Fed Policy Outlook Tightens Up Post NFPs

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 1.5826 – 27Nov high – Strong
• R1 1.5726 - 4Dec high – Medium
• S1 1.5505 – Sep 2013 low  – Strong
• S2 1.5434 – Jul 2013 high – Medium

GBPUSD – fundamental overview

Cable remains pressured into the new week, with the pair dropping to another 2014 low following Friday’s impressive US employment report. The move has pushed interest rate differentials further in the US Dollar’s favour and the currency market has reacted accordingly. The Bank of England isn’t expected to move on rates until at least late 2015, while the Fed will likely make a move in the first half of next year. There is no key data out on Monday and the attention for this pair will shift to BOE Weale, slated to speak at 18:30GMT.

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 the 10-Day SMA would now be required to take the immediate pressure off the topside and confirm the onset of a correction.

• R2 122.00 – Figure – Strong
• R1 121.85 – 8Dec/2014 high – Weak
• S1 120.25 – 4Dec high – Medium
• S2 119.20 – 10-Day SMA – Strong

USDJPY – fundamental overview

The Yen is not a currency which generally reacts to Japanese economic data and Monday has been no exception after the release of trade and GDP figures. The Japanese current account for October came in at Yen 833.4 Bln versus forecasts of  Yen 370.1 Bln, while Q3 GDP came in at -1.9% q/q versus expectation for a -0.5% q/q print. Instead, it’s monetary policy which continues to drive the price action, with USDJPY at 7 year highs, supported by Friday’s US employment report and the near certainty of a landslide election victory for Abe. Still, Yen declines are now well overextended and there is risk for some short-term profit taking in the days ahead to allow for the market to normalize a bit. Worth noting there is a lot of chatter about a massive option expiry today at strike 121.50 for $USD1.97 Bln.

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

Interestingly enough, even with the gold referendum out of the way, EURCHF hasn’t managed to gain bullish momentum. The market still remains vulnerable to a 1.2000 test, particularly if investors lose confidence in a stretched global equity market, artificially supported on ultra accommodative central bank policy. There are plenty of stop-losses built up below 1.2000 and if this level is broken, it could have implications that extend well beyond the Swiss Franc. But the SNB remains vocal in its stance to aggressively defend the level, and taking out the barrier should prove to be a tall task. In the interim, expect this market to remain confined to some tight trade.

AUDUSD – technical overview

The market continues to extend its run of fresh 2014 lows, most recently breaking down below 0.8300 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 0.8467 – 3Dec high – Medium
• R1 0.8393 - 5Dec high – Medium
• S1 0.8250 – Mid-Figure– Weak
• S2 0.8200 – Figure – Medium

AUDUSD – fundamental overview

Aussie wasn’t able to find much of a lift from an upbeat ANZ jobs ads release, with the disturbing China trade data casting a darker shadow and triggering a drop in AUDUSD to fresh +4 year lows. China exports came in at +4.7% y/y versus calls of +8.1%, while imports were even more disturbing at -6.7% y/y versus forecasts for a +3.9% y/y showing. All of this confirms the recent move by the PBOC to slash rates and is reflective of a major cooling in the China economy. This does not bode well for the correlated Australian Dollar and should continue to weigh on the currency.

USDCAD – technical overview

Friday’s break of 1.1467 has confirmed a higher low at 1.1191 and now opens the door for the next major upside extension towards 1.1750 over the coming days. Any setbacks should be very well supported ahead of 1.1200, with only a break back below 1.1191 to compromise the highly constructive outlook for the pair.

• R2 1.1500 – Psychological – Strong
• R1 1.1476- 5Dec/2014 high – Weak
• S1 1.1313 – 1Dec low – Medium
• S2 1.1191 – 21Nov low – Strong

USDCAD – fundamental overview

There was no surprise in seeing USDCAD break to a fresh 5 year high on Friday, following the economic data releases out of the respective countries. The US employment report was spectacular and pretty much sealed the deal on the Fed tightening up its  policy outlook next week. Meanwhile, Canada employment was a huge disappointment, coming in a good deal weaker than expected and opening a break towards USDCAD 1.1500. The drag on oil prices has done nothing to help the Canadian Dollar either, and with the broader commodity sector underwater at the moment, the outlook continues to favour USDCAD upside.

