Continuation Or Correction?

GBPUSD – technical overview

The pair remains under pressure as it continues to break to fresh yearly lows. Deeper setbacks are now seen towards the 1.5500 area over the coming days, while only back above 1.5945 would take the immediate pressure off the downside. But overall, the bearish structure remains firmly intact while below 1.6227.

• R2 1.6039 – 30Oct high – Medium
• R1 1.5945 - 11Nov high – Strong
• S1 1.5654 – 14Nov/2014 low – Weak
• S2 1.5600 – Figure – Medium

GBPUSD – fundamental overview

A downbeat Bank of England Quarterly Inflation Report has been the primary catalyst for underperformance in the Pound this week. Cable has dropped to a fresh 14-month low on Friday and looks like it could be headed for the 1.5500 area next. The Bank of England’s downgraded forecasts for both growth and inflation have done a good job of scaling back interest rate hike expectations for 2015, with the market not expecting anything until the second half of the year in light of this development. Subsequent comments from BOE Carney and Broadbent have only reaffirmed this outlook. For today, UK construction output readings are not likely to factor into price action, with the Pound looking to broader market direction for cues. US retail sales will be watched closely and could trigger added volatility.

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 1100 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 116.00 – Figure – Medium
• R1 116.38 – 14Nov/2014 high – Medium
• S1 114.88 – 12Nov low – Medium
• S2 113.86 – 10Nov low – Strong

USDJPY – fundamental overview

Ongoing speculation Japan PM Abe will call for a general election next month, and chatter over potential sales tax delays continue to inspire fresh 7-year highs in USDJPY. 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 speculative positioning weighted so heavily to one side. This is often an indication of pending capitulation.

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 weeks. 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 1.2080 – 15Oct high – Strong
• R1 1.2045 – Previous base – Medium
• S1 1.2017 – 13Nov/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 below 1.2020, 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 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 0.8765 - 13Nov high – Medium
• S1 0.8541 – 7Nov/2014 low – Medium
• S2 0.8500 – Psychological – Strong

AUDUSD – fundamental overview

The news Australian mining giant Glencore will shut down operations for three weeks has opened the door for fresh declines in Aussie following a week which saw the currency correcting higher against the US Dollar. While Glencore remains confident in the growth prospects for its product, the current oversupply in the market has forced the company to make this decision. Looking ahead, the only key event risk left for the week comes in the form of US retail sales, and the Australian Dollar will look to trade in the direction of the broader market for the remainder of the day. Medium-term players have been sellers of AUDUSD on the diverging monetary policy theme. This week’s comments from RBA Kent that Aussie remains overvalued and further intervention should not be ruled out have also invited fresh selling of the pair.

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 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

As hard as the Loonie has tried to recover this week, post some impressive Canada employment data last Friday, there is no way of ignoring the rapid declines in the price of oil. Oil prices are well correlated with the Canadian Dollar given Canada’s exposure to the sector and with the commodity falling off a cliff to fresh 4-year lows, USDCAD is back on the bid. Recent US data continues to show oversupply in the market, and this comes after the latest report that Saudi Arabia has said it would not agree to output cuts later this month. Look for any recovery in oil on Friday to support Cad a bit, though there is other event risk to consider, with US retail sales and the lesser watched Canada manufacturing shipment data due.

NZDUSD – technical overview

The recent break and close below the previous yearly low at 0.7707 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 remain well capped below 0.7900 on a daily close basis, in favour of the formation of the next lower top. Only back above 0.8035 compromises the bearish structure.

• R2 0.8035 – 21Oct high – Strong
• R1 0.7929- 13Nov high – Medium
• S1 0.7713 – 11Nov low – Strong
• S2 0.7660 – 7Nov/2014 low – Medium

NZDUSD – fundamental overview

The ongoing rally in US equity markets to record highs and some decent second tier data out of New Zealand this week have helped to inspire a bit of a recovery in the higher yielding Kiwi. However, any additional strength should prove hard to come by, with solid 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. Throw in the intense downside pressure in commodity markets and the potential for risk liquidation in a well overextended stock market, and the outlook for Kiwi is not looking constructive.

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 well over 200 points from mid-October. However, a break and daily close back under 2031 will be required to trigger a correction and take the immediate pressure off the topside. Inability to close below 2031, will keep the market looking for new highs.

• R2 2100.00 – Psychological – Strong
• R1 2050.00 – Psychological – Medium
• S1 2031.00 – 12/13Nov lows – 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. Looking ahead, US retail sales are due and the market will be looking for a rebound after last month’s first negative print in 8 months. US economic data has been solid on the whole, and an impressive showing today could seal the deal on the Fed removing its “considerable time” language in the monetary policy statement next month. This would be equity bearish as it would bring rate hikes closer and detract from the free money incentive to be long stocks.

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 1190.00 – 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 2011 base. Next key support comes much further down in the form of the 2010 base at 67.15. However, with daily studies stretched and weekly studies severely oversold, there is risk the market will be looking to carve out some form of a short-term bottom in the sessions ahead, to allow for these extended readings to unwind in favour of a healthy corrective bounce.

• R2 79.85 – 10Nov high – Strong
• R1 77.15 – 13Nov high – Medium
• S1 73.25 – 14Nov/2014 low – Weak
• S2 72.60 - Dec2009 low – Medium

Feature – fundamental overview

Another day and yet another drop in the price of oil, with the commodity sinking to fresh 4-year lows after the IEA came out forecasting further price weakness. News of oversupply is abound, with US data confirming this week, no signs of any changes out of Saudi Arabia, and Australian mining giant Glencore announcing a three-week shutdown of operations. Meanwhile it now looks like President Obama may be forced into approving the Keystone pipeline, which would allow Canadian tar sands oil to be shipped to Texas. Net speculative positioning is still weighted to the long side, and could finally be crossing into levels warn of some form of a bottom. Still, while the supply/demand balance for the commodity remains oil negative, at this point, the lower prices have not yet compromised US production.