Commodity Price Declines Directing FX Market Traffic

GBPUSD – technical overview

The downtrend remains firmly intact, with the market breaking to a fresh 2014 low on Monday. The break below the previous low at 1.5590 confirms a fresh lower top at 1.5826 and opens the next measured move downside extension towards 1.5350 further down. Ultimately, a break back above 1.5826 would be required to take the immediate pressure off the downside.

• R2 1.5826 – 27Nov high – Strong
• R1 1.5740 - 28Nov high – Medium
• S1 1.5585 – 1Dec/2014 low – Weak
• S2 1.5500 – Psychological – Medium

GBPUSD – fundamental overview

Sterling remains under pressure in the early week, with the currency dropping to another fresh 2014 low against the Buck below 1.5590. A lot of the weakness in the Pound has come at the hands of broad based US Dollar demand, although there has been some room for relative underperformance in Sterling with market participants scaling back Bank of England rate hike expectations to the fourth quarter of 2015. On Monday, the local market is digesting the latest UK manufacturing PMIs, with this indicator influencing short-term direction.

USDJPY – technical overview

Although the overall outlook remains highly constructive, there are warnings of the formation of some form 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. But a break and daily close back under 117.24 would now be required to take the immediate pressure off the topside and confirm the onset of a correction. Until then, the focus will be on a push to test the next major psychological barrier at 120.00.

• R2 120.00 – Psychological – Strong
• R1 119.03 – 1Dec/2014 high – Weak
• S1 117.24 – 27Nov low – Strong
• S2 116.80 – 19Nov low – Medium

USDJPY – fundamental overview

Another 7-year high for USDJPY through 119.00 and it looks as though nothing can stop this market from testing next key psychological barriers at 120.00. Softer inflation data last Friday has helped to inspire the rally, while ongoing declines in commodities markets are also contributing. However, Monday’s Japan capital spending numbers were rather impressive and could take some of the momentum away from USDJPY upside. Meanwhile, some weakness in global equities should also not be ignored as a potential weight on this major pair. Overall, the outlook continues to favour Yen weakness, but some very oversold Yen technical and the risk liquidation variable should not be discounted as a potential catalyst for a period of short-term Yen demand.

EURCHF – technical overview

Though the overall pressure remains on the downside, with critical psychological barriers at 1.2000 still in sight, there are signs of potential recovery. Look for a break and daily close back above 1.2045 to confirm recovery prospects and take the immediate pressure off the downside. Inability to establish back above 1.2045 would however suggest a 1.2000 retest is still in the cards.

• 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

A bit of a pop for EURCHF on Monday, with the market trading further away from 1.2000 after the result of the weekend Swiss gold referendum. A resounding No vote to the SNB needing to up its gold reserves will unquestionably offer some welcome relief to a central bank that has been trying to prevent the 1.2000 barrier from being broken. Still, even with the event risk out of the way, EURCHF hasn’t managed to gain all that much bullish momentum and remains at risk for a 1.2000 test. Global equities are showing a bit of weakness in recent trade which could inspire some safe haven buying. This safe-haven demand would translate into relative CHF outperformance and could be the next big thing the SNB will be forced to contend with.

AUDUSD – technical overview

The market has broken to a fresh 2014 low, with last week’s 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 0.8723 – 21Nov high – Strong
• R1 0.8615 - 27Nov high – Medium
• S1 0.8417 – 1Dec/2014 low – Weak
• S2 0.8400 – Figure – Medium

AUDUSD – fundamental overview

RBA rate cut speculation has been gaining traction ahead of tomorrow’s anticipated meeting, with the market now pricing a 72% chance of a cut in the second half of 2015. Though the Australian Dollar has come off a good deal in recent months and has dropped to another fresh low against the Buck on Monday, this won’t do much to stop the central bank from issuing its one liner about the currency still being overvalued. Look out for the familiar language of the currency “above most estimates of its fundamental value” or “high by historical standards.” The slower growth outlook and RBA jawboning on the currency should continue to weigh, with the rapidly declining commodity prices reflective of a cooling down in the highly correlated China economy. Monday’s China PMIs came in softer than expected and have contributed to this latest Aussie selling, while softer Aussie TD Securities inflation hasn’t helped.

USDCAD – technical overview

The market remains locked in a well defined bullish channel, and is looking for a break to fresh 2014 highs beyond 1.1467. A push above 1.1467 would confirm a higher low in place at 1.1191 and open the door for the next major upside extension towards a measured move around 1.1750. Ultimately, only back under 1.1191 would delay the constructive outlook.

