Trade Thins Out, But Volatility Still Expected

GBPUSD – technical overview

Although the pressure still remains on the downside after recently breaking to yet another 2014 low at 1.5590, the market has been content deferring to a period of correction. Wednesday’s break back above 1.5740 has opened the door for additional upside, with the market potentially seen back towards 1.5945. However, gains should be well capped below 1.6000 with only the establishment back above 1.6225 to force a shift in the overall bearish outlook.

• R2 1.5945 – 11Nov high – Strong
• R1 1.5835 - 11Nov low – Medium
• S1 1.5680 – 26Nov low – Medium
• S2 1.5590 – 19Nov/2014 low – Strong

GBPUSD – fundamental overview

UK markets didn’t seem to care much about the slightly weaker CBI distributive trades data, and were happy enough with the as expected GDP print. This in conjunction with some broad based profit taking on long US Dollar exposure into the end of month, and some softer US data on Wednesday, have helped to propel Cable back above 1.5800. Still, with the Bank of England not likely to make any moves in H1 2015, the Pound remains at risk for weakness against the Buck over the medium-term. Lack of any first-tier data out of the UK on Thursday, will keep Sterling tracking with broader macro flows.

USDJPY – technical overview

Although the overall outlook remains highly constructive, there are strong signs of the formation of some form of a top in favour of a period of correction and consolidation. Daily, weekly, and monthly studies are overbought and long overdue for a healthy retreat. Last Thursday’s bearish close off 7-year highs set the stage for reversal, and a daily close below 116.80 will confirm and likely accelerate declines back into the 114.00s. Only 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

USDJPY has dropped back below 118.00 and is contemplating whether or not it is finally time to respect some highly overbought technical readings. Perhaps another sign USDJPY could finally be ready for a more significant correction comes after the major pair failed to rally on Wednesday’s dovish comments from BOJ Shirai. The central banker said core CPI could slip below 1% in October and remain below 1% for several months, while adding it could take more than 2 years to reach the BOJ’s 2% inflation target. With inflation becoming such an important indicator, market participants will now be looking ahead to Friday’s Japanese CPI readings. Recent Yen gains have also been attributed to some broad based profit taking on long US Dollar exposure. Dealers cite sell-stops built up below 116.80.

EURCHF – technical overview

Though the overall pressure remains on the downside, 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 and a test of the critical psychological barrier at 1.2000.

• 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 heard from an SNB official in some time, and the comments have helped to keep the market mostly trading back above 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. The Swiss gold referendum will be held on November 30th.

AUDUSD – technical overview

The market has broken to a fresh 2014 low this week, with the break below 0.8541 confirming a fresh lower top at 0.8796 and setting the stage for the next major downside extension towards critical psychological barriers at 0.8000. Any rallies should now be very well capped ahead of 0.8700, while ultimately, only back above 0.8911 would compromise the bearish structure.

• R2 0.8796 – 17Nov high – Strong
• R1 0.8723 - 21Nov high – Medium
• S1 0.8514 – 25Nov/2014 low – Weak
• S2 0.8500 – Psychological – Strong

AUDUSD – fundamental overview

The recently beaten down Australian Dollar is getting a bit of a reprieve on Thursday. The currency has been propped off recent 2014 lows on a broad bout of profit taking in the US Dollar, while also finding relative bids following some impressive economic data. Australia Q3 capex results came in much better than expected at +0.2% q/q versus expectations for a -1.5% q/q print. Nevertheless, the market isn’t likely to get too carried away, with Aussie fundamentals on the whole not looking as pretty, and declining commodities prices weighing on local sentiment. This week’s comments from RBA Lowe reaffirm the bearish outlook, with the central banker echoing rhetoric of an overvalued Australian Dollar.

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 1.1192 – 21Nov 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, solid manufacturing, a hotter CPI print and Tuesday’s healthy retail sales. Nevertheless, in the grand scheme, the Canadian Dollar hasn’t been able to really extend gains all that much, with solid US economic data and declining oil prices to fresh 4-year lows offsetting. This should keep interest rate differentials tilted in the US Dollar’s favour. There are plenty of good USDCAD buyers into the current dip, with fresh bids all the way down towards 1.1100. Watch out for some added volatility on the exchange today, with the US market closed and Canada traders hanging on the OPEC outcome. The word on the street is the organization will do little to support the decline in prices which could open a resurgence in USDCAD demand.

