NFPs and a Fully Priced Fed

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. A daily close below 1.2300 will put the immediate pressure back on the downside.

• R2 1.2796 – 6Jul low – Strong
• R1 1.2696 – 1Dec high– Medium
• S1 1.2503 – 1Dec low – Medium
• S2 1.2386 – 28Nov low – Strong

GBPUSD – fundamental overview

Thursday’s softer UK manufacturing PMIs may have weighed a bit early on, though ultimately, the Pound received a nice boost on soft Brexit comments from UK Brexit Minister Davis who said the UK could still access the single market if it were to make contributions to the EU. Higher crude prices also helped to support the UK currency, though with the market trading up into meaningful resistance and with the Brexit overhang still a worry, rallies were well capped. Looking ahead, all eyes on today’s US NFPs and a Fed Brainard speech.

USDJPY – technical overview

The major pair has seen an intense bullish shift in recent days, with the most recent break above 107.50 exposing fresh upside towards next meaningful resistance in the 115.00 area. However, daily studies are looking stretched which suggests that additional upside could be limited  in favour of a more significant healthy corrective pullback. But ultimately, any setbacks are expected to be well supported above previous resistance at 107.50.

• R2 115.00 – Psychological – Strong
• R1 114.83 – 1Dec high – Medium
• S1 113.00 – Figure – Medium
• S2 111.36 – 28Nov low – Strong

USDJPY – fundamental overview

Though the interest rate differential and monetary policy divergence story continues to be highly supportive of the US Dollar, with the Buck running so far and fast against the Yen, it would seem there could be room for a bout of profit taking and minor pullback. Throw this latest uptick in demand for the other major currencies and pullback in equities and this could very well be the catalyst that fuels a resurgence in demand for the beaten down Yen. Looking ahead, US NFPs are the key standout in Friday trade, though the market will also be curious to hear what Fed Brainard has to say.

EURCHF – technical overview

A recent close below 1.0800 which had been defined as the bottom of a multi-week range strengthens the bearish outlook and opens the door for an acceleration of declines towards the 2016 low at 1.0624. At this point, a daily close back above 1.0865 would now be required to take the immediate pressure off the downside and suggest the market is once again looking settle back into the previous range.

• R2 1.0865 – 28Oct high – Strong
• R1 1.0818 – 30Nov high – Medium
• S1 1.0687 – 18Nov low – Medium
• S2 1.0624 – 24Jun/2016 low – Strong

EURCHF – fundamental overview

The SNB has unquestionably had a challenging time of late, 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 not depreciating as much as the SNB would probably like to see and if global risk sentiment deteriorates, it could invite a massive wave of demand for the Franc that the SNB will be unable to offset. Swiss GDP is being digested but hasn’t really factored into trade.

AUDUSD – technical overview

The latest break below 0.7400 is a significant development and now opens the door for deeper setbacks towards next key support at 0.7145 in the days ahead. At this point, look for any rallies to be well capped ahead of 0.7600. Only back above 0.7700 delays the bearish outlook.

• R2 0.7582 – 15Nov high – Strong
• R1 0.7498 – 29Nov high– Medium
• S1 0.7371 – 1Dec low – Medium
• S2 0.7312 – 21Nov low – Strong

AUDUSD – fundamental overview

The Australian Dollar received a bit of a prop early Friday on the back of better than expected Aussie retail sales, but hasn’t been able to hold onto gains, with the currency seemingly weighed down on a deterioration in risk sentiment. Looking ahead, all eyes on the monthly employment report out of the US, though a speech from Fed Brainard will also get attention.

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 well ahead of 1.3000 in favour of the next major upside extension towards a measured move objective into the 1.4000 area. Ultimately, only back below 1.3000 would delay the constructive outlook.

• R2 1.3482 – 29Nov high – Strong
• R1 1.3400 – Figure – Medium
• S1 1.3287 – 1Dec low – Medium
• S2 1.3255 – 27Jul high– Strong

USDCAD – fundamental overview

The Canadian Dollar stands out as a top performer over the past week, with the Loonie getting a big lift from the surge in OIL prices post OPEC agreement. Of course, solid Canada growth has also helped the Loonie’s cause, while broad based profit taking on US Dollar longs hasn’t done anything to hurt. Still, overall, yield differentials continue to favour the US Dollar and dealers report plenty of offers for the Canadian Dollar into rallies. Looking ahead, plenty of volatility is expected with the market taking in monthly employment reports out of Canada and the US at the same time.

