Will the Stock Market Surge Hold Up?

GBPUSD – technical overview

The market has broken out of a multi session consolidation off the multi-year low, which could now open the door for a more significant correction higher in the days ahead. Ultimately, there is room to run towards 1.2800 without compromising the intense downtrend, with a lower top sought out in favour of a bearish resumption back towards 1.2000. Only a weekly close above 1.2800 would compromise the structure.

• R2 1.2796 – 6Jul low – Strong
• R1 1.2622 – 7Oct high– Medium
• S1 1.2500 – Psychological – Medium
• S2 1.2353 – 9Nov low – Strong

GBPUSD – fundamental overview

In a bit of a twist, the Pound has emerged as an outperformer this week. All of the major currencies are tracking lower against the Buck into Friday, while the UK currency is actually up against the US Dollar. Some have attributed the move to a short squeeze, while others cite the prospect for a much softer Brexit now that Trump is taking office. Still, with the Fed on course to push forward with policy normalisation, it would seem that any additional upside should be met with formidable resistance as yield differentials continue to favour the Buck. At the same time, we are starting to see a bit of a rotation where investors are finally finding value in the UK currency against the rest of its peers. Looking ahead, UK construction output, Michigan confidence and a speech from Fed Fischer are the only notable standouts.

USDJPY – technical overview

A memorable bullish outside day on Wednesday, with the pair initially pulling back dramatically before surging higher to clear the multi-day range high at 105.53. This resulted in a bullish outside day consuming the previous 27 daily ranges and should now set the stage for the next major upside extension towards next key resistance at 107.49 in the days ahead. Any setbacks from here should be very well supported above 103.00.

• R2 107.49 – 21Jul high – Strong
• R1 106.95 – 10Nov high – Medium
• S1 104.96 – 10Nov low – Medium
• S2 103.77 – 7Nov low – Strong

USDJPY – fundamental overview

The Nikkei has been paring gains into Friday while FinMin Aso has commented that disorderly FX moves up or down are not desirable. Both of these stories are seen as the primary drivers behind a very modest pullback in the major pair thus far. But overall, with investor sentiment exploding and with the Fed on course to hike rates, the risk for additional Yen weakness is very real, with USDJPY potentially quickly accelerating towards 110.00. However, market participants will need to tread cautiously as there are those who believe the rally in equities has not only been overdone post US election, but should soon quickly reverse course. If this were to play out, all of this Yen weakness could fade away real fast and USDJPY could come back under intense downside pressure on the risk off flow. Looking ahead, only Michigan confidence data and a speech from Fed Fischer stand out.

EURCHF – technical overview

The recent break below 1.0800 warns the market could be getting set to deviate from what had been a well defined range between 1.0800 and 1.1000. Look for a daily close below 1.0738 to strengthen the outlook and open the door for an acceleration of declines towards the 2016 low at 1.0624 further down. At the same time, a daily close back above 1.0865 would take the pressure off the downside and suggest the market is once again looking settle back into the range.

• R2 1.0865 – 28Oct high – Medium
• R1 1.0832 – 9Nov high – Strong
• S1 1.0737 – 11Nov low – Medium
• S2 1.0624 – 24Jun/2016 low – Strong

EURCHF – fundamental overview

The SNB has unquestionably had a difficult time this week with the central bank forced to contend with an intense wave of demand for the Swiss Franc. The central bank has been committed to its mandate of ensuring the Franc does not appreciate further through monetary policy and intervention tools. Though despite all efforts, the Franc continues to want to appreciate against the Euro. It seems the strategy has been to buy Euro when risk comes off and to do nothing when risk is back on and natural flows should be CHF bearish. But the trouble is, when risk comes back, the Franc is still appreciating which is a major headache for the SNB and ultimately, could open more unwanted appreciation in the Franc going forward. While US election risk is not out of the way, we have Italian risk in early December, which will add to the stress over at the SNB.

AUDUSD – technical overview

The market has struggled on rallies above 0.7700 and this suggests the rate could be looking to carve a lower top below the 2016 high at 0.7835 in favour of the next major downside extension. Look for a break back below 0.7421 to strengthen this outlook and accelerate declines towards 0.7000 in the days ahead. Ultimately, only  a daily close back above 0.7758 will negate the bearish outlook and invite a retest of the 2016 highs.

• R2 0.7779 – 9Nov high – Strong
• R1 0.7700 – Figure – Medium
• S1 0.7561 –11Nov low – Medium
• S2 0.7507 – 13Oct low – Strong

AUDUSD – fundamental overview

The Australian Dollar came under added pressure early Friday on the back of a selloff in Asia FX, though has since recovered, with the currency getting a lift from offsetting risk on flow and elevated global equities. Still, with the Fed on course to move forward with its policy normalisation, scope for additional upside seems limited with the greater risk for a lower Aussie rate against the Buck going forward. Looking ahead, US Michigan confidence and a speech from Fed Fischer are the notable standouts.

USDCAD – technical overview

This market looks to be in the process of carving out a longer-term base off the 1.2461, 2016 low. Look for any additional weakness to be supported ahead of 1.3000 in favour of the next major upside extension towards a measured move objective into the 1.3500-1.4000 area. Ultimately, only back below 1.2764 would delay the constructive outlook.

