UK CPI, German ZEW Digested in Tuesday Trade

GBPUSD – technical overview

Recovery attempts have been unsuccessful in recent trade, with the downtrend firmly intact and the market considering a break to yet another 2014 low below 1.5593. Below 1.5593 would open the door for the next key downside target in the form of the 1.5500 barrier, while a break back above Monday’s high at 1.5735 would be required to take the immediate pressure off the downside. Still, any rallies above 1.5735 would be classified as corrective, with the market seen carving a lower top somewhere below 1.5945 in favour of bearish resumption.

• R2 1.5945 – 11Nov high – Strong
• R1 1.5735 - 17Nov high – Medium
• S1 1.5593 – 14Nov/2014 low – Weak
• S2 1.5550 – Mid-Figure – Weak

GBPUSD – fundamental overview

There hasn’t been a whole lot of relief for Cable, with the major pair tracking just off 2014 lows and at risk for deeper setbacks given the recently more downbeat Bank of England Quarterly Inflation Report. The BOE has downgraded its growth and inflation forecasts and this has opened more favorable US Dollar yield differentials. Today’s UK CPI is therefore a key release and it will be interesting to see how market participants respond to the data. Given positioning for a softer print, the release is likely to fuel volatility for the remainder of the day. If inflation doesn’t start coming in consistently higher, this could push rate hike expectations out to 2016.

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 nearly 1200 points since mid-October is deserving of a healthy retreat. Look for any additional gains to have a hard time establishing beyond 117.00, with a break and daily close back under 115.45 to confirm short-term topping and onset of the anticipated correction that should expose 113.86 further down.

• R2 117.05 – 17Nov/2014 high – Strong
• R1 116.83 – 14Nov high – Medium
• S1 114.88 – 12Nov low – Medium
• S2 113.86 – 10Nov low – Strong

USDJPY – fundamental overview

The Yen market is still not done contemplating the implications of Monday’s horrid GDP print. USDJPY continues to trade at elevated levels just off 7-year highs, and though we have seen a mild correction, the market will need to close below 114.85 at a minimum to suggest any form of even short-term topping. Wednesday’s BOJ decision is also not likely to garner much attention, with everyone now sitting back and focused on PM Abe’s pending announcement of an election, sales tax delay and additional stimulus measures. Though the fundamentals are far from Yen supportive, it is still worth noting just how oversold the Yen is at the moment. As such, the possibility of some form of a Yen relief rally should not be ruled out.

EURCHF – technical overview

The market remains under pressure since breaking down below the previous yearly base at 1.2045. 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 1.2010 – 17Nov/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 market has been in the process of correcting since breaking down to fresh 2014 lows at 0.8541 the other week. However, additional gains should prove hard to come by, with a lower top sought out ahead of a bearish resumption. Look for the 0.8830, 78.6% fib retracement off of the recent 0.8911-0.8541 move to cap gains, while only back above 0.8911 would compromise the structure and give reason for pause.

• R2 0.8911 – 29Oct high – Strong
• R1 0.8830 - 78.6% retrace – Medium
• S1 0.8648 – 14Nov low – Medium
• S2 0.8541 – 7Nov/2014 low – Strong

AUDUSD – fundamental overview

Tuesday’s RBA Minutes were more or less in line with expectation, with the RBA repeating much of the familiar mantra. The RBA held its ground that it was committed to a period of stable interest rates while continuing to talk down the Australian Dollar. There were however some other interesting updates, with cited concern over the Chinese property market, and mention of recent Yen weakness and its undesired impact of keeping Aussie supported. RBA Governor Stevens is on the wires on Tuesday and should continue to echo this sentiment and do some more talking down of the Australian Dollar. Dealer’s talk of strong offers in the 0.8700s.

USDCAD – technical overview

The market has entered a period of correction after establishing fresh 2014 highs at 1.1467 the other 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 1.1467 – 5Nov/2014 high – Strong
• R1 1.1402- 11Nov high – Medium
• S1 1.1185 – 31Oct low – Medium
• S2 1.1122 – 29Oct low – Strong

USDCAD – fundamental overview

The Canadian Dollar has found a bit of a bid tone in recent trade, with the currency benefitting from a mild, broad based US Dollar correction. Still, there has been room for some relative strength, with last Friday’s solid Canada manufacturing data and the recent blowout Canada employment report helping the Loonie a bit. Meanwhile, oil prices have also recovered off recent lows, and given Cad’s correlation with the commodity, it isn’t surprising to see some more profit taking on long USDCAD trades. Overall however, commodities do remain under pressure and this in conjunction with an expectation the Fed will hike before the BoC is what is driving the medium-term price action. As such, USDCAD should remain well supported into additional declines, with USDCAD seen back through the recent 2014 high sooner than later.

