Fed Rocks Boat With Dovish Policy Decision

GBPUSD – technical overview

Despite the latest impressive recovery rally, the price action is still classified as corrective with a lower top sought out ahead of 1.5700. Deeper setbacks are now favoured over the coming sessions, with the major pair seen gravitating back towards recent key support at 1.5089, which guards against the 1.5000 psychological barrier further down. Ultimately, only a close back above 1.5700 (78.6% of recent high-low move) would negate the bearish outlook.

• R2 1.5720 – 26Aug high – Strong
• R1 1.5628 – 17Sep high – Medium
• S1 1.5486 – 17Sep low  – Strong
• S2 1.5400 – Figure  – Medium

GBPUSD – fundamental overview

The Pound has done a good job extending gains this week, with the UK currency finding a fresh wave of demand in the aftermath of the dovish FOMC rate decision. Fed liftoff expectations have been seriously scaled back after the Fed downgraded its economic outlook, expressed concern over softer inflation and worried about external risk. The Pound had already been bid up this week on a healthy UK employment report, and this in conjunction with comments from BOE Carney downplaying risk associated with China and warnings from BOE Forbes that rates we need to go up fueling sooner than later BOE rate hike odds. Looking ahead, the UK economic calendar is empty, with only secondary US data in the form of leading indicators standing out.

USDJPY – technical overview

The latest rally has been well capped ahead of 122.00 and a lower top is now sought out in favour of a resumption of declines back towards the recent extreme low at 116.12. At this point, only a daily close back above 122.00 would negate the short-term bearish outlook and put the pressure back on the topside.

• R2 121.74 – 28Aug high – Strong
• R1 121.33 – 10Sep high – Medium
• S1 119.66 – 18Sep low – Medium
• S2 119.40 – 15Sep low – Strong

USDJPY – fundamental overview

The Minutes from the latest Bank of Japan meeting haven’t had any real influence on Friday price action, with the market instead trading off broader fundamentals and flows. The Yen is finding renewed bids post the dovish FOMC rate decision, with yield differentials moving out of the US Dollar’s favour. Another major contributor of recent Yen strength is the pullback in equities markets, with the Yen correlating well with the risk off flow. Looking ahead, US leading indicators are the only notable standout on the economic calendar. Look for this market to continue to trade off risk sentiment into the weekend.

EURCHF – technical overview

The recovery outlook remains intact, with the price piercing through key resistance at 1.0962, confirming a medium-term higher low at 1.0714 and opening the next major upside extension towards a measured move objective in the 1.1200 area. The rally has since stalled a bit but only back below 1.0714 would negate the constructive outlook.

• R2 1.1200 – Measured Move – Strong
• R1 1.1050 – 11Sep high – Medium
• S1 1.0916 – 16Sep low – Medium
• S2 1.0873 – 8Sep low – Strong

EURCHF – fundamental overview

Although this rate hasn’t moved all that much in the aftermath of the double whammy of central bank event risk on Thursday, the SNB isn’t going to be too happy with the dovish Fed decision as it opens the door to the possibility for renewed Franc demand on less favourable US Dollar yield differentials and flight to safety flows. The SNB left policy on hold as was widely expected, with Jordan throwing out the regular lines of the Franc remaining overvalued and negative interest rate policy likely to remain in place “for the foreseeable future.”

AUDUSD – technical overview

The correction out from recent multi-year lows sub-0.7000 is showing signs of stalling out, with the market now looking for the next lower top ahead of a bearish continuation and fresh downside extension. Ultimately, only back above 0.7440 would compromise the bearish outlook.

• R2 0.7311 – 24Aug high – Strong
• R1 0.7275 – 17Sep high – Medium
• S1 0.7123 – 16Sep low – Medium
• S2 0.7085 – 15Sep low – Strong

AUDUSD – fundamental overview

Aussie gains in the aftermath of the dovish Fed decision have been tempered, with the recovery stalling out as risk off flows weigh on the correlated commodity currency. RBA Stevens testimony early Friday has however been mostly well received, with the central banker offering a positive outlook, with no signs of the need for additional policy accommodation. While Stevens highlighted concern over further financial market volatility, he also offset this, expressing his comfort with current monetary policy and his confidence the economy is progressing through major adjustments. Looking ahead, US Dollar flows and risk sentiment are likely to dictate direction for the remainder of the day, with the economic calendar exceptionally light.

USDCAD – technical overview

The market is locked within a well defined uptrend, pushing to fresh 11-year highs and closing in on next major psychological barriers at 1.3500. However, with medium-term studies looking stretched, we are seeing the onset of consolidation to allow for these stretched studies to unwind. But ultimately, any corrective declines should be well supported with a higher low sought out ideally above 1.2860 in favour of a bullish continuation.