• R2 1.1500 – Psychological – Medium
• R1 1.1467- 5Nov/2014 high – Strong
• S1 1.1328 – 28Nov low – Medium
• S2 1.1191 – 21Nov low – Strong

USDCAD – fundamental overview

Economic data out of Canada over the past few weeks is having little influence in the Loonie’s direction. This has been highlighted by a blowout employment report, solid manufacturing, a hotter CPI print, healthy retail sales and better GDP. Market participants have been much more focused on the drag in the commodities markets, with the decline in oil and metals of notable concern to the highly commodity dependent Canada economy.  And with solid US economic data also offsetting the Canada data, this should ultimately keep interest rate differentials tilted in the US Dollar’s favour. Dealers are now hearing talk of demand towards 1.2000.

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

The New Zealand Dollar has helped up rather well in recent trade, despite the ongoing slide in commodities prices. Perhaps the risk correlation and higher yield of the currency has helped to keep the currency supported somewhat. However, with global equities looking stretched and the New Zealand economy showing signs of cooling, there are plenty of formidable offers from larger accounts seen on rallies towards 0.8000 in NZDUSD. RBNZ Governor Wheeler was out early Monday once again talking down the local currency, repeating the mantra that Kiwi remains unjustifiably and unsustainably higher.

US SPX 500 – technical overview

The market is finally showing signs of exhaustion following the push to fresh record highs at 2077 in the previous week. Look for a break and close below 2052 on Monday to confirm the onset of a long overdue correction and open the door for deeper setbacks back towards 2000 in the days ahead. However, inability to establish a close back below 2052 will keep the pressure on the topside and expose the net major psychological barrier at 2100 further up.

• 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

Risk markets are under pressure in the early week and this has been a drag on the SPX500 which is tracking lower and looking like it could finally be poised for an overdue correction off recently established record highs just shy of 2080. The stock market is no longer finding comfort in all of this commodity weakness and downbeat news, and it seems the prospect of additional central bank accommodation has lost some appeal, at least for now. Softer China PMIs have been sourced as another contributing driver to this latest bout of weakness.

GOLD (SPOT) – technical overview

The latest recovery rally off 4-year lows at 1131 has stalled out, with the market looking like it wants to carve a lower top at 1208 following a brief stint above 1200. The 1131 is now back in focus, with a break below to confirm a 1208 lower top and open the next measured move downside extension into the 1050 area, which guards against critical 1000 support.

• R2 1256.00 – 21Oct high – Strong
• R1 1208.00 – 21Nov high – Medium
• S1 1131.00 – 7Nov/2014 low – Strong
• S2 1100.00 – Psychological – Medium

GOLD (SPOT) – fundamental overview

Gold has come back under pressure and is at risk for a retest and break below its recent 4 year low at 1131. A lot of the weakness in the yellow metal on Monday has been attributed to a general sluggishness in the commodities market and the weekend news of a No vote out of the Swiss gold referendum, which will not require the SNB to increase its gold reserves to 20%. Throw in some softer China PMIs, ongoing rhetoric out of the RBNZ that Kiwi is unjustifiably and unsustainably high, and a cooling in Aussie TD securities inflation, and it shouldn’t come us a surprise to see the lack of demand for the metal.

Feature – technical overview

US OIL (spot) has collapsed to a fresh 4-year low, with the market easily breaking down through psychological barriers at 70.00 and trading towards the 2010 base at 67.15. At this point, technical studies are overextended and though the intense downtrend remains firmly intact, there are risks for a correction over the coming sessions to allow for studies to unwind. Look for additional declines to be well supported on a close basis above 67.00.

• R2 69.60 – 28Nov high – Strong
• R1 66.15 – 1Dec high – Medium
• S1 63.70 – 1Dec/2014 low – Weak
• S2 60.75 - July 2009 Low – Strong

Feature – fundamental overview

The oil market had already come under a good deal of pressure in recent months, before getting absolutely slammed over the past week. By the close on Friday, the market was down a whopping 13.5% in one week. Setbacks have extended on Monday, with the market taking out the next psychological barriers at 65. If we aren’t there yet, we are very close to these prices having a more threatning impact on participants in this sector. Last week’s OPEC decision to not cut production has been the primary catalyst for the latest slide. Saudi stocks have come under pressure into bearish territory, while the Rouble has been decimated to record lows, and other correlated currencies like CAD and NOK are also getting hit hard. Oil producers are going to be sweating now with prices dropping into the low 60s and there is risk that something will happen in the days ahead to slow the declines.