RBA Rates Unchanged But Revises Currency Language

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. But watch out for Monday’s bullish outside day to open some upside within the defined range.

• R2 1.6300 – Figure – Weak
• R1 1.6227 - 9Oct high – Strong
• S1 1.5925 – 3Nov low – Medium
• S2 1.5875 – 15Oct/2014 low – Strong

GBPUSD – fundamental overview

The Pound has found a little support in recent trade, with some better than expected UK manufacturing PMIs inspiring fresh bids. The manufacturing PMIs came in at a solid 53.2 versus the 51.2 expected. Still, topside in Cable has been limited, with US economic prospects looking more encouraging. The Bank of England is out with a decision later this week, although no change is expected and the central bank will likely keep with its wait and see approach. Today’s UK construction PMIs aren’t likely to factor into price action.

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 114.00 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 sessions ahead. Any setbacks should be well supported above 110.00.

• R2 115.00 – Psychological – Very Strong
• R1 114.21 – 3Nov/2014 high – Medium
• S1 112.57 – 3Nov low – Weak
• S2 112.00 – Figure – Weak

USDJPY – fundamental overview

Not much of a surprise to see a bit of profit taking on Yen shorts into Tuesday, after the Yen had been in collapse mode since Friday’s surprising Bank of Japan move to ramp up easing efforts. Japanese markets also returned to trade following the local Monday holiday and this inspired additional Yen interest off recent 7-year lows against the Buck. There is no question the trajectory of the Yen is intensely negative, but at the same time, officials never welcome excessive moves in currency markets. While 115.00 USDJPY could still be tested, from there, it might be prudent to expect a period of consolidation.

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 last Friday’s BOJ move, along with this week’s ECB, could have unwanted favourable Franc implications. 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 a break to fresh yearly lows below 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 0.8785 - 10-Day SMA – Medium
• S1 0.8642 – 3Oct/2014 low – Strong
• S2 0.8600 – Figure – Weak

AUDUSD – fundamental overview

This Australian Dollar is a relative outperformer on Tuesday after the market stalled just shy of fresh 2014 lows against the Buck. The recovery in the currency comes on the back of the latest RBA rate decision. While the central bank left rates unchanged at 2.50% as expected, and reaffirmed its stance that “the most prudent course is likely to be a period of stability”, a change in language on the Australian Dollar outlook could be supporting the gains after the RBA tempered its language on the subject saying Aussie was seen “above most estimates of its fundamental value” as opposed to being “high by historical standards” in October’s statement. On the data front, key economic releases were offsetting, with Aussie retail sales much better and Aussie trade data a good deal worse.

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 at 1.1122 ahead of the next big push through 1.1386 and towards 1.1500. But ultimately, only a close back under 1.1082 would delay.

• R2 1.1500 – Psychological – Strong
• R1 1.1386- 15Oct/2014 high – Strong
• S1 1.1185 – 31Oct low – Medium
• S2 1.1122 – 29Oct low – Strong

USDCAD – fundamental overview

The drop in oil prices has been a key contributor to weakness in the Canadian Dollar of late. However, this shouldn’t overshadow downbeat comments from Bank of Canada Governor Poloz on Monday. Poloz stressed the need for continued monetary stimulus and warned additional stimulus could be forthcoming if headwinds persisted. Ongoing concern over the health of the labour market is another source of Cad selling, and all of this comes in deep contrast with ever improving fundamentals south of the Canadian border. This further highlights the diverging Fed/BoC monetary policy paths and should continue to support USDCAD over the medium-term.

NZDUSD – technical overview

Monday’s break below the multi-day bearish consolidation low at 0.7707 sets the stage for the next major downside extension towards 0.7400 over the coming days. However, next key support in the form of the 2013 base at 0.7680 will need to be taken first to get things going to the downside. Until then, expect some more inter-day chop. But ultimately, only back above 0.8035 would negate the underlying bearish trend.

• R2 0.8035 – 21Oct high – Strong
• R1 0.7880- 31Oct high – Medium
• S1 0.7698 – 3Nov/2014 low – Medium
• S2 0.7680 – 24Jun/2013 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 has broken down to yearly lows below 0.7700 and could be at risk for deeper setbacks early Wednesday, with the release of New Zealand employment data and Fonterra auction. The market is looking for a drop in the unemployment rate from 5.6% to 5.5% and the data could be setting up for disappointment. Meanwhile, the cutbacks in dairy prices have been a huge drag for the local economy and if the results don’t show a bottoming in prices, it will be a big negative for the New Zealand Dollar.

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 1993 would be required to take the immediate pressure off the topside.

• R2 2040.00 – Psychological – Medium
• R1 2030.00 – Psychological – Weak
• S1 1993.00 – 31Oct low – Medium
• S2 1966.00 – 30Oct low – Strong

US SPX 500 – fundamental overview

There is no doubt what kind of influence easy monetary policy has on equity markets. Last Friday’s shocking decision by the Bank of Japan to accommodate further, has sent the stock market racing to fresh record highs. Clearly the market has taken this as a message 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 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 1256.00 – 21Oct high – Strong
• R1 1203.00 – 31Oct high – Medium
• S1 1161.00 – 31Oct/2014 low – Weak
• 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 to 1100.

Feature – technical overview

US OIL (spot) remains under intense pressure to fresh yearly and multi-year lows, with the price dropping well below psychological barriers at 80 and now taking out the 2012 base at 77.25. However daily and weekly studies are starting to look stretched, and a corrective bounce should be expected somewhere around 76.00.

• R2 82.85 – 29Oct high – Strong
• R1 81.00 – 3Nov high – Medium
• S1 75.90 – 4Nov/2014 low – Weak
• S2 74.95 - Oct/2011 low – Weak

Feature – fundamental overview

US oil prices continue to slide to fresh yearly and multi-month lows as oversupply and reduced demand themes weigh heavily on this market. Setbacks have intensified this week after Saudi Arabia made a move to keep its threatened market share by unexpectedly cutting prices for crude sold to the US. The market is now seen dropping into the 2011 and 2012 low area between 74.95 and 77.25. But politics and geopolitical risk always have a way of supporting this market and with technical studies stretched, we could soon find a base.