Peformance chart: Monday’s performance v. US dollar
Suggested reading
- There Is One Huge Thing Missing From The ECB’s Stress Tests, M. Udlan, Business Insider (October 27, 2014)
- Bill Ackman and His Hedge Fund, Betting Big, A. Stevenson, New York Times (October 25, 2014)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
Short-term direction for this major pair unclear at the moment, with a break above 1.2887 or back below 1.2605 required to open the door for the next move. Until then, the market remains locked in a range trade.
EURUSD – fundamental overview
The results of the European bank stress tests are in and the markets have responded positively on initial intake. The revelation of minimal capital shortfalls and no major banks failing has given the Euro a nice little boost. Perhaps the latest CFTC data, which shows specs scaling back USD longs for the first time in 5 weeks, is also supporting the Euro. Still, with sentiment in the region quite fragile and economic data deteriorating, the rally may have a hard time gaining momentum. But the attention will now shift to Wednesday’s all-important FOMC rate decision.
GBPUSD – technical overview
The market has been well supported over the past several sessions above the recent 2014 low at 1.5875. A break and daily close above 1.6227 would however be required to take the immediate pressure off the downside and open a more significant corrective recovery.
GBPUSD – fundamental overview
The Pound has stabilized against the Buck in recent days and has most recently benefited from the broadly in line GDP print. The economic calendar in the UK is rather light this week, and the direction in the local currency will most probably be dictated by external themes which include ongoing developments out of Europe and the upcoming FOMC rate decision. Talk of a decent sized macro account on the bid has been making the rounds on Monday.
USDJPY – technical overview
The market is looking to carve out a meaningful higher low above 105.00 ahead of the next major upside extension back through the recent yearly and multi-year high at 110.10. Any setbacks should continue to be very well supported on dips, while only a break below 106.25 would delay the highly constructive short-term outlook.
USDJPY – fundamental overview
No surprise to see a bit of a correction in USDJPY following the impressive recovery rally of the past several days. While the major pair could see some short-term weakness, ultimately, any setbacks will be very well supported as the Bank of Japan continues with its super aggressive monetary easing. The latest report the BOJ now sees a “greater risk of inflation falling below 1%†has been getting a lot of attention and has inspired fresh USDJPY interest. Looking ahead, a lot of data on the Japanese economic calendar this week, culminating with Friday’s BOJ’s 3-year outlook report on growth and prices. Price action in global equity markets will also influence trade, while Wednesday’s FOMC rate decision should not be overlooked.
EURCHF – technical overview
The latest declines off 1.2140 have taken the market back towards key support in the form of the yearly low from September at 1.2045. A break below 1.2045 would be a significant development, as it would expose a drop towards a major barrier at 1.2000. However, inability to establish below 1.2045 would once again suggest the market is more content with range trade and another bounce back towards 1.2140.
EURCHF – fundamental overview
The SNB has thrown the word “immediately†around a lot in recent weeks when talking about its willingness to act. While it’s clear the market will have a tough go to the downside given how aggressive the SNB has been with its 1.2000 defense rhetoric, ongoing deterioration in the Eurozone economy and dovish ECB speak have not helped the SNB’s cause. As a result, the SNB could very well be forced to respond well ahead of its meeting in December. EURCHF has however found some relief in the early week, with the market supported on the well-received European bank stress test results.
AUDUSD – technical overview
The market is locked within a bearish consolidation at the moment, with any rallies seen well capped in favour of the next major downside extension below the recent yearly low at 0.8642 and towards 0.8400 further down. Key resistance comes in at 0.8900, with only a daily close above to delay the short-term structure and open the door for a more significant correction.
AUDUSD – fundamental overview
The Australian Dollar is up on the day along with the rest of the major currencies, with the bids supported on well-received European bank stress tests and improved risk sentiment. Dealers cite decent AUDUSD buy-stops above 0.8900, with exported and model accounts on the bid. The market could see some more position squaring over the coming sessions in the lead up to Wednesday’s FOMC rate decision.
