Central Bank Policy Divergence Theme Driving Markets

GBPUSD – technical overview

Although the pressure still remains on the downside after the market broke to yet another 2014 low, last Wednesday’s bullish outside day formation could finally be offering a little relief for the Pound. The market would need to break and close back above 1.5738 for confirmation of the onset of a legitimate correction towards 1.5945. However, inability to extend gains would keep the immediate pressure on the downside and open the door for the next drop below 1.5590 and into the 1.5400-1.5500 area.

• R2 1.5945 – 11Nov high – Strong
• R1 1.5738 - 20Nov high – Medium
• S1 1.5590 – 19Nov/2014 low – Weak
• S2 1.5550 – Mid-Figure – Weak

GBPUSD – fundamental overview

Last week’s less dovish than expected BOE Minutes and solid UK retail sales have done a good job of helping to prop a beaten down Sterling market. Not a lot on the economic calendar in the UK until Wednesday’s GDP release, and in the interim, the Pound should defer to broader price action and flows. Overall, the ongoing theme of central bank policy divergence should keep any rallies well capped, with the BOE and other major central banks moving in an opposite direction than the Fed. China’s Friday rate cut has kept Cable from rallying too much, while CFTC positioning data shows specs nearly doubling short Sterling bets.

USDJPY – technical overview

Although the overall outlook remains highly constructive, there are strong signs of the formation of some for of a top in favour of a period of correction and consolidation. Daily, weekly, and monthly studies are well overbought and long overdue for a healthy retreat. Last Thursday’s bearish close has set the stage for a reversal, and a daily close below 116.80 would confirm and likely accelerate declines back into the 114.00s. Only back above 119.00 negates the short-term corrective outlook.

• R2 120.00 – Psychological – Strong
• R1 118.98 – 20Nov/2014 high – Medium
• S1 116.80 – 19Nov low – Medium
• S2 115.45 – 17Nov low – Strong

USDJPY – fundamental overview

We are finally seeing a bit of a correction in the Yen, with the currency finding some welcome relief following an intense round of selling since mid-October. Last Friday’s comments from Japan FinMin Aso could be contributing after the official said the pace of yen declines had been too rapid. But the technical overextension is enough alone to justify the recent reversal off 7 year highs in USDJPY just shy of 119.00. Still, market participants will be looking for a test of the 120.00 barrier in the days ahead, once this correction plays out. The interest rate cut out of China and dovish Draghi speak have helped to keep USDJPY dips supported. Today’s Japan holiday market closure has made for some light trade, and attention now shifts to Tuesday with fresh comments due from BOJ Governor Kuroda.

EURCHF – technical overview

The market remains under pressure since breaking down below the previous yearly base at 1.2045, most recently dropping to 1.2009, just shy of critical support at 1.2000. However, there are some signs emerging of the potential for a recovery. Look for a break and daily close back above 1.2045 to confirm the recovery and officially take the immediate pressure off the downside.

• R2 1.2080 – 15Oct high – Strong
• R1 1.2045 – Previous base – Medium
• S1 1.2009 – 19Nov/2014 low – Weak
• S2 1.2000 – Psychological – Very Strong

EURCHF – fundamental overview

Though last week’s poll on the “Save Our Swiss Gold” initiative, which showed only 38% in favour, failed to inspire any meaningful recovery in EURCHF, the same could not be said after Thursday’s comments from SNB Zurbruegg. The central banker said the SNB would firmly defend the 1.2000 floor, with unlimited FX intervention and other measures ‘immediately,” if needed. This is the first we have heard from an SNB official in several days, and the comments have opened a push back over 1.2020. Nevertheless, the gains have been rather mild and it seems until the SNB actually shows its hand, market participants will continue to call the central bank’s bluff.

AUDUSD – technical overview

A corrective rally is slowly losing momentum, with the market poised for bearish resumption and looking to carve a lower top around 0.8800 in favour of a drop back below the recent 2014 low at 0.8541. The overall structure remains quite bearish, and only a break above 0.8911 would compromise the outlook. Intraday rallies are expected to continue to be well capped ahead of 0.8800. Below 0.8541 triggers a fresh downside extension into the 0.8300 area.

• R2 0.8830 – 78.6% retrace – Medium
• R1 0.8796 - 17Nov high – Medium
• S1 0.8541 – 7Nov/2014 low – Strong
• S2 0.8500 – Psychological – Strong

AUDUSD – fundamental overview

A little bit of a boost for the Australian Dollar in recent trade, with the currency finding some support on the back of the stimulatory comments from ECB Draghi and perceived risk positive rate cut out of the Bank of China. The move back into risk assets on this news has helped to prop the correlated currency somewhat. At the same time, the move also highlights the ongoing divergence in major central bank policy with the Fed and should create more favourable US Dollar yield differentials. This in conjunction with a slowing Australian economy, downbeat comments from RBA Stevens and pressured commodities, should ultimately keep the Australian Dollar from running too far. Good offers from larger accounts are seen towards 0.8800.

