Wednesday Volatility Expected Ahead of US Holiday

GBPUSD – technical overview

Although the pressure still remains on the downside after breaking to yet another 2014 low, the market has been content deferring to a period of consolidation. A break and close back above 1.5738 trigger the onset of a legitimate correction towards 1.5945, while inability to extend gains would keep the immediate pressure on the downside and open the door for the next drop below 1.5590 and towards 1.5400.

• R2 1.5945 – 11Nov high – Strong
• R1 1.5738 - 20Nov high – Medium
• S1 1.5590 – 19Nov/2014 low – Weak
• S2 1.5550 – Mid-Figure – Weak

GBPUSD – fundamental overview

Last week’s less dovish than expected BOE Minutes and solid UK retail sales have done a good job of helping to prop a beaten down Sterling market. But we are likely to get some more clarity on direction today, as traders digest UK provisional Q3 GDP and CBI distributive trades data forecast at 0.7% m/m  and 28 respectively. Overall, the ongoing theme of central bank policy divergence should keep any rallies well capped, with the BOE and other major central banks moving in an opposite direction of the Fed. The market has recently scaled back BOE rate hike expectations to H2 2015.

USDJPY – technical overview

Although the overall outlook remains highly constructive, there are strong signs of the formation of some for of a top in favour of a period of correction and consolidation. Daily, weekly, and monthly studies are well overbought and long overdue for a healthy retreat. Last Thursday’s bearish close has set the stage for a reversal, and a daily close below 116.80 would confirm and likely accelerate declines back into the 114.00s. Only back above 119.00 negates the 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

USDJPY has dropped back below 118.00 and is contemplating whether or not it is finally time to respect some highly overbought technical readings. Perhaps another sign USDJPY could finally be ready for a more significant correction comes after the major pair failed to rally on dovish comments from BOJ Shirai. The central banker said core CPI could slip below 1% in October and remain below 1% for several months, while adding it could take more than 2 years to reach the BOJ’s 2% inflation target. Dealers cite sell-stops built up below 117.35 and 116.80.

EURCHF – technical overview

Though the overall pressure remains on the downside, there are some signs emerging of the potential for a recovery. Look for a break and daily close back above 1.2045 to confirm the recovery and officially take the immediate pressure off the downside and a test of the critical psychological barrier at 1.2000.

• 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 last week’s poll on the “Save Our Swiss Gold” initiative, which showed only 38% in favour, failed to inspire any meaningful recovery in EURCHF, the same could not be said after Thursday’s comments from SNB Zurbruegg. 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. The Swiss gold referendum will be held on November 30th.

AUDUSD – technical overview

The market has broken to a fresh 2014 low, with the break below 0.8541 confirming a fresh lower top at 0.8796 and opening the door for the next major downside extension towards critical psychological barriers at 0.8000. Any rallies should now be very well capped ahead of 0.8700, while ultimately, only back above 0.8911 would compromise the bearish structure.

• R2 0.8796 – 17Nov high – Strong
• R1 0.8723 - 21Nov high – Medium
• S1 0.8514 – 25Nov/2014 low – Weak
• S2 0.8500 – Psychological – Strong

AUDUSD – fundamental overview

While currencies have mostly recovered against the Buck in recent sessions, this hasn’t done much to slow the pace of declines in AUDUSD which has broken to another fresh 2014 low. Tuesday’s bearish RBA Lowe comments and falling iron ore prices have been sourced as the primary catalysts for the relative underperformance in the Australian Dollar, while Wednesday’s release of the much softer Aussie contruction data, at its lowest levels since March 2013, has not helped. Still the market is finding some comfort in the US Dollar correction and reported M&A chatter between Rio Tinto and Glencore.

USDCAD – technical overview

The market has entered a period of correction after establishing fresh 2014 highs at 1.1467 several days back. 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 1.1192 – 21Nov low – Medium
• S2 1.1122 – 29Oct low – Strong

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, solid manufacturing, a hotter CPI print and Tuesday’s healthy retail sales. Nevertheless, in the grand scheme, the Canadian Dollar hasn’t been able to really extend gains all that much, with solid US economic data and declining oil prices offsetting. This should keep interest rate differentials tilted in the US Dollar’s favour. There are plenty of good USDCAD buyers into the current dip, with fresh bids all the way down towards 1.1100. A deluge of US economic data out on Wednesday ahead of the US Thanksgiving holiday will likely be the source of the next wave of volatility for this pair.