• R2 1.3354 – 25Aug/2015 high – Strong
• R1 1.3257 – 16Sep high – Medium
• S1 1.3117 – 31Aug low – Medium
• S2 1.3074 – 17Sep low– Strong

USDCAD – fundamental overview

The beaten down Canadian Dollar has held up rather well this week, with the Loonie benefiting from solid Canada manufacturing data and a recovery in OIL prices. While Thursday’s dovish FOMC rate decision did manage to inspire additional CAD demand, these gains proved to be short-lived, with the retreat in equities into the Thursday close weighing on the correlated currency. Looking ahead, Canada data takes centre stage on Friday, with the market taking in the latest inflation figures. Also out but of less significance are US leading indictors.

NZDUSD – technical overview

The market remains under pressure, just off fresh multi-year lows, locked within a well defined downtrend. Deeper setbacks are favoured below 0.6130, with the break to open the next major downside extension through psychological barriers at 0.6000. Any rallies are viewed as corrective and ultimately, only a break back above 0.6740 would compromise the bearish structure.

• R2 0.6504 – 28Aug high– Strong
• R1 0.6446 – 17Sep high– Medium
• S1 0.6312 – 17Sep low – Medium
• S2 0.6244 – 7Sep low – Strong

NZDUSD – fundamental overview

The improvement in New Zealand consumer confidence from the previous print hasn’t really factored into Friday trade, with the risk correlated New Zealand Dollar trading off sentiment flow and Fed interest rate differentials. While the dovish FOMC rate decision fueled the recent Kiwi recovery to fresh multi-session highs, gains were well capped, with the market coming into Friday under pressure on the pullback in US equities. Looking ahead, broader macro flows will continue to dictate trade into the Friday close, with secondary US data in the form of leading indicators taking a backseat.

US SPX 500 – technical overview

The market has been locked in some choppy consolidation following the sharp pullback from record high territory several days back. The breakdown reflects a major structural shift in the works, with deeper setbacks now favoured over the coming days and weeks. The rebound out from the 1830 area low is viewed as corrective, with a lower top sought out around Thursday’s 2020 area spike high, ahead of the next major downside extension and bearish continuation below 1800. Only a daily close back above 2022 would delay the newly adopted bearish outlook.

• R2 2070.00 – 19Aug low – Medium
• R1 2022.00 – 17Sep high – Strong
• S1 1974.00 – 16Sep low – Medium
• S2 1947.00 – 15Sep low – Strong

US SPX 500 – fundamental overview

Price action in US equities post FOMC rate decision has been unsettling to say the least, with the market unable to hold onto to the dovish decision gains, retreating sharply into the close. The Fed has relied heavily on its ultra accommodative central bank policy to keep asset prices well supported and if stocks come under additional downside pressure in the sessions ahead, this could spell trouble for financial markets. The combination of monetary policy that isn’t likely to get more accommodative and a faltering stock market is a recipe for disaster the Fed does not want on its hands.

GOLD (SPOT) – technical overview

The latest impressive recovery out from the 1100 area suggests the market is in the process of carving a meaningful higher low ahead of the next major upside extension through 1170. Look for a break above 1170 to confirm and open an acceleration back towards medium-term resistance at 1233. Only a close below 1100 negates. 

• R2 1170.00 – 24Aug high – Strong
• R1 1148.00 – 1Sep high – Medium
• S1 1099.00 – 11Sep low – Medium
• S2 1073.00 – 20Jul/2015 low – Strong

GOLD (SPOT) – fundamental overview

GOLD has been a standout beneficiary of the combination of a dovish FOMC rate decision and risk off flows. US Dollar yield differentials have moved out of the Buck’s favour since the announcement and this Dollar selling has helped inspire demand for the inversely correlated metal. Moreover, with the stock market failing to find confidence in the dovish decision, investors have grown uneasy and are more comfortable rotating back into the safe haven metal.

Feature – technical overview

USDZAR has entered a corrective phase after recently breaking to fresh record highs above 14.0000. While there still could be room for additional corrective action ahead, the uptrend remains firmly intact and a higher low is now sought out above 13.0000 ahead of the next major upside extension and bullish continuation. Ultimately, only a daily close below 13.0000 would delay the highly constructive outlook.

• R2 14.0150 – 7Sep/Record – Strong
• R1 13.4950 –16Sep high – Medium
• S1 13.1650 – 17Sep low – Medium
• S2 12.9650 – 24Aug low – Strong

Feature – fundamental overview

An overdue Rand recovery off record lows against the Buck could finally be stalling out into Friday after the emerging market currency was unable to hold onto dovish Fed gains, instead taking direction from risk off flows. The Rand had mounted a nice rebound this week on some better South Africa trade data and softer US CPI readings but could now be at risk for downtrend resumption if global sentiment continues to slide. Market participants will now also start to look ahead to the SARB rate decision later this month, where the central bank will need to balance the pressure of the need for higher rates on a declining currency with a slowing domestic economy. Investec has been advocating for an on hold SARB despite Rand weakness, as any additional tightening would have a more detrimental impact on confidence.