US Dollar At Risk For Short-Term Weakness

GBPUSD – technical overview

Although the pressure still remains on the downside after the market broke to yet another 2014 low, Wednesday’s bullish outside day formation could finally be offering a little relief for the Pound. The market would need to break and close back above Thursday’s 1.5738 high for confirmation of the onset of a legitimate correction towards 1.5945. However, inability to extend gains would keep the immediate pressure on the downside and open the door for the next drop below 1.5590 and into the 1.5400-1.5500 area.

• R2 1.5945 – 11Nov high – Strong
• R1 1.5790 - 7Nov low – Medium
• S1 1.5590 – 19Nov/2014 low – Weak
• S2 1.5550 – Mid-Figure – Weak

GBPUSD – fundamental overview

The Pound has been attempting to recover off recent 2014 lows against the US Dollar this week. A less dovish than expected Bank of England Minutes and some much better than expected retail sales, have been sourced as the primary catalysts for the short-term directional shift. The Cable market had initially come under some intense pressure earlier in the week on the back of a recent downbeat BOE quarterly inflation report. But after the BOE Minutes showed some members concerned with a potential pickup in inflation, the market was quick to recover a bit and managed to extend gains post UK retail sales.  There are reported buy stops above 1.5740, which if taken out, could open more demand towards GBPUSD 1.5945. Today’s UK public finance and public sector net borrowing are not likely to factor into price action.

USDJPY – technical overview

Although the market continues to race to fresh 7-year highs, there are strong signs of near-term topping in favour of a period of correction and consolidation. Daily, weekly, and monthly studies are well overbought, and a now parabolic surge of over 1300 points since mid-October is deserving of a healthy retreat. Thursday’s bearish close sets the stage for the reversal, after the market raced higher, before completely stalling out and closing back near Thursday opening levels. Friday’s break below Thursday’s low provides added confirmation, with the break ending a sequence of consecutive daily higher lows. A daily close below 116.80 should accelerate declines, while only back above 119.00 negates short-term corrective outlook.

• R2 120.00 – Psychological – Strong
• R1 118.98 – 20Nov/2014 high – Medium
• S1 116.80 – 19Nov low – Medium
• S2 115.45 – 17Nov low – Strong

USDJPY – fundamental overview

We are finally seeing a bit of a correction in the Yen, with the currency finding some welcome relief following an intense round of selling since mid-October. Comments from Japan FinMin Aso could be contributing after the official said the pace of yen declines had been too rapid. But the technical overextension is enough alone to justify the recent reversal off 7 year highs in USDJPY just shy of 119.00. Still, market participants will be looking for a test of the 120.00 barrier in the days ahead, once this correction plays out. Japan is closed for holiday on Monday, and attention shifts to next Tuesday when BOJ Governor Kuroda is on the wires. Comments from Japan PM adviser Hamada that USDJPY 120.00 would be positive for the economy have not factored much into Friday trade.

EURCHF – technical overview

The market remains under pressure since breaking down below the previous yearly base at 1.2045, most recently dropping to 1.2009. The break exposes critical support at 1.2000, below which would open an acceleration of declines. However, there are some signs emerging of the potential for a recovery, with Wednesday’s mild bullish outside day formation off the yearly low, opening some upside follow through into Friday. Look for a break and daily close back above 1.2045 to confirm recovery and officially take the immediate pressure off the downside and a 1.2000 test.

• R2 1.2080 – 15Oct high – Strong
• R1 1.2045 – Previous base – Medium
• S1 1.2009 – 19Nov/2014 low – Weak
• S2 1.2000 – Psychological – Very Strong

EURCHF – fundamental overview

Though Wednesday’s poll on the “Save Our Swiss Gold” initiative, which showed only 38% in favour, failed to inspire any sustained recovery in EURCHF, Thursday’s comments from SNB Zurbruegg seem to be having a more lasting impact after the central banker said the SNB would firmly defend the 1.2000 floor, with unlimited FX intervention and other measures ‘immediately,” if needed. This is the first we have heard from an SNB official in several days, and the comments have opened a push back over 1.2020. Nevertheless, the gains have been rather mild and it seems until the SNB actually shows its hand, market participants will continue to call the central bank’s bluff.

AUDUSD – technical overview

A corrective rally looks to finally have stalled out, with the market poised for bearish resumption and looking to carve a lower top around 0.8800 in favour of a drop back below the recent 2014 low at 0.8541. The overall structure remains quite bearish, and only a break above 0.8911 would compromise the outlook. Below 0.8541 triggers a fresh downside extension into the 0.8300 area.

• R2 0.8830 – 78.6% retrace – Medium
• R1 0.8796 - 17Nov high – Medium
• S1 0.8541 – 7Nov/2014 low – Strong
• S2 0.8500 – Psychological – Strong

AUDUSD – fundamental overview

The Australian Dollar didn’t have a whole lot going for it this week. Tuesday’s downbeat RBA Stevens comments were followed up with Wednesday’s FOMC Minutes that did nothing to change the Fed’s course, and then Thursday’s solid US economic data. Meanwhile, softer China PMIs and ongoing sluggishness in commodities markets also weighed. Rapidly declining iron ore prices to 5-year lows got a lot of attention, with the news stirring speculation that some of the major Aussie players in this market could be forced out of business. The RBA also continues to talk down the Australian Dollar and with all of this going on, there shouldn’t be too much room for any sustainable Aussie upside.

USDCAD – technical overview

The market has entered a period of correction after establishing fresh 2014 highs at 1.1467 the other week. However, the uptrend remains firmly intact and any setbacks are expected to be well supported, ideally in favour of a fresh higher low above 1.1122 and bullish resumption beyond 1.1467. Ultimately, only below 1.1122 would delay the bullish structure.

