Fed Ramps Up Dovish Speak, Hints at Scaling Back

GBPUSD – technical overview

The corrective rally in the major pair has stalled out for now at 1.4668, with this most recent break and close below 1.4350 suggesting the market could already be poised for the next major downside extension below 1.4080. A daily close below 1.4235 would strengthen this outlook and accelerate declines back to the near 7 year low, while back above 1.4668 would be required to negate and take the immediate pressure off the downside.

• R2 1.4413 – 15Feb low – Strong
• R1 1.4353 – 8Feb low – Medium
• S1 1.4235 – 17Feb low  – Medium
• S2 1.4149 – 29Jan low  – Strong

GBPUSD – fundamental overview

The UK market will be more focused on today’s EU Summit, with many looking to see if PM Cameron can secure a deal that will avoid an exit from the EU. The Pound has been under pressure in recent trade, though setbacks have stabilised a bit into Thursday, perhaps on the back of a round of dovish Fed comments, upgraded concern over downside risks in the Fed Minutes and a recovery in the price of OIL. Wednesday’s UK employment data was on the whole rather mixed and didn’t really factor into trade. The UK economic calendar is empty on Thursday and aside from the EU Summit, the focus will be on broader macro themes and a batch of US data featuring  initial jobless claims, the Philly Fed and leading indicators.  Fed Williams is also slated to speak late in the day.

USDJPY – technical overview

The market has entered a period of correction after dropping to a multi-month low just under 111.00. From here, there is still risk for this correction to extend into the 116.00-118.00 area before looking for a fresh lower top and bearish continuation. But overall, the pressure remains on the downside with only a break back above 122.00 to negate.

• R2 115.97 – 20Jan low – Strong
• R1 114.87 – 16Feb high – Medium
• S1 113.38 – 17Feb low – Strong
• S2 113.00 – Figure – Medium

USDJPY – fundamental overview

It looks like the task of stimulating the Japanese economy will fall squarely on the BOJ’s shoulders after PM Abe ruled out the possibility of fiscal stimulus at this time. The market will certainly be looking for additional BOJ easing in March, though the latest comments from Governor Kuroda offer no such guarantee, after the central banker said the BOJ would ease ‘if needed.’ USDJPY has pulled back from recovery highs on the back of these developments, while a slew of dovish Fed speak and upgraded Fed concern over downside risks have also factored into trade. Still, setbacks have been well supported, with an impressive recovery in stocks, a rebound in OIL and some discouraging components in the latest Japanese trade data, all supporting dips in the major pair. Looking ahead, broader macro themes should continue to influence direction, with the market also taking in US data featuring initial jobless claims, the Philly Fed and leading indicators.  Fed Williams is also slated to speak late in the day.

EURCHF – technical overview

The latest round of setbacks from fresh multi-month highs at 1.1200 are viewed as corrective, with the broader outlook still highly constructive. Look for any additional weakness in the sessions ahead to be well supported above 1.0900 on a daily close basis, in favour of a higher low and the next major upside extension through 1.1200 and towards 1.1400 further up. Only a close below 1.0900 would delay the outlook.

• R2 1.1096 – 8Feb high – Strong
• R1 1.1062 – 17Feb high – Medium
• S1 1.0950 – 11Feb low – Medium
• S2 1.0910 – 20Jan low – Strong

EURCHF – fundamental overview

An impressive recovery in risk assets over the past few sessions has been taking a good deal of pressure off the SNB, with the risk correlated EURCHF rate rallying in response. Clearly, the SNB strategy of weakening the Franc has been highly effective these past several months. But at the same time with signs of risk liquidation flow intensifying in 2016 and with the other traditional safe haven currencies rallying sharply to their detriment, the SNB battle could get a lot tougher. We’ve already seen EURCHF come under pressure off recent highs and should other central banks move to looser policy, this could make the Franc more attractive again. The SNB has reiterated its commitment to offset Franc inflows at every turn, but it will be interesting to see what happens if risk sentiment takes another turn for the worse. Swiss trade data is out today.

AUDUSD – technical overview

The market has entered a period of correction out from the recent multi-year low at 0.6827. However, any additional upside should be limited to the 0.7265 area, with a lower top sought out ahead of a fresh downside extension and bearish continuation below 0.6827 and towards the next key barrier at 0.6500 further down. Ultimately, only back above 0.7385 would force a shift in the bearish structure.

• R2 0.7242 – 4Feb high – Strong
• R1 0.7187 – 17Feb high – Medium
• S1 0.7081 – 16Feb low – Medium
• S2 0.7037 – 10Feb low – Strong

AUDUSD – fundamental overview

The Australian Dollar has taken a bit of a hit into Thursday, with the market suffering from a much weaker than expected Aussie employment report. Still, overall, employment has been strong and it is unlikely one print will have any meaningful influence on the RBA’s outlook. The central bank is expected to continue to take its on hold, wait an see approach, with no additional cuts expected. Setbacks have also been rather mild despite the softer jobs, with the risk correlated currency benefitting from a wave of dovish Fed commentary, recovery in stocks and rebound in the price of OIL. Looking ahead, broader macro themes should continue to influence direction, with the market also taking in a batch of US data featuring initial jobless claims, the Philly Fed and leading indicators.  Fed Williams is also slated to speak late in the day.

USDCAD – technical overview

The market has entered a period of intense correction following the recent surge to a near 13 year high at 1.4690. This most recent setback below 1.3800 opens the door for a deeper drop into the 1.3500s, which coincides with medium-term rising trend line support. At this point, only back above 1.4017 would suggests the correction has run its course, with the market poised for bullish resumption.