NZDUSD – technical overview

Despite the latest bounce, the overall pressure has shifted back to the downside with the market now expected to be very well capped on rallies ahead of 0.7300. Look for a fresh lower top at 0.7403 in favour of the next major downside extension below 0.6952 and towards medium-term support at 0.6675 further down.

• R2 0.7229 – 11Nov high – Strong
• R1 0.7170 – 30Nov high – Medium
• S1 0.7043 – 1Dec low – Medium
• S2 0.7000 – Psychological – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has taken a backseat this week, with little on the economic calendar to speak of and the commodity currency deferring to broader flow. At the moment, Kiwi looks to be caught between diverging flow. On the one side, we have been seeing some broad based profit taking on US Dollar longs which has been supportive, but on the other side, there has been a deterioration in risk sentiment which has weighed on the risk correlated currency. Looking ahead, all eyes on the US jobs report, while a Fed Brainard speech will also get attention.

US SPX 500 – technical overview

While this latest surge back to a fresh 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 2200 on a monthly close basis. 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. Initial support comes in at 2181, with a break below to take the immediate pressure off the topside.

• R2 2250.00 – Psychological – Strong
• R1 2215.00 – 30Nov/Record high – Medium
• S1 2181.00 – 21Nov low – Medium
• S2 2156.00 – 25Oct high– Strong

US SPX 500 – fundamental overview

The ongoing bid for US equities has been more than impressive, particularly at a time when the Fed is about to embark on a more steady path to policy normalisation. But 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 globally and an inability for central banks to continue to support and stimulate growth. This leaves financial markets vulnerable to any shocks and exposed to intense periods of additional risk liquidation going forward, especially at a time when the Fed is moving further away from accommodation. Looking ahead, look for added volatility from today’s monthly employment.

GOLD (SPOT) – technical overview

Despite a major setback, the overall structure remains constructive with the market in the process of carving out a longer-term base. Look for any weakness to be very well supported above 1130, with only a close back below this level to negate the basing outlook and give reason for pause. Back above 1197.70 strengthens the outlook and should accelerate gains towards a retest of the 2016 peak at 1375.

• R2 1221.10 – 22Nov high – Strong
• R1 1197.70 – 28Nov high – Medium
• S1 1160.70 – 1Dec low – Medium
• S2 1150.00 – Psychological – Strong

GOLD (SPOT) – fundamental overview

GOLD has suffered quite a blow over the past several days, with the yellow metal unable to ignore the intense rotation into the US Dollar. However, solid demand from medium and longer-term players continues to emerge on dips despite the setbacks, with these players more concerned about the limitations of exhausted monetary policy, extended global equities, systemic risk and a bet that record low inflation will turn up even faster in a Trump presidency. 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

USDTRY continues to push into unchartered territory, breaking to yet another record high, this time through psychological barriers at 3.5000. While the uptrend remains firmly intact, daily studies are now at the point where they are overextended. This warns of some form of a major corrective pullback ahead to allow for these studies to unwind. Medium-term studies are also extended, yet another indication we could soon see a period of correction. Ultimately however, any setbacks should be well supported ahead of 3.2000.

• R2 3.5500 – Psychological – Strong
• R1 3.5065 – 1Dec/Record High – Medium
• S1 3.4070 – 29Nov low – Medium
• S2 3.3515 – 21Nov low – Strong

Feature – fundamental overview

While it’s been clear for some time the Erdogan government has been opposed to rate hikes, it has also been very difficult to ignore the necessity for such action with the Lira continuing to decline to record lows. Last Thursday, the CBRT went ahead and pushed rates up 50 basis points in an effort to offset some of this currency depreciation, though it seems the market is going to need an even more aggressive move if it is going to make a dent in the current environment. Event risk and political risk are major headaches on the domestic front, while the CBRT also has to continue to worry about Fed normalisation and the prospect of ever widening yield differentials in favour of the US Dollar that continue to put pressure on the record low Lira. One major bank has come out with a downbeat assessment for Turkey and the Lira into 2017, declaring that Turkey has ‘by far the worst external position in CEEMEA’. The CBRT’s latest financial stability report has tried to paint a more upbeat picture but that’s a difficult thing to do when the currency is crashing and you get trade data showing a wider deficit.