Currencies Flip-Flopping; Pound Vol to Pick Up

GBPUSD – technical overview

The market has been finding some support after dropping to a fresh 2014 low at 1.5791 last Friday. While the overall structure remains quite bearish, there is scope for additional corrective activity towards 1.6100 before the market considers renewed downside. However, inability to put in  a close back above 1.5950 on Wednesday will keep the immediate pressure on the downside and open the next drop below 1.5791 and towards 1.5650 further down.

• R2 1.6039 – 30Oct high – Medium
• R1 1.6000 - Psychological – Medium
• S1 1.5791 – 7Nov/2014 low – Medium
• S2 1.5750 – Mid-Figure – Weak

GBPUSD – fundamental overview

The Pound is at risk for some added volatility on Wednesday, with market participants digesting UK employment and the Bank of England Quarterly Inflation Report (“QIR”). The unemployment change is forecast at -20k versus -18.6k previous, with the unemployment rate seen dropping down to 5.9% from 6% previous. Meanwhile, the focus for the QIR will be whether there are any signs of an upgrade to the economy that would point to an earlier rate hike in 2015. Also getting attention is the news that the Financial Conduct Authority (“FCA”) has fined 5 banks in the amount of GBP1.1B for failing to control business practices in G10 spot operations.

USDJPY – technical overview

Although the market continues to race to fresh 7-year highs, there are strong signs of near-term topping in favour of a period of correction and consolidation. Daily, weekly, and monthly studies are well overbought, and a surge of over 1000 points since mid-October is deserving of a healthy retreat. Look for any additional gains to have a hard time establishing beyond 116.00, with a break and daily close back under 113.86 to confirm short-term topping and onset of the anticipated correction that should expose 112.00 further down.

• R2 116.50 – Mid-Figure – Medium
• R1 116.10 – 11Nov/2014 high – Medium
• S1 113.41 – 5Nov low – Medium
• S2 112.57 – 3Nov low – Strong

USDJPY – fundamental overview

The Yen has been yo-yo-ing over the past 24 hours, since breaking down to a fresh 7-year low against the Dollar, with USDJPY through the 116.00 barrier. Some USDJPY profit taking in New York was wiped out into the Tuesday close as chatter swirled that the Japanese sales tax would be delayed. However, this was later denied, and USDJPY has since been up and down. It is worth noting, that despite the intense uptrend, and despite the fundamentals which continue to warn of further Yen declines, USDJPY is now tracking in highly overbought territory across the daily, weekly and monthly chart after rallying over 1000 points in less than a month.

EURCHF – technical overview

The market has finally broken down below the previous 1.2045 yearly low from September after being so well supported just above the level for so many days. The break exposes critical support at 1.2000, below which would open an acceleration of declines. Back above 1.2080 would 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 1.2021 – 11Nov/2014 low – Weak
• S2 1.2000 – Psychological – Very Strong

EURCHF – fundamental overview

Although the SNB has been quite vocal with its commitment to defend the EURCHF 1.2000 floor, there are heightened concerns the upcoming Switzerland gold referendum will prevent the central bank from properly defending the floor. If the SNB is required to increase its gold reserves as a result of the referendum, it will translate into fewer reserves to fight unwanted Franc appreciation. This has been sourced as a key driver in the latest EURCHF weakness to fresh 2014 lows just shy of 1.2000. It seems until the SNB shows its hand, market participants will continue to call the central bank’s bluff. Still, there has been some interest since Tuesday, given the proximity to 1.2000 and favourable risk-reward dynamics.

AUDUSD – technical overview

The recent 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 the current recovery rally to be well capped below 0.8800 in favour of the formation of the next lower top. Only back above 0.8911 compromises the bearish structure.

• R2 0.8911 – 29Oct high – Strong
• R1 0.8762 - 5Nov high – Medium
• S1 0.8541 – 7Nov/2014 low – Medium
• S2 0.8500 – Psychological – Strong

AUDUSD – fundamental overview

An improvement in Aussie Westpac consumer confidence readings along with as expected wage costs have helped to contribute to a bit of a recovery in the commodity currency on Wednesday. The market had already enjoyed a nice rebound in Tuesday trade and seems content to consolidate a little more in the light calendar week. Decent offers from medium-term names are reported up towards 0.8750. Overall, the outlook for the Australian Dollar is still bearish given RBA central bank policy divergence with the Fed and narrowing yield differentials in favour of the Buck.