• R2 1.1467 – 5Nov/2014 high – Strong
• R1 1.1402- 11Nov high – Medium
• S1 1.1260 – 18Nov low – Medium
• S2 1.1185 – 31Oct low – Medium

USDCAD – fundamental overview

Over the past several days, we have seen some really impressive economic data out of Canada. This has been highlighted by a blowout employment report, very solid manufacturing, and some impressive wholesale sales. Nevertheless, the Loonie hasn’t been able to really extend gains all that much with equally impressive economic data out of the US offsetting, and ongoing declines in oil prices offering a worry for the correlated CAD. While oil prices have bounced a bit, the commodity will need to rally a good deal more for this to have any meaningful impact. In the interim, the Canadian Dollar is still at risk for further declines, with the Bank of Canada not likely to act ahead of the Fed on rate hikes. Today’s Canada CPI data is the big event for the day and should be watched closely. Anything on the soft side will inspire fresh USDCAD upside, while a hotter print to open more CAD demand.

NZDUSD – technical overview

An impressive recovery for this market over the past several days, since dropping to a fresh 2014 low at 0.7660. However, the underlying structure is still bearish and the gains are classified as corrective. The market has now stalled out ahead of some formidable resistance at 0.8035 and looks like it could be carving the next lower top ahead of a bearish resumption back towards and eventually below 0.7660. Ultimately, only a break and close back above 0.8035 would compromise the bearish outlook.

• R2 0.8035 – 21Oct high – Strong
• R1 0.7975 - 17Nov high – Medium
• S1 0.7807 – 20Nov low – Medium
• S2 0.7660 – 7Nov/2014 low – Strong

NZDUSD – fundamental overview

The ongoing decline in dairy prices will likely have an impact on the RBNZ at its next policy decision, with the central bank expected to cement it recently adopted more accommodative stance. Fonterra’s latest dairy auction showed prices dropping to the lowest levels since 2009, and this opens the door for more payout cuts in early December. Adding more fuel to the fire has been the drop of 5.1% in whole milk powder, New Zealand’s largest dairy export. Oversupply, lack of demand in key markets and Russian sanctions have all been cited as causes for the price declines. The RBNZ has been quite vocal with its opinion on the overvalued local currency, and with the economy now suffering from the relative Kiwi strength, more downside is to be expected over the medium-term.

US SPX 500 – technical overview

The latest round of consolidation has been broken, with the market ascending to fresh record heights just shy of 2060. However, an intense surge of well over 10% in a month is a red flag for near-term exhaustion and topping, and at some point over the coming sessions the market should look for a healthy retreat. The key level to watch comes in at 2030 and a break and close below would trigger the correction and open a deeper drop towards 2002 further down. Inability to take out 2030 will keep the immediate pressure on the topside towards 2100.

• R2 2100.00 – Psychological – Strong
• R1 2059.00 – 18Nov/Record high – Medium
• S1 2030.00 – 17Nov low – Strong
• S2 2002.00 – 4Nov low – Strong

US SPX 500 – fundamental overview

US equity markets could soon be at risk for reversal off fresh record highs following these impressive gains post ramped up BOJ and ECB easing measures. Though these central banks have moved further into accommodation, the Fed has ended QE and is now on a path towards tightening. Major stock market corrections were seen at the end of QE1 and QE2, and with QE3 done, this pattern could play out again. Given the massive +10% move over the past month, traders may start thinking about profit taking into year-end, particularly with so much uncertainty surrounding the global growth outlook and effectiveness of quantitative easing as an effective stimulatory measure over the long-term.

GOLD (SPOT) – technical overview

A nice little recovery rally for this market over the past several days, with the price even poking back above 1200. A daily close above 1200 on Friday could open the door for additional corrective gains towards the 78.6% fib retrace off the 1256 to 1131 move around 1230. However, inability to establish above 1200 would suggest a lower top is in the cards ahead of a bearish resumption back towards the recent 4-year low at 1131. Ultimately, only above 1256 would compromise the underlying bearish structure.

• R2 1256.00 – 21Oct high – Strong
• R1 1205.00 – 18Nov high – Medium
• S1 1146.00 – 11Nov low – Medium
• S2 1131.00 – 7Nov/2014 low – Strong

GOLD (SPOT) – fundamental overview

Though gold has come a bit off recent recovery highs, the yellow metal is still well above recent 4-year lows at 1131. Gold poked back above 1200 on Tuesday and has been consolidating just below the psychological barrier since. Despite some prominent weakness in recent months, the metal’s safe haven status should not be discounted with the global economy looking more fragile and massive currency depreciations underway as central banks away from the US battle deflation. There is plenty of healthy two-way activity at current levels.

Feature – technical overview

USDMXN consolidates just off the recent yearly high with the market looking like it is getting ready for the next upside extension through 13.6780 and towards 14.0000 further up. A break and close above 13.6780 will confirm the constructive outlook and fresh higher low at 13.4920. However, at this point, only a break back below 13.3980 would compromise the bullish outlook.

• R2 13.9000 – Measured Move – Strong
• R1 13.6780 – 4Nov/2014 high – Medium
• S1 13.4920 – 14Nov low – Medium
• S2 13.3980 - 31Oct low – Strong

Feature – fundamental overview

The Mexican Peso hasn’t responded well to the latest batch of data out of Mexico, with retail sales coming out much stronger than expected. The market had been looking for a 3.2% y/y print and the 4.5% reading was a good deal healthier than forecast. It seems the broader macro theme of yield differentials and monetary policy divergence with the Fed is the primary driver of flows, and should continue to support this market despite local economic data. The Peso market will take in Mexico GDP on today.