NZDUSD – technical overview

A multi-week bearish consolidation looks to have finally been broken, with the market taking out the recent base at 0.7660 and breaking down to fresh 2014 lows. The break below 0.7660 now opens the door for the next major downside extension towards a measured move objective at 0.7285 in the days ahead. Any rallies from here should be very well capped below 0.7900, while ultimately, only back above 0.8035 would compromise the bearish outlook.

• 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

It seems the New Zealand Dollar may be playing an overdue game of catch-down. While we had been seeing some relative weakness in the commodity cousins, with both Aussie and Cad under some good pressure in recent months, most of the price action in the New Zealand Dollar was more consolidative in nature. But NZDUSD has finally given way into the new week, with the market dropping to +2 year lows below 0.7660. Perhaps some renewed demand for AUDNZD, following the solid Aussie ANZ job ads data can be attributed to a bit of the Kiwi slide. Though it is more likely the US employment report, declining dairy prices and some soft China data are the main culprits of the downside pressure.

US SPX 500 – technical overview

The market is showing signs of exhaustion following the latest push to fresh record highs, with rallies stalling at 2080. Look for a break and close below 2049 to trigger a double top formation and the onset of a long overdue correction. However, a close above 2080 on Monday would negate reversal prospects, and put the focus on a test of the next key psychological barrier at 2100.

• R2 2100.00 – Psychological – Strong
• R1 2080.00 – 5Dec/Record high – Medium
• S1 2049.00 – 2Dec low – Medium
• S2 2030.00 – 17Nov low – Strong

US SPX 500 – fundamental overview

US equity markets have been very well supported over the past several years on the back of easy money Fed policy. And yet, with Fed QE done and US economic data improving, there has been no move to liquidate the long equity exposure as of yet. The SPX500 sits just off Friday’s record high at 2080, despite the robust US employment report and concerning China trade data. Markets have a way of disregarding data and pushing in the direction of the trend into year end, but it will be interesting to see if even this data can be ignored with equities so elevated and capitulation expected.

GOLD (SPOT) – technical overview

Though the market remains locked within a well defined downtrend, a recovery rally over the past few days has taken some of the pressure off, with the market now settling in the middle of a recent range. But a break back above 1256 would be required to force a shift in the structure, while inability to do so will open the door for the possibility of the next medium-term lower top below 1256 and bearish resumption through the recent 4-year low at 1131.

• 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 a bid tone in recent weeks and could be looking to extend the recovery. Though there has been no specific catalyst for the 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 into the 1200 area taking a lot of the pressure off the downside. There are still good offers out there from bearish commodity players, but dealers are now citing solid two way interest. Dealer’s cite 1225 and 1185 as the key levels to watch over the coming sessions.

Feature – technical overview

The market remains weighed down at +5 year lows and could be poised for a fresh downside extension into the 50s on a daily close below the recent low at 63.70. Daily studies are tracking in oversold territory, which could warn of a correction ahead. But the market would need to break back above 69.60 to take the immediate pressure off the downside and suggest an interim bottom is in place.

• R2 69.60 – 28Nov high – Strong
• R1 68.20 – 4Dec high – Weak
• S1 63.70 – 1Dec/2014 low – Medium
• S2 60.00 - Psychological – Strong

Feature – fundamental overview

With the oil market at 5 year lows and well oversold on a technical basis, speculators are stepping back in and betting the price will not decline much further from current levels. These market participants believe all of the negative shocks have now been fully priced, with the OPEC production maintenance and US Shale oversupply stories finally accounted for. Of course, back in November, speculators had increased long exposure and made that same bottoming bet, before getting rocked 16%. So while the long play is certainly compelling, it is also very risky given the intensity of the downtrend.