• R2 1.3798 – 15Feb low – Strong
• R1 1.3707 – 16Feb low – Medium
• S1 1.3639 – 4Feb/2016 low – Medium
• S2 1.3560 – Major Trend-Line – Strong

USDCAD – fundamental overview

The impressive recovery run for the Canadian Dollar continues, with the Loonie benefitting on multiple fronts in recent days. The combination of higher OIL, a rebound in stocks and a wave of dovish Fed speak, have all helped to prop the commodity currency. And yet, all of these supportive themes are not strong enough just yet to convince of a meaningful staying power, which suggests the Loonie’s rally could end sooner than later. Technicians cite major trend-line support in USDCAD that comes in between 1.3550 and 1.3600 and if this level is tested, it could offer a good excuse for US Dollar bulls to resurface. Looking ahead, Canada wholesale sales are due, along with a batch of US data featuring initial jobless claims, the Philly Fed and leading indicators.  Fed Williams is also slated to speak late in the day.

NZDUSD – technical overview

The market remains confined to a broader downtrend with any rallies seen very well capped. A recent correction has stalled out around 0.6750 with the market looking like it is in the process of carving a fresh lower top ahead of the next major downside extension. The latest break below 0.6563 strengthens the outlook, exposing declines towards next key support at 0.6347 in the sessions ahead. Ultimately, only back above 0.6900 negates the bearish outlook.

• R2 0.6752 – 5Feb high– Strong
• R1 0.6700 – Figure – Medium
• S1 0.6600 – Figure – Medium
• S2 0.6546 – 16Feb low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has done a good job recovering off the weekly lows, with the risk correlated commodity currency shrugging a slew of disappointing local data, focusing more on the recovery in global equities, commodities and dovish Fed speak. Kiwi has also benefitted a bit from Aussie outflows on Thursday, following the weaker than expected Aussie employment data. But overall, it will be hard to ignore this week’s softer New Zealand retail sales, sinking 2-year inflation expectations, disappointing GDT auction, weaker jobs ads, softer producer prices and drop in consumer confidence. All of this confirms the need for additional RBNZ easing ahead, which ultimately, should once again weigh on the currency, particularly in a shaky global risk environment. Looking ahead, broader macro themes should continue to influence direction, with the market also taking in a batch of US data featuring initial jobless claims, the Philly Fed and leading indicators.  Fed Williams is also slated to speak late in the day.

US SPX 500 – technical overview

Signs of a critical structural shift following an impressive multi-year rally to a fresh record high in 2015. The recent break back below the critical August base at 1834 strengths the newly adopted bearish outlook and from here, any rallies are expected to be well capped below previous support at 1993 in favour of the next major downside extension towards 1700. Ultimately, only a daily close back above 1993 will take the immediate pressure off the downside.

• R2 1993.00 – Previous Support – Strong
• R1 1947.00 – 1Feb high – Medium
• S1 1885.00 –17Feb high – Medium
• S2 1808.00 – 11Feb/2016 low – Strong

US SPX 500 – fundamental overview

Stocks have enjoyed a healthy recovery in recent days, largely supported by the recovery in the price of OIL and round of dovish Fed speak. But overall, with central bank monetary policy exhausted and with fears escalating over a deterioration in China, it feels as though any rallies should continue to be well capped in favour of additional downside in the days and weeks ahead. Throw in the emergence of uncertainty over bank creditworthiness and subpar corporate earnings and there is very little to get too excited about right now. It is also becoming increasingly apparent in 2016 that even if the Fed opts to scale back its rate hike timeline, this might not be as supportive as many had thought.

GOLD (SPOT) – technical overview

The market continues to show signs of a major structural shift, with the impressive recovery from the multi-year low in late 2015 at 1046, extending above the critical October 2015 peak at 1192. From here, any setbacks should be well supported ahead of 1130, in favour of a higher low and the next major upside extension to medium-term resistance at 1307. Ultimately, only back below 1100 negates the constructive outlook.

• R2 1263.00 – 11Feb/2016 high – Strong
• R1 1217.00 – 16Feb high – Medium
• S1 1191.00 – 16Feb low – Medium
• S2 1164.00 – 8Feb low – Strong

GOLD (SPOT) – fundamental overview

GOLD has pulled back a bit in recent trade, though the yellow metal still stands out as the clear outperformer over the past week. Massive outflows across equities, high yield and emerging markets have left investors looking for an alternative investment. GOLD has become increasingly attractive in the current market environment. The wave of risk liquidation in 2016 has catapulted the metal on its status as a compelling hedge against uncertainty and negative interest rate policy. Dealers cite strong bids into dips.

Feature – technical overview

USDSGD has entered a period of correction after pulling back from the recent multi-year high from early January at 1.4445. But overall, the structure remains highly constructive, with dips well supported for now into the 1.3800s. Look for any additional setbacks to continue to be well supportive above 1.3800 in favour of an eventual resumption of the uptrend and retest of 1.4445. Ultimately, only back below 1.3730 would negate the highly constructive outlook.

• R2 1.4170 – 4Feb high – Strong
• R1 1.4110 –17Feb high – Medium
• S1 1.3965 – 16Feb low – Medium
• S2 1.3860 – 11Feb/2016 low – Strong

Feature – fundamental overview

The Singapore Dollar has finally responded to this latest round of dovish Fed speak, with the concurrent recovery in global equities helping the emerging market Asia currency. While the dovishness in the Fed Minutes certainly contributed to Singapore Dollar gains, it was comments from Fed Bullard that really got the market’s attention. Bullard said it was “unwise to continue a normalization strategy in an environment of declining market-based inflation expectations.” The Fed official also downplayed the fear of asset bubbles saying “the recent sell-off in global equity markets, along with increases in risk spreads in corporate bond markets made this risk less of a concern over the medium term.”