USDCAD – technical overview
The pair has been trading within a bullish channel over the past several weeks and is expected to continue along this path. The recent break to fresh yearly highs at 1.1386 encourages the bullish momentum, and next key resistance at 1.1500 is in focus. Any corrective declines should now be limited to the previous higher low at 1.1082.
USDCAD – fundamental overview
The Canadian Dollar is still hanging on to its recent recovery off yearly lows against the Buck, with the Loonie finding support from last week’s Bank of Canada monetary policy statement that dropped the “neutral†language to suggest a less dovish stance. Still, with retail sales disappointing, oil prices under pressure and US economic data moving in the other direction, any additional USDCAD setbacks are expected to find renewed buy interest in favour of fresh yearly highs towards 1.1500.
NZDUSD – technical overview
The market has been confined to a consolidation over the past several days, since dropping to a fresh 2014 low at 0.7707. Any rallies are classified as corrective and deeper setbacks are seen below 0.7707 and towards 0.7400 over the medium-term. Only a daily close back above 0.8000 would delay the current structure and give reason for pause.
NZDUSD – fundamental overview
Though there is a good deal of event risk in the markets ahead of Thursday’s RBNZ, the rate decision from the New Zealand central bank will be a major focus in light of recent data. With inflation recently coming in even softer than expected, this could have a dovish influence on the RBNZ and force the central bank into a more neutral policy stance. Many now believe no RBNZ rate hikes should be expected until late 2015 at a very minimum, with the added stress of a decline in dairy prices and the emergence of global growth uncertainty forcing the central bank onto a more cautious track.
US SPX 500 – technical overview
Although the latest recovery has been rather intense, the move is still classified as corrective. The market has finally reached some critical previous support that is expected to act as resistance, in the form of former multi-week rising trend-line support, the 100-Day SMA and a 78.6% fib off the record high – October low move. Look for a key lower top to carve out over the coming sessions, ahead of the next major downside extension. Ultimately, only a close back above 1980 would compromise the newly established bearish outlook.
US SPX 500 – fundamental overview
Quite an impressive rebound in the SPX 500 over the past several days, with the market rallying all the way back towards the September record highs. The rally has been driven off some scaled back Fed rate hike expectations in the face of a struggling global economy and the risk that any hawkish undertones could derail recovery prospects. Various Fed officials have been suggesting the Fed will keep rates lower for longer, and this has fueled resurgence in equity demand on extended free money incentive to be long. Clearly, this Wednesday’s FOMC decision will shed further light on the situation and ultimately dictate market direction.
GOLD (SPOT) – technical overview
Though gains have stalled a bit, the market has entered a period of recovery after once again being supported by the critical 2013 base at 1180. The bullish price action since bottoming out suggests we could see additional upside over the short and medium-term as the price holds within a more well defined multi-month range trade. Ultimately, only below 1180 would force a shift in the outlook.
GOLD (SPOT) – fundamental overview
Improving US economic data, and impressive rebound in stocks, have put a dent in the yellow metal’s latest recovery rally. Still, gold’s safe haven appeal should not be discounted in the current environment, and we have been seeing a lot of decent interest over the past week as concerns mount over the outlook for the global economy. Ultimately, a break below 1180 would be required to force a shakeup in this market and until then, there really isn’t a whole lot going on.
Feature – technical overview
US OIL (spot) remains under pressure, with the market consolidating just over the yearly low at 79.75. The price action has now taken the form of a bearish descending triangle on the daily chart, with a drop below 79.75 to open the door for an acceleration to retest the 2012 low at 77.25 further down. Ultimately, a daily close above 84.50 would be required to take the immediate pressure off the downside.
Feature – fundamental overview
Oversupply has been a major weight on the price of oil in recent months, with the commodity dropping to +2-year lows and threatening the establishment below psychological barriers at $80. In its latest report, Goldman Sachs has come out with downgraded forecasts, predicting OPEC will lose influence on the market amidst a US shale boom. Still as always, politics and geopolitics play a major role in sentiment here, and with the market having been so pressured, bargain hunters could emerge.