Yen Collapses After BOJ Drops Bombshell

GBPUSD – technical overview

The pair remains confined to a bearish consolidation, with the focus on a retest of 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 only a break above would take the immediate 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

UK consumer confidence data came in softer than expected and this has acted as a bit of a weight on the Pound. There is no UK data left on Friday and the market will be left to trade off broader themes. For the moment, the shock from the Bank of Japan is influencing, with the event highlighting favorable US Dollar yield differentials. Key support for Cable comes in at the yearly low of 1.5875.

USDJPY – technical overview

The market has gone parabolic on Friday, surging through the previous yearly peak at 110.10, to a fresh 6-year high through 111.00. The bullish break now confirms a medium-term higher low at 105.20 and opens the next major upside extension towards 115.00. Any setbacks should now be well supported above 109.00.

• R2 112.00 – Psychological – Medium
• R1 111.53 – 31Oct high – Weak
• S1 110.10 – 1Oct high – Medium
• S2 100.17 – 31Oct low – Strong

USDJPY – fundamental overview

An absolute bombshell from the Bank of Japan on Friday. In a narrow 5-4 vote, the BOJ announced it would ease policy further and expand its monetary base at an annual pace of Yen 80T versus Yen 60-70T previous. The increased easing involves BOJ raising its JGB buying by Yen 30T a year. The easing move comes on the back of increasing deflationary risks and the central bank’s strong desire to see inflation back over 2%. Kuroda has since been on the wires telling markets the Bank of Japan will not hesitate to act again if needed. USDJPY has surged to a fresh 6-year high above 111.00, with macro players not targeting 115.00 over the near-term.

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 has been contending with monetary easing from other major central banks, and the move by the BOJ today could have unwanted favourable Franc implications as CHF-JPY yield differentials widen in favour of the Franc. 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 earlier this week 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 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

The focus shifts to next week’s RBA decision where the central bank is widely expected to deliver a more dovish statement. While no change on rates is expected, a combination of softer economic data, highlighted by retail sales, a troubled labour market, and falling commodity prices, should be what tilts the balance more towards the side of caution. This week’s dovish central bank moves by the RBNZ and BOJ will also encourage the RBA to keep up with the other central banks.

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

The Canadian Dollar has been suspiciously well bid this week, with the currency outperforming against its peers. Perhaps a minor recovery in oil prices has contributed a bit, but this market has come back under pressure. Overall, with the Fed moving closer to a rate hike, and BoC Poloz welcoming Canadian Dollar weakness, the risks from here are tilted in favour of the US Dollar. Looking ahead, the market will have something to work with, as Canada GDP is due in North America.

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

Quite a week for the New Zealand Dollar after the RBNZ changed gears and removed the “some further policy tightening will be necessary” language from the monetary policy statement. The removal of the phrase puts the RBNZ into the neutral camp and 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 guards against the 2013 base at 0.7680. Dealers cite heavy stops below 0.7680. The risk correlated commodity currency will now look ahead to next week’s employment data and Fonterra auction.

US SPX 500 – technical overview

No signs of let up, with this intense recovery completing a full retracement of the September record high to October low move. The market has broken to another record high and now that we are in unchartered waters, resistance comes down to extensions, round numbers and psychological barriers.

• R2 2040.00 – Psychological – Weak
• R1 2030.00 – Psychological – Weak
• S1 2001.00 – 30Oct high – Weak
• S2 1993.00 – 31Oct low – Medium

US SPX 500 – fundamental overview

There is no doubt what kind of influence easy monetary policy has on equity markets. Today’s shocking decision by the Bank of Japan to accommodate further, sent the stock market racing to fresh record highs. The moves in the SPX500 in October have been astounding, with the market trading all the way down to 1820 and back above 2023. Clearly the market has taken this as a message that free money policy isn’t going anywhere fast. However, with the Fed leaning to the hawkish side and stocks at record highs and well extended, this could be a last gasp effort before capitulation. Major stock market corrections were seen at the end of QE1 and QE2, and with QE3 now done, we could see the same again.

GOLD (SPOT) – technical overview

The market has finally broken down to clear the critical multi-month base at 1180. There is some solid support going back to 2010 in the 1150-80 area, and with daily studies well oversold, risk for additional declines should be limited in favour of a corrective rebound. However, a break back above 1256 would be required to officially alleviate immediate downside pressures.

• R2 1270.00 – 100-Day SMA – Strong
• R1 1256.00 – 21Oct high – Strong
• S1 1167.00 – 31Oct/2014 low – Medium
• S2 1150.00 – Psychological – Medium

GOLD (SPOT) – fundamental overview

Friday’s central bank event risk has been the catalyst for the critical breakdown in Gold below the 2013, 1180 base, to its lowest levels since 2010. The Bank of Japan decision to expand it monetary easing has widened out the differential that much more in favour of a US Dollar that has benefited immensely from diverging central bank policies. This in turn has weighed on the metal, which is no longer as attractive as an alternative to the US Dollar. Still, gold’s safe haven appeal should not be discounted with the global economy looking more fragile. There is good demand cited all the way down towards 1100.

Feature – technical overview

USDNOK is showing signs of exhaustion on a short and medium-term basis, and could be due for some form of a corrective retreat in the sessions ahead. Thursday’s bearish gravestone doji formation supports this case. But with the uptrend firmly intact, a break and close below 6.6900 would be required to confirm an interim top.

• R2 6.8000 – Psychological – Medium
• R1 6.7430 – 30Oct/2014 high – Medium
• S1 6.6420 – 23Oct high – Medium
• S2 6.6030 - 29Oct low – Medium

Feature – fundamental overview

The Krone has been under some intense pressure and continues to post fresh yearly lows against the Buck. While the anticipated shift in Fed policy has been supporting the US Dollar, Norwegian fundamentals have not been helping the Krone’s cause. The decline in oil prices has been a primary driver of some of the relative NOK underperformance, but recent data showing soft Norway retail sales and a rise in the unemployment rate are further contributors to the currency’s weakness. Throw in a Swedish central bank that has cut rates to zero, and this puts more pressure on the Norges Bank to follow along and shift from a neutral bias to a more dovish one.