Fed Leans To Hawkish Side, US Dollar Recovers

GBPUSD – technical overview

The pair remains confined to a bearish consolidation, with Wednesday’s reversal putting the focus back on the recent yearly low at 1.5875. A break below 1.5875 would open the next major downside extension into the 1.5500 area. Key short-term resistance comes in at 1.6227 and a break above would be required to take the pressure off the downside.

• R2 1.6300 – Figure – Weak
• R1 1.6227 - 9Oct high – Strong
• S1 1.5941 – 16Oct low – Medium
• S2 1.5875 – 15Oct/2014 low – Strong

GBPUSD – fundamental overview

Mixed UK Nationwide house prices and BOE Cunliffe are unlikely to have any meaningful influence on the direction in the Pound today, with the currency focused on more pressing macro developments. Sterling has come under renewed pressure against the Buck post a more hawkish than expected Fed decision, with Cable at risk for a break to fresh yearly lows below 1.5875. Looking ahead, Pound traders will be getting ready for US GDP due in North America trade.

USDJPY – technical overview

The market is looking to carve out a meaningful higher low at 105.20 ahead of the next major upside extension back through the recent yearly and multi-year high at 110.10 and towards 115.00 further up. Any setbacks should continue to be very well supported on dips, while only a break below 107.60 would delay the highly constructive short-term outlook.

• R2 110.10 – 1Oct/2014 high – Strong
• R1 109.50 – Mid-Figure – Weak
• S1 108.35 – 23Oct high – Medium
• S2 107.60 – 27Oct low – Strong

USDJPY – fundamental overview

USDJPY continues with its impressive recovery rally, fast approaching the recent peak at 110.10. But with the BOJ expected to stick to its bullish inflation outlook, while retaining 2015-2016 growth forecasts at tomorrow’s board meeting, there could be some selling on an expectation the central bank may not need to take additional easing steps. USDJPY is already looking a little stretched in the current recovery, so there could be some pullback before we see 110.10 again.  

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

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 central bank 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 out for an equity reversal, as this could invite additional unwanted safe haven Franc flows. However, we are unlikely to see any form of intervention while the market holds above 1.2045.

AUDUSD – technical overview

Inability to establish above 0.8900 on Wednesday leaves the market confined to a bearish consolidation and increases the prospect for additional weakness back towards the recent 2014 base at 0.8642. Below 0.8642 would end a period of bearish consolidation and open the door for the next major downside extension towards 0.8400. Ultimately, only a daily close above 0.8900 would take the immediate pressure off the downside.

• R2 0.8950 – 50-Day SMA – Medium
• R1 0.8911 - 29Oct high – Strong
• S1 0.8715 – 24Oct low – Medium
• S2 0.8642 – 3Oct/2014 low – Strong

AUDUSD – fundamental overview

Economic data out of Australia on Thursday was mixed, with new home sales flat, export prices coming in well above expectation (but still negative), and import prices disappointing. Overall, with the Aussie labour market still vulnerable, inflation contained and the RBA likely to maintain its view of an overvalued currency, next week’s rate decision should come out on the dovish side and keep Aussie weighed down. AUDUSD recently stalled at key range resistance around 0.8900 and has come back under pressure following the more hawkish than expected Fed. Today’s US GDP will likely be the next market mover for this pair.

USDCAD – technical overview

Setbacks in this pair should continue to be well supported, with the market locked in an uptrend and looking to retest and break above the recently established yearly high at 1.1386. Look for the formation of a higher low somewhere above 1.1082 ahead of the next big push through 1.1386 and towards 1.1500. Only a close back under 1.1082 would delay.

• R2 1.1386 – 15Oct/2014 high – Strong
• R1 1.1255- 27Oct high – Medium
• S1 1.1122 – 29Oct low – Medium
• S2 1.1072 – 2Oct low – Strong

USDCAD – fundamental overview

Interestingly enough, the Canadian Dollar has outperformed on the week, and is even tracking higher against the Buck since the Monday open. While the more hawkish Fed statement did result in some USDCAD upside on Wednesday, the setbacks in the Loonie were less egregious than weakness amongst its peers. The relative outperformance has been attributed to a recovery in oil prices off 2 year lows, but additional Cad gains are expected to be limited, with USDCAD seen back towards the recent yearly high at 1.1386. Comments from BoC Governor Poloz that weakness in the Canadian Dollar has been “icing on the cake” for struggling exporters, shows the central bank is welcoming of the Cad weakness.

