US Employment Report Could Accelerate Fed Timeline

GBPUSD – technical overview

Thursday’s break and close below the previous yearly low at 1.5875, opens the door for the next major downside extension towards 1.5500 over the coming days. Rallies should now be well capped below 1.6022, while only back above 1.6227 would force a shift in the bearish structure.

• R2 1.6227 – 9Oct high – Strong
• R1 1.6022 - 3Nov high – Medium
• S1 1.5815 – 7Nov/2014 low – Weak
• S2 1.5800 – Figure – Medium

GBPUSD – fundamental overview

A Mark Carney speech and some trade data will be taken in on Friday and could have a bit of an influence on the direction in the beleaguered Cable. However, all eyes are now focused on the monthly US employment report, which could open a further divergence between Fed and BOE policy. A better than expected number will expose deeper setbacks in this major pair towards 1.5500, while anything on the soft side should invite a welcome relief rally for the Pound back above 1.6000.

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. Below 113.41 is required to take the immediate pressure off the topside.  

• 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

It’s all about diverging central bank policy for this major pair. Last week’s ramp up in the BOJ easing initiative has been followed by another solid week of US economic data, and this has sent USDJPY skyrocketing to fresh 7-year highs beyond 115.00. Today’s nonfarm payroll report out of the US will be a major driver of short-term price action, with a solid number to open more favourable US Dollar yield differentials and additional upside in USDJPY. A weaker print will inspire some profit taking on long positions and could open a deserved correction. Still, even with a softer print, any USDJPY setbacks are expected to be very well supported.

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 this week 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 it is prepared to act “immediately” and is firmly committed to keeping the price supported above the barrier. Swiss employment and retail sales data is not likely to influence on Friday.

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 0.8540 – 7Nov/2014 low – Weak
• S2 0.8500 – Psychological – Strong

AUDUSD – fundamental overview

The RBA’s quarterly Statement On Monetary Policy (“SOMP”) didn’t produce any surprises and kept in line with the central bank’s dovish leanings. Some of the highlights were: the Australian Dollar was still above estimates of fundamental value, inflation was likely to remain continued and that unemployment would remain elevated for a while along with slower wage growth. The currency continues to trade to fresh yearly lows against the Buck, with short-term direction contingent on today’s US NFP release.

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 1.1122 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 is at risk for another volatile session on Friday with major economic data converging in the form of Canada and US employment data. Still, the converging data should do nothing to change the bigger picture of diverging monetary policy outlooks. BoC Governor Poloz has stressed the need for continued monetary stimulus and has warned that additional stimulus could be forthcoming if headwinds persist, while solid economic data out of the US puts the Fed closer to hiking rates sooner than later in 2015. US oil prices should also be watched closely, given the commodity’s positive correlation with the Loonie.

NZDUSD – technical overview

The latest break and close below the previous yearly low at 0.7707 now confirms a medium-term lower top at 0.8035 and opens the next major downside extension towards a measured move objective in the 0.7400 area over the coming days. In the interim, look for any recovery rallies to be well capped below 0.7900, while only back above 0.8035 compromises the bearish structure.

• R2 0.7978 – 29Oct high – Medium
• R1 0.7842- 5Nov high – Medium
• S1 0.7660 – 7Nov/2014 low – Weak
• S2 0.7600 – Figure – Medium

NZDUSD – fundamental overview

Another 2014 low for the New Zealand Dollar against the Buck on Friday, with the market falling out of a multi-day range trade. Additional setbacks over the short-term could be limited if US NFPs come in soft, 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 2038.00 – 7Nov/Record high – Weak
• S1 2002.00 – 4Nov low – Strong
• S2 1966.00 – 30Oct low – Strong

US SPX 500 – fundamental overview

US equity markets continue to hold onto record high gains in reaction to ramped up global monetary easing initiatives from the BOJ and ECB. 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, this pattern could play out again. Moody’s report that it expects a rate hike from the Fed in H1 2015 is also worth noting. Attention shifts to today’s US monthly employment report, which if solid, has a good chance of ensuring the Fed removal of its “considerable time” language in the monetary policy statement next month.

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. The risk from here is for some form of a 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 1131.00 – 7Nov/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

USDZAR is in the process of reestablishing an uptrend after basing out around 10.8300 in late October. The market is now looking to next key resistance at 11.3800, which guards against the 2014 high from January around 11.3950. Above 11.3950 will confirm a medium-term higher low at 10.8300 and open the door for the next major upside extension towards 12.0000 in the weeks ahead. Only back below 10.8300 would compromise the bullish structure.

• R2 11.3950 – 30Jan/2014 high – Strong
• R1 11.3800 – 3Oct high – Strong
• S1 11.1850 – 5Nov high – Weak
• S2 11.1100 - 6Nov low – Medium

Feature – fundamental overview

The Rand has come back under pressure along with the rest of the currency market, as US Dollar yield differentials become increasingly attractive in a world of diverging Fed/global central bank monetary policies. However, a downgrade from Moody’s on Thursday is also influencing trade a bit. Moody’s came out and lowered the notch on South Africa’s credit rating to Baa2 from Baa1. The event did have some silver lining with the rating agency changing the outlook from “negative” to “stable.” Overall, the Rand is victim to broader flows and appetite for risk currencies in a challenging environment for emerging market FX.