Markets Looking Ahead to Key Friday Data

GBPUSD – technical overview

Wednesday’s break to yet another yearly low below 1.5791 opens the door for a fresh downside extension exposing the 1.5500 area in the days ahead. At this point, a break back above 1.6040 would be required to take the immediate pressure off the downside, while only above 1.6227 would compromise the bearish structure.

• R2 1.6039 – 30Oct high – Medium
• R1 1.6000 - Psychological – Medium
• S1 1.5760 – 12Nov/2014 low – Weak
• S2 1.5750 – Mid-Figure – Weak

GBPUSD – fundamental overview

Though most major currencies have been consolidating, the Pound has not, with Cable dropping to another 2014 low against the Buck. The relative underperformance in Sterling comes on the back of Wednesday’s Bank of England quarterly inflation report which has done a good job of scaling back interest rate hike expectations in 2015 after the BOE downgraded growth and inflation forecasts. The subsequent release of softer house prices and some dovish BOE Broadbent comments, have not done anything to help Sterling’s cause. Looking ahead, there are no economic releases of note for Thursday, with US initial jobless claims and some Fed speak standing out.

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 113.86 – 10Nov low – Strong
• S2 112.57 – 3Nov low – Medium

USDJPY – fundamental overview

The reports that Japanese PM Abe decided to call for a general election next month, along with ongoing chatter the administration may delay the sales tax, have helped to keep the Yen under pressure and near its recent 7-year low against the Buck. Still, with this market having moved so far so fast, there is increasing risk for a sizable corrective retreat in USDJPY in the days ahead. The USDJPY market has been correlating well with US equities and risk, and although we have seen continued record prints in US stocks, there are some red flag warnings out there, with geopolitical tensions on the rise and China data coming in softer than expected.

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 Wednesday, 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

The Australian Dollar has been finding additional offers on Thursday after a modest recovery over the past few sessions. The weakness comes on the back of RBA Assistant Governor Kent comments that Aussie growth will be below trend and that further FX intervention should not be ruled out. Also seen weighing a bit is the overall softer batch of data out of China and reports China will lower its growth forecasts for 2015. The early Thursday release of higher Aussie consumer inflation expectations readings has not factored into price action.

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, ideally 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 1.1281 – 12Nov low – Weak
• 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 a bigger fundamental picture that favours the US Dollar on divergent central bank policy themes. Depressed oil prices are also a risk for the Loonie and USDCAD could be back to fresh 2014 highs if oil decides to drop to another yearly low and challenge the 2010 base just under $75. Looking ahead, Canada new house price data will be absorbed in the North American session.

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 on a daily close basis, while only back above 0.8035 compromises the bearish structure.

• R2 0.7978 – 29Oct high – Medium
• R1 0.7906- 12Nov high – Medium
• S1 0.7660 – 7Nov/2014 low – Strong
• S2 0.7600 – Figure – Medium

NZDUSD – fundamental overview

Upbeat New Zealand performance of manufacturing and solid REINZ house price data have helped fuel the latest Kiwi recovery rally. There has already been some decent demand this week for the New Zealand Dollar with the risk correlated, higher yielding currency benefiting from an ongoing rise in US equities to record highs. However, any additional strength should prove hard to come by, with decent offers reported from macro accounts around 0.7900. The ongoing divergence between the Fed and RBNZ continues to favour the US Dollar, while RBNZ Wheeler has helped this process along as he continues to talk down the local currency. Softer China data on Thursday and the return of geopolitical risk could also start to weigh on this market.

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 2025.00 – 10Nov low – Medium
• S2 2002.00 – 4Nov 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. Given the massive +10% move over the past month, traders may start thinking about profit taking into year-end. Thursday’s softer China data and the reemergence of geopolitical risk as Russian troops cross back over into Ukraine could influence price action as the day progresses. Stocks have also been correlating with USDJPY price action and it will be interesting to see what happens should USDJPY reverse on Thursday.

GOLD (SPOT) – technical overview

The market is in the process of consolidating declines since breaking below previous multi-month support at 1180. But the door is now open 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 1195.00 – 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 status 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

USDOIL (spot) remains under intense pressure, with the price recently dropping to a fresh 2014 low through the 2012 base. Next key support comes in the form of the 2010 base at 74.95, with a break below 75.90 to open the door for a direct retest of the key level. A daily close back above 79.85 would be required to take the immediate pressure off the downside.

• R2 82.85 – 29Oct high – Strong
• R1 79.85 – 10Nov high – Medium
• S1 75.90 – 4Nov/2014 low – Medium
• S2 74.95 - 2010 Base – Strong

Feature – fundamental overview

Oil is back to pressuring the recent yearly low which guards against the 2010 base at 74.95. Net speculative positioning is still weighted to the long side, but is not at levels that would suggest a bottom has been reached just yet. It seems the market still wants to head lower and clear out sell-stops before considering a base. The net supply/demand balance for the commodity remains oil negative, but at this point, the lower prices have not yet compromised US production. Ongoing developments out of Saudi Arabia and on the geopolitical front should be watched closely, particularly with the Russia-Ukraine conflict heating up again.