USDCAD – technical overview

The market has entered a period of correction after establishing fresh 2014 highs at 1.1467 several days back. 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

Over the past several days, we have seen some really impressive economic data out of Canada. This has been highlighted by a blowout employment report, very solid manufacturing, some impressive wholesale sales, and Friday’s hotter CPI print. Throw in the ECB Draghi comments, the China rate cut and a recovery in oil prices and it is not surprising to see some outperformance in the Loonie. Nevertheless, in the grand scheme, the Canadian Dollar hasn’t been able to really extend gains all that much, with solid US economic data offsetting and the Bank of Canada still not likely to act ahead of the Fed on rate hikes. There are plenty of good USDCAD buyers into the current dip, with fresh bids all the way down towards 1.1100.

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 expected to remain well capped below some formidable resistance at 0.8035 ahead of the next lower top and bearish resumption back towards and eventually below 0.7660. Ultimately, only a break and close back above 0.8035 would compromise the bearish outlook.

• R2 0.8035 – 21Oct high – Strong
• R1 0.7975 - 17Nov high – Medium
• S1 0.7807 – 20Nov low – Medium
• S2 0.7660 – 7Nov/2014 low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has welcomed the latest rate cut from China, with the currency rallying on the news. It seems the hope the China rate hike will fuel recovery and lead to increased demand for an ailing commodities market, has been enough to open the fresh round of bids. But this is a rather optimistic view, with New Zealand dairy having been hit so hard of late and needing a lot of help to truly inspire optimism in the sector. Ultimately, the RBNZ has veered more to the dovish side while the Fed continues to inch closer towards a rate hike. This should keep additional Kiwi rallies well capped in favour of renewed weakness.

US SPX 500 – technical overview

The latest round of consolidation has been broken, with the market ascending to fresh record heights at 2075. However, an intense surge of well over 10% since mid-October a red flag for near-term exhaustion and topping, and at some point over the coming sessions the market should look for a healthy retreat. The key level to watch comes in at 2030 and a break and close below would trigger the correction and open a deeper drop towards 2002 further down. Inability to take out 2030 will keep the immediate pressure on the topside towards 2100.

• R2 2100.00 – Psychological – Strong
• R1 2075.00 – 21Nov/Record high – Medium
• S1 2030.00 – 17Nov low – Strong
• S2 2002.00 – 4Nov low – Strong

US SPX 500 – fundamental overview

US equity markets could soon be at risk for reversal off fresh record highs following these impressive gains post ramped up BOJ, ECB and now China 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, particularly with so much uncertainty surrounding the global growth outlook and effectiveness of quantitative easing as a stimulatory measure over the long-term.

GOLD (SPOT) – technical overview

A nice little recovery rally for this market over the past several days, with the price poking back above 1200. Friday’s close above 1200 could now open the door for additional corrective gains towards the 78.6% fib retrace off the 1256 to 1131 move around 1230. However, the overall structure still remains bearish while below 1256, and a lower top is likely sought out over the coming sessions, ahead of bearish resumption. Ultimately, only above 1256 would compromise the underlying bearish structure.

• R2 1256.00 – 21Oct high – Strong
• R1 1208.00 – 21Nov high – Medium
• S1 1175.00 – 19Nov low – Medium
• S2 1131.00 – 7Nov/2014 low – Strong

GOLD (SPOT) – fundamental overview

Though gold has come a bit off recent recovery highs, the yellow metal is still well above recent 4-year lows at 1131. Gold poked back above 1200 last week and has been consolidating around the psychological barrier since. Despite some prominent weakness in recent months, the metal’s 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 plenty of healthy two-way activity at current levels.

Feature – technical overview

USDRUB has been in the process of correcting from some overbought studies over the past several sessions. While there is still room for additional declines, the market is expected to be supported sooner than later, in favour of the formation of the next higher low and fresh upside extension back through the recent record high at 48.60 and towards major psychologic barriers at 50.00 further up.

• R2 50.00 – Psychological – Very Strong
• R1 48.60 – 7Nov/Record high – Strong
• S1 44.90 – 10Nov low – Medium
• S2 43.65 - 30Oct high – Medium

Feature – fundamental overview

Finally a bit of relief for the beaten down Rouble. The latest bounce off record lows against the Buck comes on the back of developments both on the domestic and foreign fronts. In Russia, a wave of economic data has come in overall better than expected, highlighted by solid retail sales. Meanwhile, and perhaps more importantly, emerging markets have received a bit of a boost, as China’s interest rate cut and some ramped up dovish speak from ECB Draghi, send a message to markets that they will continue to be supported through easy money policy in the face of economic distress.