US Dollar Gearing Up For Next Big Push

GBPUSD – technical overview

The downtrend for this major pair remains firmly intact, with the market looking for a fresh downside extension below 1.5585 and towards a measured move objective at 1.5350 further down. At this point, a break back above 1.5826 would be required to take the immediate pressure off the downside, while only above 1.5945 would suggest a shift in the short-term structure.

• R2 1.5945 – 11Nov high – Strong
• R1 1.5826 - 27Nov high – Medium
• S1 1.5585 – 1Dec/2014 low – Medium
• S2 1.5500 – Psychological – Medium

GBPUSD – fundamental overview

Rallies have been quite shallow for Cable and the major pair continues to be pressured to the downside. According to BRC, UK food prices fell for the first time since the BRC survey began 8 years ago, and this adds to the pressure on Sterling. UK markets will digest some PMI data today, but key event risk comes on Thursday, when the Bank of England decides on rates. No change to policy is expected, though the tone will likely lean to the dovish side given softer inflation. Interest rate hike expectations for the UK have been pushed back to late 2015.

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, there is still risk for bullish continuation towards the next major psychological barrier at 120.00.

• R2 120.00 – Psychological – Strong
• R1 119.44 – 3Dec/2014 high – Weak
• S1 118.22 – 2Dec low – Medium
• S2 117.24 – 27Nov low – Strong

USDJPY – fundamental overview

Another 7-year high for USDJPY on Wednesday and it looks as though nothing can stop this market from testing next key psychological barriers at 120.00. A Moody’s downgrade of Japan’s credit rating helped to inspire the rally through 119.00 earlier in the week, while hawkish comments from the normally more dovish Fed’s Fischer and Dudley have kept the pair supported. Overall, the outlook continues to favour Yen weakness, but some very stretched technical readings should not be dismissed as a potential catalyst for long overdue short-term corrective price action.

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 on Wednesday 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 this week, with the market trading further away from 1.2000, aided by the result of the weekend Swiss gold referendum. A resounding No vote to the SNB needing to up its gold reserves has offered 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 vulnerable to a 1.2000 test.

AUDUSD – technical overview

The market continues to extend its run of fresh 2014 lows, most recently breaking down below 0.8400 and closing in on  test of the next critical psychological barrier at 0.8000. Any rallies should now be very well capped ahead of 0.8600, while ultimately, only back above 0.8911 would compromise the bearish structure.

• R2 0.8615 – 27Nov high – Strong
• R1 0.8542 - 2Dec high – Medium
• S1 0.8315 – July 2010 low – Strong
• S2 0.8200 – Figure – Medium

AUDUSD – fundamental overview

The Australian Dollar is having a very hard time at the moment and can’t manage to catch a bid. The currency found some small comfort on Tuesday after the slightly less dovish RBA decision, but remained under pressure on the back of broad USD demand. Aussie then accelerated to the downside on Wednesday, following the horrid Australia Q3 GDP print. The data came in at 0.3% q/q versus consensus estimates of 0.7%, with the y/y at 2.7% versus 3.1% expected. At this point, given the slowdown in the Aussie economy, declining prices and external risk associated with China, the prospect of a rate cut in 2015 is looking increasingly plausible. Australian officials have also welcomed the currency weakness and market participants are looking for a drop towards the next big psychological barrier at 0.8000 in the days ahead.

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 1.1122 would delay the constructive outlook.

• R2 1.1500 – Psychological – Medium
• R1 1.1467- 5Nov/2014 high – Strong
• S1 1.1235 – 27Nov 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 price action in the commodities markets, with the direction in both oil and gold ultimately deciding the currency’s fate. Still, with US economic data also on the positive side and commodities overall remaining under pressure, the outlook continues to favour US Dollar yield differentials and a higher USDCAD rate. Attention shifts to today’s Bank of Canada rate decision, with the BoC expected to hold steady at 1.00% and maintain its dovish stance despite solid data, given the drag on commodities prices.

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. Below 0.7660 will open the next major downside extension towards major psychological barriers at 0.7000.

