US Dollar Outlook in Question As Markets Brace For Fed

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 take the immediate pressure off the downside and open a more significant corrective recovery towards 1.6525. Inability to establish back over 1.6227 exposes a more direct retest of the yearly low.

• R2 1.6300 – Figure – Weak
• R1 1.6227 - 9Oct high – Strong
• S1 1.5995 – 23Oct low – Medium
• S2 1.5875 – 15Oct/2014 low – Strong

GBPUSD – fundamental overview

The market isn’t going to pay too much attention to UK money supply, mortgage approval and consumer credit data with the second-tier risk paling in comparison to what lies ahead in the form of the all-important Fed rate decision. Technical levels are likely to take on added significance, with key short-term resistance cited at 1.6227. There has been a light wave of Sterling demand in recent days and the outlook for the Pound could become more constructive if Cable stops are taken out above 1.6230.

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 107.60 – 27Oct low – Medium
• S2 106.10 – 23Oct low – Medium

USDJPY – fundamental overview

Tuesday’s impressive Japan retail sales has been followed up on Wednesday with a solid industrial production print. Still, the market is hardly focused on local economic data and continues to be driven off yield differentials and the scope of divergence between Fed, BOJ policy paths. Today’s FOMC rate decision will therefore be critical in determining the next move for USDJPY. Ultimately, the trajectory for the pair is highly constructive over the medium and longer-term, but there is risk for short-term volatility if the Fed strays from market expectation. There is market chatter of a USDJPY $1B option expiry today at a strike of 108.00.

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

Perhaps the SNB has found a little comfort in the fact the US Dollar has been in demand over the past several months, as this has at least kept the Franc under some pressure against the Buck. But with the tide shifting in recent days, currencies are once again showing a bid. This is not a welcome development for a central bank that wishes to keep its currency capped. Clearly the focus for the SNB is on the EURCHF rate, and with this market tracking just over the 1.2045 yearly low, this could force the SNB to step in and take action to defend against a 1.2000 breach. The SNB has warned it will act to defend 1.2000 and has even gone as far as to upgrade its language to being prepared to act “immediately.” The SNB also needs to watch for an equity reversal, as this could invite unwanted safe haven Franc flows.

AUDUSD – technical overview

The market is locked within a bearish consolidation at the moment, but could be looking to correct higher on a daily close above key short-term resistance at 0.8900. While the broader trend is quite bearish, a close above 0.8900 would open the door for a more significant corrective move back towards the converging 100/200-Day SMAs at 0.9165 from where the next meaningful lower top would be sought out. Inability to close above 0.8900 keeps the immediate pressure on the downside for a retest of the recent yearly low at 0.8642.

• R2 0.8960 – 50-Day SMA – Medium
• R1 0.8900 - 9Oct high – Strong
• S1 0.8795 – 28Oct low – Weak
• S2 0.8718 – 24Oct low – Medium

AUDUSD – fundamental overview

It’s all about the Fed and technical levels for the Australian Dollar on Wednesday. AUDUSD is threatening a break of some multi-day consolidation, and is considering a push back above 0.8900. A more dovish than expected Fed will likely result in a daily close above 0.8900 and expose a more significant recovery towards the 100 and 200-Day moving averages which converge in the mid 0.9100’s. However, should the Fed come out less dovish than the markets have been pricing, expect the commodity currency to come back under intense pressure and resume the broader downtrend. Fundamentals on the Australian side have not been Aussie supportive. So ultimately, even if Aussie breaks out to the topside, expect sellers to reemerge in size in the 0.9100s.

USDCAD – technical overview

The market is in the process of correcting lower following the recent push to fresh 2014 highs at 1.1386. While it is possible the current decline extends further, ultimately, the outlook is highly constructive, with a medium-term higher low sought out ahead of the next major upside extension beyond 1.1385 and towards 1.1500. Only a close back below 1.1000 would negate.

• R2 1.1386 – 15Oct/2014 high – Strong
• R1 1.1255- 27Oct high – Medium
• S1 1.1100 – Figure – Weak
• S2 1.1072 – 2Oct low – Strong

USDCAD – fundamental overview

Softer US durable goods and a recovery in oil prices have been driving this latest bout of demand for the Canadian Dollar, with the currency drifting further away from its recent yearly lows against the Buck. Second tier economic data out of Canada on Wednesday in the form of industrial product and raw materials prices will take a backseat to the Fed rate decision, which is sure to influence short-term direction in USDCAD. The Loonie could see more movement post the Fed and RBNZ rate decisions, with BoC Governor Poloz scheduled to give testimony to the senate banking committee late Wednesday.

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. However, should the market manage a break and daily close back above 0.8035, this would open the door for a more pronounced corrective rally towards the 100-Day SMA in the 0.8340 area from where a medium-term lower top would be sought out ahead of bearish resumption.

• 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 on Wednesday, and only two hours apart, with the Fed and RBNZ rate decisions. While the markets are fully aware of the impact the FOMC could have, the rate decision from the New Zealand central bank will also 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

Tuesday’s daily close above 1980 compromises a bearish shift in the trend from several days back. The market has raced back through critical previous trend-line support, the 100/200-Day SMAs, and a major 78.6% fib retrace, to put the focus squarely back on a retest of the record high from September at 2023. However, the recovery rally has been intense and there is still a risk for a lower top ahead of 2023 in favour of another bearish reversal. But a break and close back below Tuesday’s low at 1963 would be required to encourage this prospect.

• R2 2023.00 – 19Sep/Record high – Strong
• R1 2001.00 – 24Sep high – Medium
• S1 1963.00 – 28Oct low – Medium
• S2 1927.00 – 22Oct low – Strong

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 the FOMC statement will shed further light on the situation and ultimately dictate market direction. Bottom line – more dovish = higher stocks, less dovish = lower stocks.

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. Today’s FOMC rate decision is now in focus and will likely influence the market’s next key move.

Feature – technical overview

SILVER (spot) has been locked within a tight consolidation over the past several days since basing out at 16.67. For now, key levels to watch above and below come in at 17.80 and 16.67 respectively, and a break on either side will be required for the next key move. The market has been trending lower for several months and could be poised for a more significant corrective rally should 17.80 be taken out. But inability to do so keeps the immediate pressure on the downside.

• R2 17.80 – 15Oct high – Strong
• R1 17.40 – 28Oct high – Medium
• S1 17.03 – 23Oct low – Medium
• S2 16.67 - 6Oct/2014 low – Strong

Feature – fundamental overview

There is no denying the notable positive correlation between silver and gold. However, interestingly enough, the gold/silver ratio sits just under historical highs and as such, could be poised to come off over the medium-term. Though silver is still locked within a shorter-term consolidation off the recent yearly low, the minor recovery in gold warns silver could be on the verge of a bullish break. If this is the case and the gold/silver ratio is due for pullback, we could see some outperformance in silver ahead.