USDCAD – technical overview

The market has entered a period of correction after establishing fresh 2014 highs at 1.1467 in the previous week. However, the uptrend remains firmly intact and any setbacks are expected to be well supported in favour of a fresh higher low above 1.1122 and bullish resumption beyond 1.1467. Ultimately, only below 1.1122 would delay the short-term bullish structure.

• R2 1.1500 – Psychological – Strong
• R1 1.1467- 5Nov/2014 high – Medium
• S1 1.1300 – 10Nov low – Medium
• S2 1.1185 – 31Oct low – Medium

USDCAD – fundamental overview

The Canadian Dollar has been following the lead of the rest of the currency market this week, with the currency lacking any initiative of its own in a super light economic calendar. We have been seeing some renewed demand for the Loonie post last week’s blowout Canada employment data, which could be factoring a bit. Still, there is good USDCAD demand reported into the 1.1150-1.1200 area from medium players looking to take advantage of the bigger fundamental picture that favours the US Dollar, as the Fed is expected to hike rates ahead of the Bank of Canada. Depressed oil prices are also a risk for the Loonie and USDCAD could be back to fresh 2014 highs sooner than later.

NZDUSD – technical overview

The recent 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 the current recovery rally 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

No real surprises from the RBNZ Financial Stability Report, though the central bank did understandably upgrade its concern over the dairy sector given the “high debt and lower payout.” But there was some relief on that front following Fonterra’s latest cash payout forecasts which show some stabilization. Elsewhere, RBNZ Wheeler was out talking down the local currency after repeating the mantra that the “Kiwi level remains unjustifiably high and unsustainable and that it still has further room to fall.” There are good offers reported in this market in the 0.7850-0.7880 area.

US SPX 500 – technical overview

Despite posting fresh record highs on a daily basis, the market is showing signs of exhaustion following a remarkable recovery rally of over 200 points from mid-October. However, a break and daily close back under 2025 will be required to trigger a correction and take the immediate pressure off the topside. Inability to close below 2025, will keep the market looking for new highs.

• R2 2100.00 – Psychological – Strong
• R1 2050.00 – Psychological – Medium
• 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. The economic calendar is very quiet this week, which could get traders thinking about profit taking into year-end, following a massive surge since mid-October. Stocks have been correlating with USDJPY price action and it will be interesting to see what happens should USDJPY reverse on Wednesday.

GOLD (SPOT) – technical overview

The market has come under pressure since breaking below previous multi-month support at 1180. This has opened the door for a measured move downside extension into the 1100 area over the coming days. In the interim, any corrective rallies are expected to be well capped below 1200, with only a break back above 1256 to compromise the bearish structure.

• R2 1256.00 – 21Oct high – Strong
• R1 1199.00 – 20-Day SMA – Medium
• S1 1131.00 – 7Nov/2014 low – Medium
• S2 1100.00 – Measured Move – Strong

GOLD (SPOT) – fundamental overview

The gold market remains under pressure off fresh yearly lows from the previous week, as broad based demand for the US Dollar detracts from the appeal of the yellow metal. 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. There is a lot of talk of sizable demand on dips into the 1100-1150 area.

Feature – technical overview

USDSEK has been locked within a consolidation since recently breaking to a fresh 2014 high at 7.4530. While the medium-term trend continues to favour additional upside, it is difficult to determine the next short-term move. A break above 7.4530 will open the door for a push towards the 7.5600 area, while back below 7.3400 will trigger a correction and expose the 7.2200 area further down from where a meaningful  higher low will then be sought out.

• R2 7.5600 – Measured Move – Medium
• R1 7.4530 – 7Nov/2014 high – Medium
• S1 7.3400 – 6Nov low – Medium
• S2 7.2200 - Measured Move – Medium

Feature – fundamental overview

Though Swedish inflation expectations have come off quite a bit, the latest inflation readings came in hotter than expected and should be a welcome development for the Riksbank. Recent efforts to prop inflation through accommodative policy seem to be working, and this has inspired some renewed Krona bids. Elsewhere, Governor Ingves has welcomed the new FSA mortgage measures, but warned more measures to control household debt would be needed. USDSEK is currently trading just off 2014 highs and will likely defer to broader currency direction on Wednesday in a very light economic calendar.