Bigger Picture Themes in Focus

GBPUSD – technical overview

The market has eased off quite a bit since topping out at a fresh 2017 high in September, with the price dropping back into the 1.3000 area thus far. However, while there is risk for another drop, setbacks should be limited below the psychological barrier, with the greater risk for the formation of that next meaningful higher low ahead of a continuation of the newly formed uptrend in 2017. Look for a daily close back above 1.3338 to confirm the constructive outlook and accelerate gains. Ultimately, only back below 1.2775 would delay the outlook.

• R2 1.3288– 17Oct high – Medium
• R1 1.3229 – 19Oct high – Medium
• S1 1.3088 – 20Oct low – Medium
• S2 1.3027 – 6Oct low – Strong

GBPUSD – fundamental overview

The quiet economic calendar in the early portion of the week has kept the Pound in check, with the UK currency only marginally lower after a Monday session that saw the US Dollar hold up on a broad basis. While there has been renewed confidence in the Brexit negotiation outlook following the UK PM’s parliamentary address, which sent a message of progress on trade talks with the EU, the much softer UK CBI data didn’t do anything to help Sterling’s cause. Meanwhile, on the US front, the market continues to monitor developments relating to tax reform and the next Fed Chair appointment. As far as today’s calendar goes, the only notable standout comes from some manufacturing data out of the US.

USDJPY – technical overview

The market has been confined to a range trade for much of 2017, with rallies well capped ahead of 115.00 and dips well supported below 108.00. The market has been in rally mode over the past several days, with the greater risk from here for a continuation of gains to test the range highs. At that point, look for the market to adhere to the range and stall out yet again for the start to a drop back towards the range low.

• R2 114.50 – 11Jul high – Strong
• R1 114.10 – 23Oct high – Medium
• S1 113.00 – Figure – Medium
• S2 112.30 – 19Oct low – Strong

USDJPY – fundamental overview

There wasn’t any major reaction to what had been a widely anticipated Japanese election result and following a short-lived push beyond 114.00, the major pair was back under pressure, closing lower on Monday. The bearish reversal and fresh demand for the Yen was likely driven off a notable wave of profit taking in US equities and the first legitimate down day there in some time. As far as today’s calendar goes, we only get some second tier US manufacturing data and the focus will be on the bigger picture themes and the impact on broader risk sentiment.

EURCHF – technical overview

A period of multi-day consolidation has been broken, with the market pushing up to a fresh 2017 high. The bullish break could now get the uptrend thinking about a test of that major barrier at 1.2000 further up. In the interim, look for any setbacks to be very well supported ahead of 1.1400, while only back below 1.1260 would delay the overall constructive tone.

• R2 1.1630 – 20Oct/2017 high – Strong
• R1 1.1600 – Figure – Medium
• S1 1.1485 – 17Oct low – Medium
• S2 1.1390 – 2Oct low – Strong

EURCHF – fundamental overview

Overall, the sell-off in the Franc in 2017 has been a welcome development for the SNB. Still, the central bank will need to be careful as the record run in the US stock market has been a big boost to the SNB’s strategy. Any signs of capitulation on that front, will likely invite a very large wave of demand for the Franc, which could put the SNB in a more challenging position to weaken the Franc. Interestingly, the latest surge in stocks has failed to have much impact on the exchange rate, which could already be a concern for the SNB.

AUDUSD – technical overview

Despite rallying to a fresh +2 year high in September, the market has been unable to hold onto gains, quickly reversing course and trading back below 0.8000. There is now risk for the formation of a more meaningful top opening the door for the next downside extension towards 0.7500. Look for rallies to now be well capped ahead of 0.8000, with only a close back above the psychological barrier to put the pressure back on the topside. Back below 0.7734 will strengthen the outlook.

• R2 0.7987 – 22Sep high – Strong
• R1 0.7898 – 13Oct high – Medium
• S1 0.7786– 12Oct low – Medium
• S2 0.7734 – 6Oct low – Strong

AUDUSD – fundamental overview

Most of the recent moves in the Australian Dollar have been US driven, with Aussie weighed down on the Fed policy timeline and US tax reform optimism. Bullish Aussie bets have further declined as per the latest CFTC positioning data. We have seen a mild bid early Tuesday after some Aussie consumer confidence readings came in above forecast. Looking ahead, the economic calendar is exceptionally thin and Aussie will take its cues from broader macro themes and risk sentiment flow. Today, we get second tier manufacturing data out of the US. The Australian Dollar is also going to be thinking about Wednesday’s early release of the latest Aussie CPI data.

USDCAD – technical overview

Despite the September breakdown to a fresh 2017 and +2 year low, stretched medium-term technical studies continue to warn of the possibility for a more significant bullish reversal as oscillators turn up again. From here, there’s room for a push to retest key resistance in the form of the August peak at 1.2780, while any setbacks should be well supported ahead of 1.2400.

