Risk Off Flow Carries Over Into New Week

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 1.5659 – 18Sep high – Medium
• S1 1.5486 – 17Sep low  – Strong
• S2 1.5400 – Figure  – Medium

GBPUSD – fundamental overview

The major pair seems to have finally leveled out following an impressive post FOMC rate decision rally. Friday’s pullback has been attributed to some technical selling and a market that still believes the Fed will move ahead with a rate hike in 2015. Also factoring into recent trade has been demand for US Dollars on a flight to safety bid in light of the risk liquidation flows. Overall, last week’s healthy UK employment data and hawkish comments from BOE Carney and Forbes have helped to support the Pound on dips and from here, the focus will be on upcoming data for clearer directional insight. For today, the UK calendar is empty, with only US existing home sales and a Fed Lockhart speech 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 121.00 – 17Sep high – Strong
• R1 120.42 – 18Sep high – Medium
• S1 119.05 – 18Sep low – Medium
• S2 118.60 – 4Sep low – Strong

USDJPY – fundamental overview

Japan is out on holiday and trading conditions in the Yen have been notably thinner on Monday. Still, the currency continues to benefit from broader risk liquidation flows post the FOMC rate decision after the Fed Chair expressed concern over the outlook abroad and impact this was having on the Fed policy outlook. It seems the safe haven flow is more than offsetting any Dollar positive flows on expectation for a Fed rate hike in 2015 and on talk of additional QQE out of Japan. Dealers cite USDJPY stops below 119.00 Looking ahead, US existing home sales and a Fed Lockhart speech will be watched.

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 1.0900 – 18Sep low – Medium
• S2 1.0873 – 8Sep low – Strong

EURCHF – fundamental overview

Although this rate hasn’t moved all that much in the aftermath of last week’s double whammy of central bank event risk, 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. Last Thursday, 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 0.7280 – 18Sep high – Medium
• S1 0.7123 – 16Sep low – Medium
• S2 0.7085 – 15Sep low – Strong

AUDUSD – fundamental overview

Over the weekend, we got a dose of hawkish Fed speak, with Williams, Lacker and Bullard all on the wires and all talking rate hikes in 2015. But overall, it seems, even in the absence of Fed hawkishness and even in the aftermath of a dovish, Aussie supportive Fed rate decision, the US Dollar is winning out on the risk off flow reaction. Fed concern with the outlook abroad has made investors nervous and this is weighing more heavily on risk correlated currencies. An Aussie recovery off recent multi-year lows looks to be stalling out and could now be poised for a fresh wave of downside pressure is risk assets remain under pressure. Looking ahead, US existing home sales and a Fed Lockhart speech are the focus for Monday trade. Otherwise, it’s worth noting the Australian PM has appointed Scott Morrison as Treasurer.

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 Canadian Dollar continues to find offers into any form of a rally, with the currency still not ready to give up on the possibility for additional multi-year lows against the Buck. Although the Fed rate decision was more dovish than expected, a combination of a market that still expects a Fed rate hike in 2015 and some risk off flow after the Fed expressed concern over the outlook abroad have been enough to keep the Loonie under pressure. Throw in a very healthy retreat in OIL prices on Friday and the latest CAD weakness becomes even easier to justify. Looking ahead, Canada wholesale sales and US existing home sales are the key economic releases, though more attention could be placed on central bank speak with BoC Poloz and Fed Lockhart on the wires.

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 0.6457 – 18Sep high– Medium
• S1 0.6312 – 17Sep low – Medium
• S2 0.6244 – 7Sep low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has managed to hold up decently off recent multi-year lows, with some solid local data last week and a more dovish Fed rate decision attributed to the support. Still, overall, the risk correlated commodity currency is exposed, with broader risk off flow and an expectation the Fed will move ahead in 2015 dictating the primary direction for this market. Stocks have come under pressure over the past few sessions and if this pressure intensifies, it is expected to weigh more heavily on Kiwi. Looking ahead, US existing home sales and a Fed Lockhart speech are featured.

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 last 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 1947.00 – 15Sep low – Medium
• S2 1930.00 – 10Sep 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 and extending declines into the new week. 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

The GOLD market initially benefitted from the dovish FOMC policy decision on the back of some broad based US Dollar selling post event risk. However, it seems the metal has since found a different source of support with gains holding up even as the US Dollar recovers. Broad based risk liquidation and downside pressure in equity markets has inspired safe haven buying, with the yellow metal standing out as a primary candidate for these flows. The elevated concern over the outlook for the global economy is inviting renewed demand for GOLD, with the metal rallying impressively over the past few sessions.

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 after the emerging market currency was unable to hold onto dovish Fed gains, instead taking direction from risk off flows. The Rand could now be at risk for downtrend resumption if global sentiment continues to slide. Market participants will also start to look ahead to the SARB rate decision next week, where the central bank will need to balance the pressure for higher rates to offset a declining currency with the need for lower rates to accommodate a struggling 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. The likelihood for a hold also increases after last week’s dovish Fed.