pullback in risk and fresh wave of demand for the Franc. Moreover, one
wonders how much longer the market will remain immune to ongoing geopolitical risk wreaking havoc around the globe.

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Monday, July 25, 2016

LMAX Exchange Global FX Insights

AUDUSD technical overview

The market has been struggling on rallies above 0.7600 and this suggests the rate could be looking to carve a lower top
below the 2016 high at 0.7835, in favour of the next major downside extension. Look for a daily close below 0.7450 to
strengthen this outlook and accelerate declines. Ultimately, only a daily close back above 0.7677 would negate the newly
adopted bearish outlook and invite a retest of the 2016 highs.

R2 0.7607 18Jul high Strong

R1 0.7517 20Jul high Medium
S1 0.7443 22Jul low Medium
S2 0.7408 6Jul low Strong

AUDUSD fundamental overview

The economic calendar is rather light Monday, Tuesday, which will leave the Australian Dollar trading off broader macro
flow. Perhaps attitude towards the US Dollar will also play a part in the early week, though on Wednesday things heat up in
a big way for the Australian Dollar which will first digest a very important inflation report and then take in the highly
anticipated Fed decision. Heading into Wednesday, the consensus is for a softer Aussie inflation print and more hawkish
Fed given the recent run of positive US data. All of this should keep Aussie well offered into any rallies.

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Monday, July 25, 2016

LMAX Exchange Global FX Insights

USDCAD technical overview

The market could finally be in the process of establishing a meaningful base following this latest impressive reversal out
from multi-month lows below 1.2500. A higher low looks to be carving at 1.2655 with a break back above 1.3189 to confirm
the higher low and basing outlook, opening an acceleration of gains towards 1.3500 further up. Only back below 1.2655
negates.

R2 1.3296 24Mar high Strong

R1 1.3189 24May high Very Strong
S1 1.3057 22Jul low Medium
S2 1.3014 20Jul low Strong

USDCAD fundamental overview

The Canadian Dollar hasnt done a good job responding favourably to economic data in recent trade. Last Thursday the
Loonie traded lower despite solid wholesale sales, and then on Friday, Canada CPI and retail sales both came in slightly
better than forecast. It seems the market is paying more attention to strong US economic data over the past several days
and a pullback in the price of OIL. Dealers have been talking major buy stops in USDCAD above 1.3190. Looking at
Mondays calendar, lack of data will leave the market focused on broader flow and risk sentiment.

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Monday, July 25, 2016

LMAX Exchange Global FX Insights

NZDUSD technical overview

Rallies to fresh 2016 highs above 0.7300 have been well capped, with the market looking to adhere to the broader
downtrend. The recent break below 0.7080 strengthens the bearish outlook and should now accelerate declines back
towards critical medium-term support further down at 0.6675. At this point, only back above 0.7325 negates.

R2 0.7116 19Jul high Strong

R1 0.7068 20Jul high Medium
S1 0.6952 21Jul low Medium
S2 0.6893 7Jun low Strong

NZDUSD fundamental overview

The New Zealand Dollar has been locked in a consolidation since the recent decline post last weeks downbeat RBNZ
economic assessment. But with the market growing increasingly bearish and more RBNZ rate cuts getting priced in, the
risks seem to be tilted to the downside, with any rallies expected to find formidable sell interest from medium-term
players. Moreover, US economic data has been solid and this further supports the case for a lower Kiwi rate as yield
differentials move in the US Dollars favour on the expectation the Fed will be sounding more hawkish this week. As far as
economic data goes, lack of first tier releases out of New Zealand this week will leave the market focused on US data, Fed
event risk and broader macro flows.

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Monday, July 25, 2016

LMAX Exchange Global FX Insights

US SPX 500 technical overview

The market has stormed back to fresh record highs and there is scope from here for additional upside in the sessions
ahead towards next key psychological barriers at 2200. Still overall, the prospect for the formation of a longer-term top is
very much alive and any signs of exhaustion and a rolling back over below 2100 in the sessions ahead will strengthen this
outlook and invite renewed downside pressure. But initially, we would need to see a daily close below 2150 to take the
immediate pressure off the topside.

R2 2200.00 Psychological Strong

R1 2179.00 25Jul/Record Medium
S1 2149.00 14Jul low Medium
S2 2136.00 12Jul low Strong

US SPX 500 fundamental overview

It seems US equities are taking advantage of the current backdrop of improving US economic data and an expectation
the Fed still wont show it is in any rush to move on rates when it meets this week. The combination of these two variables
makes for a Goldilocks environment where investors will continue to drive stocks to record highs. Still, it seems with
monetary policy exhausted, the Fed in a tougher spot forced to be thinking about higher rates, and the possibility for
another asset price bubble, there is a big question mark around how much longer this artificial support can hold up.
Moreover, there is increasing concern the market continues to neglect pricing ongoing geopolitical risk.

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Monday, July 25, 2016

LMAX Exchange Global FX Insights

GOLD (SPOT) technical overview

The recent break above the previous 2015 peak at 1307 strengthens the case for a longer term base with the market
confirming a medium-term higher low in the 1200 area, opening the door for the next major upside extension towards a
measured move at 1400. Any setbacks should be very well supported ahead of 1300, with only a break below 1250 to
compromise the outlook.

R2 1375.20 6Jul/2016 high Strong

R1 1337.70 20Jul high Medium
S1 1303.90 1May low Strong
S2 1250.30 24Jun low Strong

GOLD (SPOT) fundamental overview

Despite recent setbacks, GOLD has been very well supported in 2016, with the yellow metal finding solid demand from
medium and longer-term players on the back of fears over the limitations of exhausted monetary policy and extended
global equities. All of this will almost certainly continue to keep the commodity in demand, with many market participants
fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving
climax. Moreover, rising geopolitical risk is also inviting hard asset demand.

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Monday, July 25, 2016

LMAX Exchange Global FX Insights

Feature technical overview

USDTRY has finally broken up to another fresh record high after a period of multi-month consolidation. The latest break
through the previous peak from 2015 now opens the door for a measured move upside extension towards 3.3500 in the
days ahead. At this point, a break back below 2.8390 would be required to take the immediate pressure off the topside.

R2 3.3500 Measured Move Strong

R1 3.0970 20Jul/Record Medium
S1 2.9660 19Jul low Medium
S2 2.9260 18Jul low Strong

Feature fundamental overview

Fresh record lows for the Turkish Lira last week, following Wednesdays S&P Turkey ratings downgrade to BB in the
aftermath of the failed coup. Erdogan has also not been a fan of higher rates to curb currency depreciation and the deputy
PM has said there would be no intervention at this point in time. This opens the door for more record lows over the coming
days, with USDTRY potentially moving towards 3.5000. There is chatter of additional downgrades from the other rating
agencies which wouldnt do anything to help the beleaguered Lira. Looking ahead, the economic calendar is light in the
early week and participants will continue to track developments out of Turkey post coup attempt, along with broader
macro flows.

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Monday, July 25, 2016

LMAX Exchange Global FX Insights

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