Fed Introduces New ‘Patient’ In The Room

GBPUSD – technical overview

The major pair has been locked in some sideways trade just off the recent year low at 1.5541, with the price action classified as a bearish consolidation ahead of the next major downside extension towards the 1.5250 area. Ultimately, only a break and daily close back above 1.5826 would take the immediate pressure off the downside.

• R2 1.5826 – 27Nov high – Strong
• R1 1.5786 - 16Dec high – Medium
• S1 1.5541 – 8Dec/2014 low  – Strong
• S2 1.5500 – Psychological – Medium

GBPUSD – fundamental overview

Wednesday’s BOE Minutes and employment data failed to have any meaningful impact on the Pound, with the market deferring to consolidation before finally coming under pressure post Fed. The confirmed 7-2 vote in the BOE Minutes was expected, although there were some mild changes to the language that suggested hawks and doves were coming closer together. The hawks were certainly impressed to see a pickup in wage growth in yesterday’s employment data, though the slide in oil prices has been a notable concern for the central bank and this could keep broader inflation weighed down. The market will now digest today’s UK retail sales.

USDJPY – technical overview

The market has come under a bit of pressure in recent trade, since topping out at fresh 7-year highs at 121.85. The pullback was long overdue given the extremely overbought technical studies, and the market has traded back into the 38.2% fib retrace off the major October to December move. From here, a break below 115.50 will open the door for additional corrective activity towards 112.00, while inability to break below 115.50 and daily close back above the 10-Day SMA, could suggest the market is ready to carve the next higher low ahead of a bullish continuation.

• R2 119.56 – 11Dec high – Strong
• R1 119.01 – 18Dec high – Medium
• S1 117.44 – 11Dec low – Medium
• S2 115.50 – 38.2 Fib Retrace – Strong

USDJPY – fundamental overview

The Bank of Japan kicks off its 2 day policy meeting today, though no change is expected. The central bank should maintain its firm 8-1 majority vote in favour of the newly adopted easing measures. It is possible the BOJ will upgrade its assessment on the economy in light of some positive impact from recent measures. However, with oil prices declining rapidly and deflation still a major risk, it will be interesting to see if the central bank has anything new to offer with regard to its thoughts on realistically being able to achieve its 2% inflation objective. USDJPY has mostly reverted to traditional correlations with risk, and a lot of the direction from here into January is likely to be dictated by the direction in equity markets.

EURCHF – technical overview

The market has finally broken out of a very tight multi day range, with the price surging back through key resistance at 1.2045 to suggest a major base in the works. Look for a daily close above 1.2045 on Thursday to confirm the constructive outlook and open the door for a test of next key resistance at 1.2140 further up. Inability to close above 1.2045 will however delay recovery prospects.

• R2 1.2140 – 7Oct high – Strong
• R1 1.2098 – 18Dec high – Medium
• S1 1.2045 – Previous Base – Medium
• S2 1.2007 – 17Dec/2014 low– Strong

EURCHF – fundamental overview

Finally some movement in EURCHF, with the SNB catching the market off guard early Thursday, introducing negative interest rate policy (“NIRP”). The SNB has moved the rate to minus 0.25% and has opened the door for a decline in the Franc and breakout in the EURCHF market well beyond key resistance at 1.2045. The successful defense of the 1.2000 floor may come as a surprise to many out there, after the rate had been trading just a few points off the level for so many sessions. Perhaps the more perplexing takeaway from the move is the timing. SNB Jordan has since come out to explain the recent crisis with the Ruble has resulted in massive inflows that have forced the SNB to take action. It is also interesting to note the SNB’s NIRP will take effect on the same day as the next ECB policy decision. Perhaps the move will also act as preemptive effort ahead of the ECB.

AUDUSD – technical overview

The pair continues to extend declines to fresh yearly and multi-year lows, with the price inching closer and closer to next key psychological barriers at 0.8000. While the structure remains intensely bearish with deeper setbacks ahead, the market is also tracking in oversold territory and could be due for some form of a corrective bounce ahead of bearish resumption. But ultimately, any rallies should prove to be very well capped ahead of previous support turned resistance around 0.8550.

