Dollar-Yen Clears 115.00, ECB Event Risk In Focus

GBPUSD – technical overview

The market just managed to squeak out a fresh 2014 low on Wednesday at 1.5869 before rallying back into the familiar range. Daily closes are always important, and the inability to close below what had been the previous yearly low at 1.5875 keeps the consolidation trade intact. A close below 1.5869 will open the next downside extension towards 1.5500, while only back above 1.6227 would compromise the bearish structure.

• R2 1.6300 – Figure – Weak
• R1 1.6227 - 9Oct high – Strong
• S1 1.5869 – 5Nov/2014 low – Strong
• S2 1.5800 – Figure – Medium

GBPUSD – fundamental overview

Quite a busy few sessions for the Pound, after Cable barely broke to a fresh 2014 low below 1.5875, before reversing sharply back into the recent range. Wednesday’s softer UK services PMIs may have contributed to some of the declines to the new yearly low, although the market doesn’t seem to be too focused on local developments. UK industrial and manufacturing production are being taken in on Thursday, along with the Bank of England rate decision. No change is expected from the BOE, with rates and asset purchases to hold steady at 0.50% and 375B respectively.

USDJPY – technical overview

Another surge on Thursday has taken the market through its 500 point measured move objective of 115.00, following the break of the previous yearly high at 110.10. From here, look for the market to defer to a period of correction and consolidation before any meaningful upside and bullish continuation. Technical studies are well stretched and due for normalization. However, the uptrend remains firmly intact, with any setbacks now seen well supported ahead of the previous 2014 peak at 110.10.  

• R2 116.00 – Figure – Medium
• R1 115.52 – 6Nov/2014 high – Medium
• S1 113.41 – 5Nov low – Medium
• S2 112.57 – 3Nov low – Strong

USDJPY – fundamental overview

Some whipsaw trade for the Yen on Thursday, with USDJPY finally breaking through the critical 115.00 barrier to fresh multi-year highs, before reversing. Solid economic data out of the US, highlighted by the most recent ADP employment report, and comments from Moody’s that they expect a Fed rate hike in the first half of 2015, have contributed to the latest sell-off in the Yen. However, technicals are becoming more relevant now, with the Yen highly oversold and perhaps dropping a little too hard, too fast. Market participants are also squaring up ahead of today’s ECB event risk and tomorrow’s highly anticipated monthly employment report out of the US.

EURCHF – technical overview

The market has finally broken down below the yearly low from September at 1.2045 after being so well supported just above the level for so many days. The break now exposes critical support at 1.2000, below which would open an acceleration of declines. Back above 1.2080 would now be required to take the immediate pressure off of the downside, while only above 1.2140 shifts the bearish structure.

• R2 1.2140 – 7Oct high – Very Strong
• R1 1.2080 – 15Oct high – Strong
• S1 1.2032 – 6Nov/2014 low – Weak
• S2 1.2000 – Psychological – Very Strong

EURCHF – fundamental overview

SNB Chairman Jordan has come out with some harsh opposition to the “Save Our Swiss Gold” proposal that will culminate in a referendum next month. Jordan has said “it would be disastrous if Switzerland limited its own capabilities to react to disorder and maintain the stability of its currency.” But for the time being, market participants seem content on continuing to call the SNB’s bluff, with EURCHF breaking down to another 2014 low on Thursday and threatening an imminent test of the central bank’s 1.2000 line in the sand. The SNB has repeatedly warned markets that it is prepared to act “immediately” to defend the floor and is firmly committed to keeping the price supported above the barrier.

AUDUSD – technical overview

The latest break and close below the previous yearly low at 0.8642 now confirms a medium-term lower top at 0.8911 and opens the next major downside extension towards a measured move objective in the 0.8400 area over the coming days. In the interim, look for any recovery rallies to be well capped below 0.8800, while only back above 0.8911 compromises the bearish structure.

• R2 0.8762 – 5Nov high – Strong
• R1 0.8642 - 3Oct low – Medium
• S1 0.8553 – 6Nov/2014 low – Weak
• S2 0.8500 – Psychological – Strong

AUDUSD – fundamental overview

The Australian Dollar fell to yet another 2014 low against the Buck in early Thursday trade, with the market finding little comfort in the slightly better than expected headline Australia employment report. While the data may help bolster local sentiment a bit, the lagging indicator does nothing to change the overall picture of a slowing economy, vulnerable to external pressures and declining commodity prices. This in contrast with solid US fundamentals and the prospect for a sooner than later rate hike from the Fed, should keep any rallies in the commodity currency well capped in favour of additional weakness.

USDCAD – technical overview

Fresh 2014 highs for this pair, with the market breaking above the previous yearly high at 1.1386 to set the stage for a test of the next measured move objective at 1.1500. A higher low has now been confirmed at 1.1121, with any setbacks expected to be well supported above the level. Only a close back below 1.1121 would delay the short-term bullish structure.