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. Ultimately, only back above 0.8035 would take the immediate pressure off the downside and delay.

• R2 0.8100 – Figure – Medium
• R1 0.8035- 21Oct high – Medium
• S1 0.7750 – Mid-Figure – Weak
• S2 0.7707 – 29Sep/2014 low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has been bitten twice in a matter of hours, with the hawkish Fed followed by a dovish RBNZ. The RBNZ removal of the phrase “some further policy tightening will be necessary” confirms expectations the central bank could now remain on hold for the entire 2015. NZDUSD is closing in on its 2014 low just over 0.7700, which guard against the 2013 base at 0.7680. Dealers cite heavy stops below 0.7680. The risk correlated commodity currency will now look ahead to US GDP, while paying attention to equity market performance. Any signs of weakness in stocks could intensify Kiwi selling.

US SPX 500 – technical overview

The intense recovery rally over the past several days has stalled ahead of 2000, with the market putting in a bearish close on Wednesday. At this point it is unclear whether the market is looking to retest the record high from September or put in a lower top ahead of fresh downside. The breakdown in early October had warned of a meaningful bearish structural shift, but the recovery off the 1820 area lows has compromised this prospect. A break and daily close back below the 100-Day SMA and some previous multi-month rising trend-line support around 1960 will now be required to put the focus back on the downside.

• 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

US equities showed some signs of potentially stalling on Wednesday, with many market participants exiting long positions following the more hawkish Fed statement. The announcement of the end of QE and an upgraded labour market outlook could put the Fed closer to a rate hike, and this translates into less incentive to be long an already stretched equity market. Still, bulls have been comforted by the fact that the “considerable time” language was left in the statement, and this has kept the market supported into dips for now.

GOLD (SPOT) – technical overview

Though gains have stalled out in recent sessions, the market remains confined to the multi-month range after recently bouncing out from the critical base at 1180. Ultimately, only a break and daily close below 1180 would force a structural shift. Otherwise, look for setbacks to continue to be supported ahead of 1180.

• R2 1270.00 – 100-Day SMA – Strong
• R1 1256.00 – 21Oct high – Weak
• S1 1200.00 – Psychological – Medium
• S2 1180.00 – 28Jun/2013 low – Very Strong

GOLD (SPOT) – fundamental overview

The more hawkish Fed statement on Wednesday has opened the door for a fresh wave of selling in gold, with the metal trading back down towards the critical multi-month base at 1180. With the US Dollar in recovery mode, many investors see less of a need to be buying gold, and this has been a thorn at the side of the commodity for several months. Also contributing to the declines has been a well-supported equity market. But this should be watched closely, as the demand for gold in risk off settings can be quite intense, and should stocks start to roll over, with uncertainty creeping back in, gold could once again be well supported and find renewed upside.

Feature – technical overview

USDZAR looks like it is finally ready for a more medium-term bullish resumption following a period of short-term corrective declines. Setbacks have stalled out into strong previous range resistance, which shoud now act as formidable support in favour of a meaningful higher low and fresh upside extension back through the October peak at 11.3780. Only a daily close below 10.8000 would negate.

• R2 11.2000 – 16Oct high – Strong
• R1 11.0200 – 20-Day SMA – Medium
• S1 10.8250 – 29Oct low – Medium
• S2 10.8000 - Psychological – Strong

Feature – fundamental overview

Emerging market FX is back under pressure following a more hawkish than expected Fed statement, which is having a favourable impact on US Dollar yield differentials. This in conjunction with some heavy declines in gold prices over the past few sessions has opened renewed weakness in the Rand, which had been enjoying a period of short-term relief. The USDZAR price has fallen back into some formidable previous resistance from June, July, and August around 10.8300, and there was good demand from bargain hunters that emerged at the attractive level. More demand is seen for USDZAR, with many now looking for a push to fresh 2014 highs.