NZDUSD – technical overview

The latest corrective rally has stalled out, with the market poised for bearish resumption and looking to carve a lower top at 0.7975 in favour of a drop back below the recent 2014 low at 0.7660. The overall structure remains quite bearish, and only a break above 0.8035 would compromise the outlook. Intraday rallies are expected to continue to be well capped. A daily close below 0.7660 will trigger a fresh downside extension into the 0.7300 area.

• R2 0.8035 – 21Oct high – Strong
• R1 0.7975 - 17Nov high – Medium
• S1 0.7766 – 25Nov low – Medium
• S2 0.7660 – 7Nov/2014 low – Strong

NZDUSD – fundamental overview

Kiwi has come back under pressure this week, with the China rate cut euphoria fading away and some harsher realities setting back in following the release of the softer RBNZ 2-year inflation expectations. The data only reaffirms the RBNZ’s recent move away from its tightening bias, and this in conjunction with downgraded growth forecasts from the central bank, should keep Kiwi on the back foot. Falling dairy prices have also been a major concern, while the drag in the commodities market on the whole is a net Kiwi bearish theme. With that said, Aussie has taken an even harder hit of late and locals are now concerned with the AUDNZD rate perhaps dropping too hard down into the 1.0900s.

US SPX 500 – technical overview

While the market has managed to break to yet another fresh record high at 2075, an intense surge of well over 10% since mid-October is a red flag for near-term exhaustion and topping. At some point over the coming sessions the market should look for a healthy retreat. The key level to watch below comes in at 2052, with a break and close below to trigger the onset of a correction and open a deeper drop towards 2030 and then 2002 further down. However, inability to take out 2052 will keep the immediate pressure on the topside towards 2100.

• R2 2100.00 – Psychological – Strong
• R1 2075.00 – 21Nov/Record high – Medium
• S1 2052.00 – 21Nov low – Medium
• S2 2030.00 – 17Nov low – Strong

US SPX 500 – fundamental overview

US equity markets could soon be at risk for reversal off fresh record highs following impressive gains post ramped up BOJ, ECB and China easing measures. Though these central banks have moved further into accommodation, the Fed has ended QE and is now on a path towards tightening. Though we haven’t seen any signs of reversal just yet, 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 gains since mid-October, 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 a 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 poking back above 1200. Last Friday’s close above 1200 could now open the door for additional corrective gains towards the 78.6% fib retrace off the 1256 to 1131 move around 1230. However, the overall structure still remains bearish while below 1256, and a lower top is likely sought out over the coming sessions, ahead of bearish resumption. Ultimately, only above 1256 would compromise the underlying bearish structure.

• R2 1256.00 – 21Oct high – Strong
• R1 1208.00 – 21Nov high – Medium
• S1 1175.00 – 19Nov 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 last week and has since been consolidating around 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

US OIL (spot) remains locked within a very well defined downtrend, with the market tracking at 4-year lows and at risk for deeper setbacks. A break and close below the recent yearly low at 73.25 will open the next downside extension exposing the 2010 base ay 67.15. From there, look for the market to start to find some formidable support. Back above 77.80 would be required to take the immediate pressure off the downside.

• R2 77.80 – 21Nov high – Strong
• R1 76.60 – 25Nov high – Medium
• S1 73.25 – 14Nov/2014 low – Medium
• S2 71.70 - Sep 2010 low – Strong

Feature – fundamental overview

It certainly hasn’t been a good time for an oil market riddled with oversupply problems. Tuesday was the lowest daily close in more than 4 years and market participants are readying for yet another round of setbacks into the 60.00s. The latest slide comes at a time when attention has shifted to OPEC and what the organization will do re production in the days ahead. The latest chatter making rounds is that OPEC officials can not come to an agreement on production cuts, and this has opened the door for another round of declines. Should this become official, with OPEC holding back on cuts, expect oil prices to accelerate further to the downside.