Markets On Standby Ahead Of Wednesday’s FOMC

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.

• R2 1.6227 – 9Oct low – Strong
• R1 1.6185 - 21Oct high – Medium
• S1 1.5940 – 16Oct low – Medium
• S2 1.5875 – 15Oct/2014 low – Strong

GBPUSD – fundamental overview

Lack of any first tier data out of the UK on Tuesday, will leave the Pound to trade off macro themes. The currency has been finding some support against the Buck in recent trade, though the gains are more a function of broader corrective US Dollar selling. US durable goods and consumer confidence data is out in the North American session and could influence short-term price action. However, not a lot of movement should be expected until the Fed on Wednesday. Bank of England’s Cunliffe is slated to speak later today at an event in Cambridge.

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.

• R2 108.74 – 8Oct high – Weak
• R1 108.35 – 23Oct high – Weak
• S1 107.10 – 23Oct low – Medium
• S2 106.78 – 20Oct low – Medium

USDJPY – fundamental overview

The recovery in USDJPY has stalled out in recent trade, although the fundamentals are still highly supportive of additional strength in this market with the BOJ committed to expanding its balance sheet. For the moment, all is quiet ahead of Wednesday’s FOMC rate decision where market participants will be looking to see if the divergent Fed, BOJ policy paths become more pronounced. Tuesday’s Japan retail sales data came in much better than expected at 2.7% versus forecast of 0.8%, although the data has failed to factor into price action.

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.

• R2 1.2180 – 30Jul high – Medium
• R1 1.2140 – 7Oct high – Strong
• S1 1.2045 – 4Sep/2014 low – Strong
• S2 1.2000 – Psychological – Very Strong

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. Look for a break to fresh yearly lows below 1.2045 to force the SNB into action. Also consider the weighing influence on this market should global equities come back under pressure and open a flight to safety bid for the Franc.

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.

• R2 0.8900 – 9Oct high – Strong
• R1 0.8860 - 15Oct high – Medium
• S1 0.8685 – 16Oct low – Weak
• S2 0.8642 – 3Oct/2014 low – Strong

AUDUSD – fundamental overview

The broad USD corrective selling continues to be of benefit to the Australian Dollar, with the risk correlated currency finding some solid support off its recent 2014 lows against the Buck. On Tuesday, fresh exporter and real money demand has been cited for some of the gains, but the market isn’t expected to run too far ahead of tomorrow’s all-important FOMC rate decision. Economic data out of Australia has also been less than encouraging of late and should keep the RBA on the more cautious side of the fence when it meets next week.

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.

• R2 1.1386 – 15Oct/2014 high – Strong
• R1 1.1297- 10Oct high – Medium
• S1 1.1185 – 22Oct low – Medium
• S2 1.1072 – 2Oct low – Strong

USDCAD – fundamental overview

Though the Canadian Dollar has found some demand in recent trade, the gains are not expected to last, with the price action more a function of a broader correction in the US Dollar. The ongoing slide in oil prices has been a major thorn at the side of the Loonie, with the commodity dropping to fresh yearly lows on Monday. Goldman Sachs’ slashed oil forecasts for 2015 have not helped matters, while the drop for the fifth straight week in the Canada Bloomberg-Nanos confidence index also contributes to the bearish Cad outlook. There is no economic data out of Canada on Tuesday, with US durable goods and consumer confidence to influence. But all should be relatively quiet ahead of the FOMC.

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.

• R2 0.8100 – Figure – Medium
• R1 0.8035- 21Oct high – Medium
• S1 0.7795 – 13Oct low – Weak
• S2 0.7707 – 29Sep/2014 low – Strong

NZDUSD – fundamental overview

Two major event risks for the New Zealand Dollar this week, with the Fed on Wednesday, immediately followed by the RBNZ first thing Thursday. While the markets are fully aware of the impact the FOMC could have, 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. The RBNZ has already said it believes Kiwi to be overvalued, which should prevent any meaningful Kiwi gains.

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.

• R2 2001.00 – 24Sep high – Medium
• R1 1978.00 – 78.6% fib – Medium
• S1 1927.00 – 22Oct low – Strong
• S2 1910.00 – 20Oct low – Medium

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, the language in tomorrow’s FOMC statement 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.

• R2 1275.00 – 100-Day SMA – Strong
• R1 1256.00 – 21Oct high – Weak
• S1 1217.00 – 10Oct low – Medium
• S2 1180.00 – 28Jun/2013 low – Very Strong

GOLD (SPOT) – fundamental overview

Improving US economic data, an impressive rebound in stocks, and Fed reversal prospects 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. There has also been a lot of talk about sizable Chinese demand at current levels. 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) has broken down to another yearly low this week, with the break confirming a bearish descending triangle formation and opening the door for the next major downside extension to challenge the 2012 base at 77.25. Ultimately, a daily close back above 84.45 would be required to take the immediate pressure off the downside.

• R2 84.45 – 17Oct high – Strong
• R1 83.25 – 21Oct high – Medium
• S1 79.45 – 27Oct/2014 low – Strong
• S2 79.00 - Figure – Medium

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. One such bargain hunter is China, with the world’s second largest oil consumer stepping in to buy this market up at depressed levels. According to the Wall Street Journal, “the trading unit of state-run China National Petroleum Corp. has bought 36 cargos of crude oil in the open market so far in October, the largest purchase ever in a single month.”