• R2 1.2700 – Figure – Medium
• R1 1.2663 – 31Aug high– Strong
• S1 1.2534– 18Oct high – Medium
• S2 1.2451 – 19Oct low – Strong

USDCAD – fundamental overview

The Canadian Dollar has come under additional pressure this week on the back of last Friday’s Canada CPI and retail sales disappointments. Tomorrow, the Bank of Canada will deliver its latest decision and the central bank is expected to make some formal adjustments to its language with respect to the outlook for the economy and rate hike timeline in light of what has been a very clear downturn since the last decision which produced a second consecutive rate hike. Today’s calendar is exceptionally light with only second tier manufacturing data due out of the US.

NZDUSD – technical overview

Medium term studies have turned down after the market pushed up to a plus two year high through 0.7500 in late July. A recent break below 0.700 warns of the possibility for a more meaningful reversal to retest the 2017 low at 0.6818. Any rallies should now be very well capped ahead of 0.7200.

• R2 0.7100 – Figure – Medium
• R1 0.7036 – 20Oct high – Medium
• S1 0.6931 – 23Oct low – Medium
• S2 0.6914 – 22May low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar continues to struggle in the aftermath of a surprise election result that saw the emergence of Labour. Overall, the currency had already been under pressure in the lead up to the election, with economic data heading the wrong way and the market pricing a less hawkish RBNZ path forward. Earlier today, the PM elect was on the wires and triggered some whipsaw price action. Initially, Kiwi tried to rally on her comments about an increase in the minimum wage, before tumbling back down as she talked of intention to ‘review and reform’ the Reserve Bank Act. Looking ahead, the market will continue to monitor post election headlines, while watching broader themes and taking in second tier manufacturing data out of the US.

US SPX 500 – technical overview

The market continues to shrug off overextended technical readings, once again pushing up to fresh record highs. Interestingly, the market broke out in August after a 75 point consolidation, which projected a measured move to 2565. This could warn of some form of a reversal to come, though we would need to see a daily close back below 2544 at a minimum to take the immediate pressure off the topside. Until then, the record run continues into unchartered territory, with the focus on the next major barrier at 2600.

• R2 2600.00 – Psychological – Strong
• R1 2580.00 – 23Oct/Record high – Medium
• S1 2544.00 – 19Oct low – Medium
• S2 2487.00 – 25Sep low – Strong

US SPX 500 – fundamental overview

The US equity market continues to be well supported on dips, pushing further into record high territory. It seems the combination of blind momentum and expectation of favourable US tax policy are helping to keep the move going. But at the same time, there’s a nervous tension out there as the VIX sits at unnervingly depressed levels. The fact that Fed policy is normalising, however slow, could start to resonate a little more, with stimulus efforts exhausted, balance sheet reduction coming into play and another rate hike still on the cards this year. But for now, it’s more of the same. At this point, it will take a breakdown in this market back below 2500 to turn heads. US earning season, tax reform updates and who President Trump appoints as the next Fed Chair will be the main focus this week.

GOLD (SPOT) – technical overview

Setbacks have been well supported over the past several months, with the market continuing to put in higher lows and higher highs, opening a recent push to a fresh 2017 high up around 1357. And so, look for this most recent dip to round out that next higher low around 1260 in favour of a bullish continuation towards a retest of the 2016 peak at 1375 further up. Ultimately, only a drop back below 1200 would negate the outlook.

• R2 1334.35 – 15Sep high – Strong
• R1 1316.10 – 20Sep high – Medium
• S1 1260.70 – 6Oct low – Medium
• S2 1251.45 – 8Aug low  – Strong

GOLD (SPOT) – fundamental overview

Solid demand from medium and longer-term players continues to emerge on dips, with these players more concerned about exhausted monetary policy, extended global equities, political uncertainty, systemic risk and geopolitical threats. All of this should continue to keep the commodity well supported, with many market participants also fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax. Certainly the US Dollar under pressure in 2017 has added to the metal’s bid tone as well, but there is a growing sense that even in a scenario where the US Dollar is bid for an extended period, GOLD will hold up on risk off macro implications. Dealers are now reporting demand in size ahead of 1260.

Feature – technical overview

USDZAR has been confined to range trade for much of this year, with rallies well capped ahead of 14.00 and dips supported into the 12.30 area. A the moment, the market has been well supported and is looking to once again push up to challenge the top of the range. Only back below 13.25 would negate the outlook.

• R2 13.87 – 9Oct high – Strong
• R1 13.77 – 23Oct high – Medium
• S1 13.25 – 16Oct low – Strong
• S2 13.16 – 22Sep low – Strong

Feature – fundamental overview

Expectations for a November rate cut in South Africa have been cut down after last week’s SA CPI readings rose by more than forecast. This isn’t a positive development for the South African economy with the greater need for flexibility on rates on the basis of a near zero growth and a negative output gap.  Meanwhile, the Rand remains exposed to ongoing tension on the political front which will persist into year-end on account of the upcoming ANC leadership election and risk of credit rating downgrades. Locals are also thinking about what is likely to be an unrealistic Budget Statement from the FinMin tomorrow, given the weak growth, rising inflation and poor revenue collection. The only supportive Rand driver at the moment seems to be coming from the record run in US equities, which is a positive for risk correlated emerging market currencies. However even here the Rand should be sitting uneasy as the prospect for a capitulation is looking increasingly realistic on overbought technicals and an unstable political backdrop around the globe.