Shifting Yield Dynamics and Asset Rotation

GBPUSD – technical overview

The downtrend for this major pair remains firmly intact, with the market looking for a fresh downside extension towards a measured move objective at 1.5350 over the coming session. 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 1.5541 – 8Dec/2014 low  – Medium
• S2 1.5505 – Sep 2013 low – Strong

GBPUSD – fundamental overview

The mild recovery in the Pound into Tuesday trade can be attributed to some broad based profit taking on US Dollar long positions from shorter-term spec accounts and solid local data. UK BRC retail sales came in at 0.9%, well above expectations for a 0.6% showing and a good deal higher than October’s flat reading. Still much of the performance was driven off Black Friday sales, with the holiday boost somewhat mitigating the impact of the reading. For Tuesday, local traders will digest the latest UK industrial production figures along with NIESR GDP estimates.

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 – Medium
• R1 121.85 – 8Dec/2014 high – Medium
• S1 119.70 – 5Dec low – Medium
• S2 119.35 – 10-Day SMA – Strong

USDJPY – fundamental overview

The combination of some mild profit taking on USD longs and a pullback in equity markets, have opened the door for an overdue correction in USDJPY. Perhaps comments from FinMin Aso that Yen declines were being watched closely, also spooked the overly long USDJPY market a bit. But this move was overdue, with nothing fundamentally driving the reversal other than short-term flows. We have been hearing talk of a major Japanese bank and exporters on the offer, with plenty of demand on dips down towards 119.00.

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 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. Tuesday’s steady Swiss unemployment rate at 3.1% has not factored into 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 0.8224 – 9Dec/2014 low – Weak
• S2 0.8200 – Figure – Medium

AUDUSD – fundamental overview

The Australian Dollar is a standout underperformer in Tuesday trade, with the currency dropping to yet another 4-year low into the 0.8200 area, following the release of a very discouraging NAB monthly business survey. Business confidence has dropped to its lowest level since mid-2015, and this has forced NAB to downgrade its growth forecasts and price in two RBA rate cuts for 2015. Westpac has also come out with similar rate cut forecasts for the coming year. The focus for the Australian Dollar now shifts to Thursday’s anticipated employment report. Overall, the slowing Aussie economy, drag on commodities prices and favourable US Dollar yield differentials point to more Aussie weakness ahead.

USDCAD – technical overview

The recent break of the previous yearly high at 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 1.1550 – Mid-Figure – Weak
• R1 1.1501- 9Dec/2014 high – Weak
• S1 1.1313 – 1Dec low – Medium
• S2 1.1191 – 21Nov low – Strong

USDCAD – fundamental overview

The Canadian Dollar remains under a good amount of pressure, with USDCAD finally piercing the 1.1500 barrier, to another 5 year high. The ongoing slide in oil prices has been a major drag on the Canadian Dollar, with the Canada economy heavily correlated to the direction in the commodity. Recent economic data has also not helped the Loonie’s cause, after Canada employment data disappointed at the same time its US counterpart for this series came in well above expectation. Interest rate differentials and diverging central bank policy should continue to support USDCAD going forward.

NZDUSD – technical overview

A multi-week bearish consolidation has 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 0.7822 - 4Dec high – Medium
• S1 0.7609 – 9Dec/2014 low – Weak
• S2 0.7500 – Psychological – Strong

NZDUSD – fundamental overview

The market is seeing a mild recovery in Kiwi off of fresh 2014 lows from earlier in the day. However, the price action is viewed as nothing more than short-term profit taking, with heavy offers seen into rallies. The New Zealand economy is cooling off, and with inflation turning lower, and dairy prices dropping as they have, there is a strong possibility the RBNZ will look to abandon its rate hike cycle altogether this Thursday. The central bank event risk will be the primary focus this week, while the Fonterra dairy auction will also generate a good deal of attention.

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, inability to close below 2049 would delay reversal prospects, and keep the uptrend firmly intact with a focus on 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 QE 3 done, US economic data improving, and the Fed closer to tightening, there has been no real move to liquidate long equity exposure as of yet. Perhaps this most recent minor pullback off the record high 2080 level will inspire such a capitulation. But the market will need to take out stops below 2049 to have a chance. It seems comments from the very dovish Fed Williams, warning of a rate hike in mid-2015, are finally starting to wake investors up to the fact that a rate is actually on the horizon.

GOLD (SPOT) – technical overview

Though the market remains locked within a well defined downtrend, a recovery rally over the past few weeks 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 following the Monday 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. Until then, consider the possibility of one more downside extension towards a measured move of 57.80 before the market finally relents to the overdue correction.

• R2 69.60 – 28Nov high – Strong
• R1 65.45 – 8Dec high – Medium
• S1 62.00 – Figure – Weak
• S2 60.00 - Psychological – Strong

Feature – fundamental overview

It has been the perfect storm for the oil market over these past months, with the commodity hit hard on all fronts. Slowdown in global economic activity, lack of concern over geopolitical risk, a US shale boom, and OPEC unwillingness to cut production, have all been sourced as the drivers in this slide. However, the shifting landscape in the market on the back of the diverging central bank monetary policy theme is also a major factor, with the US Dollar expected to rise over the medium-term. This has forced portfolio managers to undertake massive reallocations in preparation of this macro event. And as this plays out, we are seeing a repositioning away from what was once a sought after investment. Still, there is value in oil at a certain point, and there has been talk of speculators stepping back in as the market trades in the lower 60s.