• R2 0.7975 – 17Nov high – Strong
• R1 0.7890 - 2Dec high – Medium
• S1 0.7700 – Figure – Medium
• S2 0.7660 – 7Nov/2014 low – Strong

NZDUSD – fundamental overview

Though Kiwi has been dragged down in sympathy with the Australian Dollar on Wednesday, following the abysmal Aussie GDP print, the currency has not been immune to its own discouraging news. The latest Fonterra dairy auction results show yet another decline in dairy prices that could now result in a 2014-2015 payout of lower than NZ$5. This should continue to weigh on the higher yielding currency, with the New Zealand Dollar also vulnerable to any reversal in risk assets. Global equities have been artificially supported for some time now on easy money central bank policies. But if the market starts to become less enamored with the effectiveness of free money central bank policies, this could open major capitulation in equities which will also result in some relative underperformance in Kiwi.

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 2049 to trigger the onset of a long overdue correction and open the door for deeper setbacks back towards 2000. However, back above the recent record high at 2077 would negate and open the door for another surge to the next key psychological barrier at 2100.

• R2 2100.00 – Psychological – Strong
• R1 2077.00 – 26Nov/Record high – Medium
• S1 2049.00 – 2Dec low – Medium
• S2 2030.00 – 17Nov low – Strong

US SPX 500 – fundamental overview

Signs of distress in equity markets continue to be ignored, with the SPX500 recovering off the Monday dip. The market continues to take advantage of free money central bank policy and has not grown concerned with the prospect of an end to Fed QE, given the central bank’s take it slow approach and emerging QE away from the US. Still, this market is extremely stretched at current record high levels and should be due for a major capitulation over the coming weeks. The global economy is not doing all that well and at some point, market participants are at risk of losing confidence in a monetary policy strategy that incentivizes reckless investment to stimulate growth.

GOLD (SPOT) – technical overview

Price action in this market has been absolutely wild in recent trade, with the price gravitating back towards the recent 4-year low at 1131, before stalling shy and violently reversing on Monday. Monday’s bullish outside day formation has resulted in a very rare technical occurrence, with the market not only consuming the previous day’s range, but the previous 15 daily ranges. Still, while the price holds below 1256, the overall structure remains bearish.

• R2 1256.00 – 21Oct high – Strong
• R1 1221.00 – 1Dec high – Medium
• S1 1131.00 – 7Nov/2014 low – Strong
• S2 1100.00 – Psychological – Medium

GOLD (SPOT) – fundamental overview

Gold has regained an impressive bid tone this week following an impressive Monday surge. Though there has been no specific catalyst for the sudden resurgence in demand, signs of ongoing stress in the global economy and uncomfortably elevated asset prices have raised questions over the effectiveness of easy money central bank policy. Investors appear to be quite comfortable buying into the hard asset, with the push back above 12oo taking a lot of the pressure off the downside. There are still good offers out there, but dealers are now citing solid two way interest.

Feature – technical overview

USDTRY has been in corrective mode over the past several days, with the market trading well off recent highs at 2.2805. However, it looks as though the correction could finally be at an end, with the market poised for bullish resumption. The market is attempting to carve a higher low at 2.2045, with sights set on a retest of 2.2805 and back towards the multi-week high at 2.3065. Ultimately, only below 2.1900 would compromise the bullish outlook.

• R2 2.3065 – 3Oct high – Strong
• R1 2.2805 – 7Nov high – Strong
• S1 2.2045 – 27Nov low – Medium
• S2 2.1900 - 31Oct low – Strong

Feature – fundamental overview

Despite broad based US Dollar demand and ongoing weakness in the emerging markets, the Lira has actually held up quite well in recent weeks. Turkey’s position as a oil importer is the primary reason, with the rapid decline in black gold doing wonders for the Turkish economy. Turkish FinMin Simsek was on the wires saying the lower oil prices could favourably impact data as early as Q1 2015. Simsek also added the current account gap could fall below 4.0% of GDP with oil at $80. Still, the Lira is not entirely immune to broader flows and the strength of the US Dollar, and is once again looking at risk for some weakness against the Buck, as currencies come back under pressure across the board. The Lira may be a nice relative value play away from the US Dollar, but looks like it will continue to suffer at the hands of the US Dollar on the yield differential story.