Global Deflation Fears Fuel US Dollar Bids

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 1.5900 – Figure – Weak
• S2 1.5875 – 15Oct/2014 low – Strong

GBPUSD – fundamental overview

UK manufacturing PMIs will be digested on Monday, but the economic calendar is rather light here. Friday’s solid Chicago PMIs and Michigan confidence readings helped to weigh Cable back towards the recent 1.5875 yearly low, yet the pair is still supported above the level. The only major event risk for the Pound this week comes on Thursday, in the form of the Bank of England rate decision. But with no change to policy expected, look for the Pound to continue to trade of broader macro flows and themes.

USDJPY – technical overview

The market has gone parabolic, surging through the previous yearly peak at 110.10, to a fresh 7-year high into the 113.00 area thus far. The bullish break confirms a medium-term higher low at 105.20, which now opens a measured move upside objective to 115.00 in the days ahead. Any setbacks should be well supported above 109.00.

• R2 113.50 – Mid-Figure – Weak
• R1 112.97 – 3Nov/2014 high – Weak
• S1 112.00 – Figure – Weak
• S2 111.35 – Upper Bollinger – Medium

USDJPY – fundamental overview

The Yen is still reeling following the drastic Bank of Japan move on Friday to ease policy further and raise its monetary base target from Yen60-70tln to Yen80tln. Despite the Japan holiday, USDJPY has traded into the 113.00 area, and dealers site solid demand on dips, with market participants looking to 115.00 next. The improving economic data in the US is also contributing to the demand, as it only accentuates the ongoing divergence between the Fed and BOJ. Both USDJPY and the Nikkei are at fresh 7-year highs.

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 Friday’s BOJ move could have unwanted favourable Franc implications as CHF-JPY yield differentials widen out. However, we are unlikely to see any form of intervention while the EURCHF market holds above 1.2045.

AUDUSD – technical overview

Inability to establish above 0.8900 last 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 0.8854 – 30Oct high – Medium
• R1 0.8795 - 10-Day SMA – Medium
• S1 0.8675 – 24Oct low – Weak
• S2 0.8642 – 3Oct/2014 low – Strong

AUDUSD – fundamental overview

It’s been a tough go for the Australian Dollar of late. The currency is close to retesting its recent yearly low against the US Dollar as a deluge of developments weigh. Friday’s Bank of Japan decision has set off a wave of deflation concern with other central banks now under pressure to follow the lead and keep with the path of monetary easing. Meanwhile, solid US economic data and some softer China PMIs are fueling additional Aussie offers. Aussie building approvals haven’t help matters, after coming in much weaker than expected. All of this ahead of Tuesday’s anticipated RBA decision. Everything is pointing to a dovish slant, and it would be surprising to see the RBA produce anything less.

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 1.1333- 31Oct high – Medium
• S1 1.1185 – 31Oct low – Medium
• S2 1.1122 – 29Oct low – Medium

USDCAD – fundamental overview

A set of contrasting data on Friday was enough to spark a nice rebound in USDCAD back towards the recent 2014 peak at 1.1386. While Chicago PMIs and Michigan confidence were rather impressive, the same could not be said for Canada GDP, which came in softer than forecast and showing the economy unexpectedly shrinking for the first time in eight months. Throw in falling oil prices and some recent dovish remarks from BoC Governor Poloz, and the outlook for the Loonie is not favourable.

NZDUSD – technical overview

The market has been confined to a bearish 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 0.8035 – 21Oct high – Strong
• R1 0.7890- 31Oct high – Medium
• S1 0.7736 – 3Nov low – Weak
• S2 0.7707 – 29Sep/2014 low – Strong

NZDUSD – fundamental overview

The shift in the RBNZ outlook to neutral has opened the door for a fresh wave of Kiwi selling in recent days. NZDUSD is now very close to retesting the yearly lows at 0.7707 and could be at risk for an acceleration of declines in the face of diverging Fed/RBNZ policy paths. Economic data out of the US has been quite solid, while the weekend news of softer China PMIs has not been a help to the China correlated New Zealand Dollar. Looking ahead, Tuesday should be a busy day for Kiwi, with the market sensitive to the RBA rate decision and then coming into direct contact with NZ employment data later in the day.

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. A break back under 1960 would be required to take the immediate pressure off the topside.

• 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. Friday’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 were nothing short of astounding, with the market trading all the way down to 1820 and back to record highs. 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, 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 sooner than later.

GOLD (SPOT) – technical overview

The market has finally broken down to clear the critical multi-month base at 1180 to expose 1000 further down. However, 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 for now in favor of a corrective rebound. Still, only a break back above 1256 would officially alleviate immediate downside pressure.

• R2 1270.00 – 100-Day SMA – Strong
• R1 1256.00 – 21Oct high – Strong
• S1 1162.00 – 3Nov/2014 low – Medium
• S2 1150.00 – Psychological – Medium

GOLD (SPOT) – fundamental overview

Last week’s Bank of Japan decision to ease policy further has intensified global deflation risk, opening a fresh round of selling in gold prices. A contrasting improvement in US economic data and favourable US Dollar yield differentials have made the yellow metal much less attractive and some are now talking about deeper losses towards 1000. Still, gold’s alternative safe haven appeal should not be discounted with the global economy looking more fragile. Technicians cite an oversold short-term market, while dealers talk of good demand all the way down towards 1100.

Feature – technical overview

SILVER (spot) has dropped back to levels not seen since 2010, with the market coming under some intense pressure. However, with daily studies now well oversold, there is risk for a decent corrective rebound in the sessions ahead. Look for a break back above 16.52 to confirm short-term bullish reversal prospects.

• R2 17.20 – 30Oct high – Medium
• R1 16.52 – 31Oct high – Medium
• S1 15.75 – 3Nov/2014 low – Weak
• S2 15.50 - Mid-Figure – Weak

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. Many macro players wanting to take metal exposure but fearful of the ongoing decline in prices have opted to look to this ratio in recent weeks, eliminating the US Dollar component and playing a long silver bet relative to gold on the expectation the ratio will normalize off record levels. Technically, silver is more oversold on a short-term basis, so this could present an attractive entry for the long Silver/Gold play.