NZDUSD – technical overview

An impressive recovery for this market over the past several days, since dropping to a fresh 2014 low at 0.7660. However, the underlying structure is still bearish and the gains are classified as corrective. The market is now approaching some formidable resistance at 0.8035 and only a break and close above this level would delay the bearish outlook. Look for gains to stall out somewhere ahead of, or around 0.8035 in the coming sessions in favour of a lower top and bearish resumption back towards and eventually below 0.7660.

• R2 0.8035 – 21Oct high – Strong
• R1 0.8000 - Psychological – Medium
• S1 0.7823 – 14Nov low – Medium
• S2 0.7660 – 7Nov/2014 low – Strong

NZDUSD – fundamental overview

The past week or so of trade has been quite good to the New Zealand Dollar, with the currency outperforming and trading back towards 0.8000 against the Buck. A broad currency rally, recovering commodity prices and solid local data have all been helping to drive the Kiwi gains. Meanwhile, comments from NZ FinMin English that NZDUSD in the mid to high 70s is sustainable have also contributed to gains. Still, this shouldn’t do much to change the broader picture, with NZ economic data on the whole on the softer side and RBNZ policy diverging from the Fed. Dealer’s have been talking about a lot of renewed sell interest in NZDUSD towards 0.8000. Looking ahead, all eyes turn to the Global Dairy Trade auction due late Tuesday.

US SPX 500 – technical overview

After posting fresh record highs on a near daily basis over the past month, the market is finally showing signs of exhaustion following a remarkable recovery rally of well over 200 points from mid-October. A daily close back under 2030 on Tuesday would confirm the onset of the correction and open the door for an acceleration of declines back towards key support at 2002. However, inability to close below 2030 would delay the overdue pullback and keep the immediate pressure on the topside.

• R2 2100.00 – Psychological – Strong
• R1 2049.00 – 13Nov/Record high – Medium
• S1 2030.00 – 17Nov low – Medium
• S2 2002.00 – 4Nov low – Strong

US SPX 500 – fundamental overview

US equity markets could finally be at risk for reversal following impressive record gains post ramped up BOJ and ECB easing measures. Though these central banks have moved further into accommodation, the Fed has ended QE and is now on a path towards tightening. Major stock market corrections were seen at the end of QE1 and QE2, and with QE3 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. US economic data has been solid on the whole and if this continues over the coming weeks, it could very well seal the deal on the Fed removing its “considerable time” language in the monetary policy statement next month.

GOLD (SPOT) – technical overview

A nice little recovery rally for this market over the past couple of sessions, with the price rallying back to the 20-Day SMA. A daily close above the 20-Day SMA could open the door for additional gains in the days ahead, while inability to establish above the moving average would suggest a lower top is in the cards ahead of a bearish resumption back towards the recent multi-year low at 1131 and then 1100 further down. Ultimately, only above 1256 would compromise the underlying bearish structure.

• R2 1256.00 – 21Oct high – Strong
• R1 1200.00 – Psychological – Medium
• S1 1146.00 – 11Nov low – Medium
• S2 1131.00 – 7Nov/2014 low – Strong

GOLD (SPOT) – fundamental overview

Gold has managed to extend its recovery for the second straight week, since dropping to 4-year lows below 1180. A bout of broad based selling in the US Dollar has helped to inspire some of the gains in this market over the past week. 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

USDRUB is in the process of consolidating just off recently established fresh record highs at 48.60. Technical studies are stretched on the daily chart and severely overextended on the weekly and monthly timeframes. The market is due for a healthy correction but would need to see a break back below 44.90 to take the immediate pressure off the topside. Above 48.60 exposes major psychological resistance in the form of the 50.00 barrier.

• R2 48.60 – 7Nov/Record high – Strong
• R1 47.85 – 14Nov high – Weak
• S1 45.50 – 12Nov low – Medium
• S2 44.90 - 11Nov low – Strong

Feature – fundamental overview

Last week’s solid Russian GDP data has mostly been shrugged off by markets, although it could be helping to curb additional declines in an RUB that is trading just off record lows. GDP is only expected to contract as recent sanctions work through the system, with falling commodity prices and geopolitical risk also viewed as a net currency negative. The good news for the RUB is that a lot of this has been priced in. The bad news however is that with volatility so high and liquidity so low, we could still violent swings in this currency pair, with a push to 50.00 not to be ruled out. The CBR has shifted into a more aggressive currency intervention role, but this is unlikely to have any meaningful impact if other things don’t change for the Russian economy.