NZDUSD – technical overview

The latest corrective rally has stalled out, with the market poised for bearish resumption and looking to carve a lower top at 0.7975 in favour of a drop back below the recent 2014 low at 0.7660. The overall structure remains quite bearish, and only a break above 0.8035 would compromise the outlook. Intraday rallies are expected to continue to be well capped, with a break back below 0.7766 to accelerate declines towards 0.7660.

• R2 0.8035 – 21Oct high – Strong
• R1 0.7975 - 17Nov high – Medium
• S1 0.7766 – 25Nov low – Medium
• S2 0.7660 – 7Nov/2014 low – Strong

NZDUSD – fundamental overview

Kiwi has done a really good job of shrugging off some weaker than expected trade data overnight. The New Zealand deficit widened to NZ$908M from NZ$642M previous and further highlights a cooling within the local economy. It seems the higher yielding currency is finding bids on external factors which include healthy global risk appetite and some broad based profit taking in the US Dollar. Interestingly enough, the RBNZ only sold NZ$1M in October, down from NZ$30M in September and compared to August, when the central bank sold a massive NZ$521M, the most since July 2007. But the RBNZ has maintained its stance the current NZD level is “unjustified & unsustainable” and still expects a further significant depreciation. This suggests the RBNZ won’t hesitate to intervene in the market once again and should keep the current rally well capped.

US SPX 500 – technical overview

While the market has managed to break to yet another fresh record high at 2077, an intense surge of well over 10% since mid-October is a red flag for near-term exhaustion and topping. At some point over the coming sessions the market should look for a healthy retreat. The key level to watch below comes in at 2052, with a break and close below to trigger the onset of a correction and open a deeper drop towards 2030 and then 2002 further down. However, inability to take out 2052 will keep the immediate pressure on the topside, with the focus on a test of the next major psychological barrier at 2100.

• R2 2100.00 – Psychological – Strong
• R1 2077.00 – 26Nov/Record high – Medium
• S1 2052.00 – 21Nov low – Medium
• S2 2030.00 – 17Nov low – Strong

US SPX 500 – fundamental overview

US equity markets could soon be at risk for reversal off fresh record highs following impressive gains post ramped up BOJ, ECB and 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. While we haven’t seen any signs of reversal just yet, 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 gains since mid-October, 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. US equities are closed for the Thanksgiving holiday.

GOLD (SPOT) – technical overview

The latest recovery rally off 4-year lows at 1131 could finally be on the verge of stalling out, with the market looking like it wants to carve a lower top after a brief stint above 1200. Key short-term support comes in at 1175, and a break below would strengthen the bearish resumption case, exposing a retest of the 1131 base. Ultimately, the bearish structure remains intact while below 1256.

• 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 since 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. Perhaps some of the latest selling comes on profit taking into Thanksgiving and the pricing in of what looks like it will be a NO on the Sunday Swiss referendum proposing to require the SNB to increase its gold reserves.

Feature – technical overview

USDTRY has come under some good pressure in recent weeks, with the market rolling over after stalling out at 2.2810 and most recently breaking down below next key short-term support at 2.2170. This break exposes another downside extension towards 2.1890 over the coming sessions, at which point the market should then find a nice base in favour of a resumption of the medium-term uptrend. Ultimately, only a weekly close below 2.1890 would force a shift in the underlying uptrend.

• R2 2.2810 – 7Nov high – Strong
• R1 2.2430 – 20Nov high – Medium
• S1 2.1890 – 29Oct low – Strong
• S2 2.1500 - Psychological – Medium

Feature – fundamental overview

Many markets have been negatively impacted with oil price declines, though Turkey is not one. The oil importer is certainly benefitting from the pullback in the price of oil to fresh 4 year lows, with the Lira outperforming most of the emerging market bloc in the process. While market participants have reduced short USDTRY exposure this year, there are still long TRY plays away from the US Dollar, with the Lira still attractive in the EM space. Local Turkish government bonds are outperforming in the EMEA, and a healthy current account reading has helped to fuel additional TRY demand. Still, the currency is vulnerable over the medium-term against the US Dollar and is expected to stall out somewhere around 2.1900 USDTRY if this Lira strength continues. The diverging Fed policy theme trumps all and should translate into additional USDTRY upside over the coming months.