• R2 1.3588 – 29Feb high – Strong
• R1 1.3525 – 4Nov high – Medium
• S1 1.3400 – Figure – Medium
• S2 1.3265 – 9Nov low– Strong

USDCAD – fundamental overview

The Canadian Dollar hasn’t done all that much of late, with the Loonie mostly caught between flows. While the news of the Trump victory was unsettling for the Canadian Dollar on the prospective implications on trade deals with the US, the intense risk on trade that followed was offsetting, with commodity and risk correlated FX benefitting from this price action. Still, with the US on schedule to hike rates and with plenty of uncertainty around the Trump administration, the Canadian Dollar should continue to find good offers on any rallies. Looking ahead, we get speeches from Bank of Canada Governor Poloz and Fed Fischer and Michigan confidence.

NZDUSD – technical overview

The pressure has shifted back to the downside with the market now expected to be very well capped on rallies. Look for a fresh lower top at 0.7403 in favour of the next major downside extension below 0.7000 and towards medium-term support at 0.6675 further down.

• R2 0.7403 – 8Nov high – Strong
• R1 0.7307 – 10Nov high  – Medium
• S1 0.7200 – Figure – Medium
• S2 0.7177 – 10Nov low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has come under pressure in the latter half of the week after mostly trading sideways amidst some wild post US election Wednesday price action. The risk on flow that followed the Trump victory had been supportive of the correlated Kiwi, though Thursday’s RBNZ decision has since weighed. The RBNZ went ahead and cut rates 25bps to 1.75% as expected, but intervention talk from RBNZ Wheeler and McDermott, along with talk of being open to additional easing from McDermott, was enough to fuel this latest round of declines. Looking ahead, Kiwi will be focused on broader risk sentiment, US Michigan confidence and a speech from Fed Fischer.

US SPX 500 – technical overview

While this latest surge back towards the record high could compromise what has been the possibility for a toppish structure, the risk is still tilted to the downside if the market fails to establish above the record high from August just shy of 2200. But ultimately, at this point, any topside failure will also need to be met with a break back below 2100 to once again encourage the possibility for a bearish structural shift.

• R2 2194.00 – 23Aug/Record high – Strong
• R1 2185.00 – 10Nov high – Medium
• S1 2148.00 – 8Nov high – Medium
• S2 2100.00 – Psychological– Strong

US SPX 500 – fundamental overview

US election risk has dominated flow this week with stocks shockingly surging back to record highs despite Donald Trump emerging as the next President of the United States. But overall, once the election volatility is out of the way, the market will need to once again think about the bigger, more worrying issue at hand, which is an exhaustion of global monetary policy tools and an inability for central banks to continue to support and stimulate the global economy. This leaves financial markets vulnerable to any shocks and exposed to intense periods of additional risk liquidation going forward.

GOLD (SPOT) – technical overview

Despite a major setback this week, the overall structure remains highly constructive with the market in the process of carving out a longer-term base. Look for any weakness to be very well supported above 1240, with only a close back below this level to delay the bullish outlook and give reason for pause. Back above 1300 strengthens the outlook and should accelerate gains towards a retest of the 2016 peak at 1375.

• R2 1337.30 – 9Nov high – Strong
• R1 1292.25 – 10Nov high – Medium
• S1 1251.20 – 11Nov low – Medium
• S2 1241.45 – 7Oct low – Strong

GOLD (SPOT) – fundamental overview

Overall, GOLD has been very well supported in 2016, with the yellow metal finding solid demand from medium and longer-term players on the back of fears over the limitations of exhausted monetary policy, extended global equities, systemic risk and a bet that record low inflation will eventually start to turn up. All of this will almost certainly continue to keep the commodity in demand, even if the Buck is propped, with many market participants fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax.

Feature – technical overview

USDMXN has raced to a fresh record high with the market surging through critical psychological barriers at 20.000. The break to new highs now opens the door for a measured move upside extension towards 22.0000 in the days ahead, following a period of consolidation roughly between 18.0000 and 20.0000. At this point, only back below 18.000 would compromise the highly constructive outlook.

• R2 22.0000 – Measured Move – Strong
• R1 20.7750 – 9Nov/Record High – Medium
• S1 19.5490 – 3Nov high – Medium
• S2 18.1600 – 9Nov low – Strong

Feature – fundamental overview

The danger of a Trump Presidency to the Mexican economy has become a reality, with Trump emerging victorious in Wednesday’s US election. This has opened a dramatic collapse in the Peso, with the currency sinking to a fresh record low against the Buck and down well over 8% on the week. This will make the Banxico’s job extremely difficult going forward, with many expecting the central bank to soon announce as much as a 100 basis point rate hike. And while a hike of this magnitude may slow the pace of the Peso depreciation, it will also act as a major strain on the local economy and Mexico’s growth prospects. Still, for now, the Banxico has preferred to hold off making any immediate decisions and this has proven somewhat effective, with the central bank getting help from the surprising surge in risk assets which is supportive of the emerging market FX bloc.