• R2 1.1500 – Psychological – Strong
• R1 1.1467- 5Nov/2014 high – Weak
• S1 1.1263 – 3Nov low – Medium
• S2 1.1185 – 31Oct low – Strong

USDCAD – fundamental overview

The Canadian Dollar has managed to recover a bit since posting fresh 2014 lows against the Buck on Wednesday. A minor recovery in a heavily sold OIL market has helped contribute to the Loonie correction. However, this shouldn’t overshadow recent comments from BoC Governor Poloz who stressed the need for continued monetary stimulus and warned additional stimulus could be forthcoming if headwinds persisted. This, along with solid US economic data, further highlights the diverging Fed/BoC monetary policy paths and should continue to support USDCAD over the medium-term. Dealers talk of fresh bids between 1.1250-1.300.

NZDUSD – technical overview

The latest break below the multi-day bearish consolidation low at 0.7707, confirms a medium-term lower top at 0.8035 and sets the stage for the next major downside extension towards 0.7400. A daily close below 0.7700 will likely accelerate declines towards the 0.7400 measured move over the coming days, while inability to close below 0.7700 will keep the market within a consolidation. Ultimately, only back above 0.8035 would compromise the bearish structure.

• R2 0.7978 – 29Oct high – Medium
• R1 0.7842- 5Nov high – Medium
• S1 0.7668 – 6Nov/2014 low – Weak
• S2 0.7600 – Figure – Medium

NZDUSD – fundamental overview

Another 2014 low for the New Zealand Dollar against the Buck on Thursday, with the market looking to fall out of a multi-day range trade and start the next drop towards 0.7400. Additional setbacks over the short-term could be limited if the market decides to lighten up on aggressive broad based bullish US Dollar bets, but over the medium-term, Kiwi looks vulnerable as RBNZ/Fed divergences become more pronounced. Although this week’s New Zealand employment data was better than expected, ongoing weakness in commodity markets, as highlighted by the latest Fonterra dairy auction, and concern over global growth prospects, are not themes that will help Kiwi’s cause.

US SPX 500 – technical overview

The market is showing signs of exhaustion off recently established fresh record highs, following a remarkable recovery rally of over 200 points from mid-October. However, a break and daily close back under 2002 will be required to trigger a correction and take the immediate pressure off the topside. Inability to close below 2002, will keep the market looking for new highs.

• R2 2040.00 – Psychological – Medium
• R1 2028.00 – 6Nov/Record high – Weak
• S1 2002.00 – 4Nov low – Strong
• S2 1966.00 – 30Oct low – Strong

US SPX 500 – fundamental overview

US equities markets continue to hold onto record high gains in reaction to ramped up global monetary easing initiatives. However, with the Fed already starting to lean more to the hawkish side, the current rally could be a last gasp effort before capitulation. Major stock market corrections were seen on lack of Fed stimulus at the end of QE1 and QE2, and with QE3 now done, we could see the same again sooner than later. Moody’s report that it expects a rate hike from the Fed in H1 2015 could also start to weigh on this market. Attention will shift to Friday’s monthly employment report out of the US, which if solid, could seal the deal on the Fed removing the “considerable time” language at its next meeting.

GOLD (SPOT) – technical overview

Daily studies are highly oversold following the break of critical multi-month support at 1180 this week. The break below 1180 has opened a fresh downside extension and measured move exposing 1100. However, additional declines below 1100 will prove difficult in the short-term, despite the bearish break given the extended readings, and the risk from here is for some form of corrective rally over the coming sessions to allow for these stretched studies to unwind. But only back above 1256 would compromise the bearish structure.

• R2 1256.00 – 21Oct high – Strong
• R1 1203.00 – 31Oct high – Medium
• S1 1137.00 – 5Nov/2014 low – Weak
• S2 1100.00 – Measured Move – Strong

GOLD (SPOT) – fundamental overview

Gold continues to slump to fresh 4-year lows towards 1100, with the market unable to find support as favourable US Dollar yield differentials and surging equity markets detract from the metal’s lure as an alternative investment. Still, gold’s alternative safe haven appeal should not be discounted with the global economy looking more fragile and massive currency depreciations underway as central banks away from the US battle deflation. Technicians cite an oversold short-term market, while dealers talk of good demand all the way down to 1100.

Feature – technical overview

USDRUB continues to ascend to fresh record heights with the chart having gone completely parabolic. It isn’t too often that you see a daily and monthly RSI at 80 and a weekly RSI at 90. While the trend remains highly constructive across all time frames, the intense price action suggests we could see some form of a major corrective pullback on the horizon. A daily close below Wednesday’s low would trigger such a counter move.

• R2 46.00 – Figure – Medium
• R1 45.35 – 6Nov/Record high – Weak
• S1 43.70 – 5Nov low – Medium
• S2 41.20 - 30Oct low – Strong

Feature – fundamental overview

The CBR has confirmed it shifted its free-float basket boundary to 39.60-48.60. However, with the Ruble still in collapse mode to record lows, it will be interesting to see what kind of strategy the CBR has in store. Clearly, recent efforts have done little to control the pace of the decline, and with the Ruble now violently overextended, expect another response soon. Still with the global macro picture looking bleak for emerging markets at the moment, and with US yield differentials improving across the board, there is no question the CBR has a difficult challenge.