• R2 0.8274 – 16Dec high – Medium
• R1 0.8235 - 17Dec high – Medium
• S1 0.8107 – 17Dec/2014 low – Weak
• S2 0.8000 – Psychological – Strong

AUDUSD – fundamental overview

RBA Stevens will certainly welcome the latest Fed move, with the bullish US Dollar reaction opening the door for fresh Aussie declines. Stevens said he believes the fair value exchange rate was 0.7500 rather than 0.8500 and that this would help rebalance the economy. So with the Fed signaling a rate hike in the first half of 2015, and the RBA moving in a different direction, we should continue to see downside pressure in this pair. Larger macro accounts have been major players in the AUDUSD short trade on the policy divergence and declining commodities themes, and are still looking to build into this position for 2015.

USDCAD – technical overview

The outlook for this pair remains highly constructive, with the price recently breaking some medium-term resistance and pushing to fresh multi-year highs. The next key topside objective comes in at 1.1750, while any setbacks are now expected to be very well supported into previous resistance turned support around 1.1465. Ultimately, only back below 1.1300 would stall the bullish momentum.

• R2 1.1750 – Measured Move – Strong
• R1 1.1674 - 15Dec/2014 high – Medium
• S1 1.1547 – 15Dec low – Medium
• S2 1.1467 – Previous 2014 High – 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 into the 1.1600s. 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, which is down about 50% since June. Bank of Canada Governor Poloz has warned the drop in oil prices could be reflected in January’s monetary policy statement, and this is something the markets will be watching. Oil prices have been showing a bit of stabilization in recent sessions, and this has helped to temper additional CAD declines for the moment. The minor bounce in oil has also offset and bearish CAD flows from the latest Fed decision, which further highlights the ongoing Fed, BoC policy divergence.

NZDUSD – technical overview

Although the market trades just off recent 2014 lows, price action in this pair has been mostly sideways of late. However, the underlying downtrend remains firmly intact, with deeper setbacks favoured towards 0.7285 on a break below 0.7600. Look for the 20-Day SMA to continue to act as formidable resistance, while ultimately, only back above 0.8035 would compromise the bearish outlook.

• R2 0.7975 – 17Nov high – Strong
• R1 0.7871 - 11Dec high – Medium
• S1 0.7662 – 10Dec low – Medium
• S2 0.7609 – 9Dec/2014 low – Strong

NZDUSD – fundamental overview

Not much movement in the New Zealand Dollar despite some key risk for the currency in recent trade. Perhaps the offsetting results of these risks have kept the currency in a consolidation. While the Fed decision inspired some broad based US Dollar buying, with the central bank removing its ‘considerable time’ language and staying on course for a rate hike in the first half of 2015, the better than expected New Zealand GDP data helped to buoy NZDUSD setbacks. GDP came in at 1.0%, well above the 0.7% expected. Still, the broader outlook continues to favour the downside for Kiwi, with sliding commodities and monetary policy divergence themes expected to weigh more heavily on the higher yielding commodity currency.

US SPX 500 – technical overview

An impressive correction off record highs for this market over the past several days, with the price dropping back below 2000 and trading into some support in the form of the top of the Ichimoku cloud. The broader uptrend still remains firmly intact, and the market could be looking to carve another higher low ahead of bullish resumption. Ultimately, a close back below the 200-Day SMA at 1950 would be required to force a shift in the outlook.

• R2 2049.00 – 1Dec low – Strong
• R1 2025.00 – 10-Day SMA – Medium
• S1 1968.00 – 16Dec low – Medium
• S2 1950.00 – 200-Day SMA – Strong

US SPX 500 – fundamental overview

The stock market has initially welcomed the latest Fed decision with open arms. It seems investors believe the Fed managed to hit the sweet spot on Wednesday. The Fed offered a more upbeat outlook on the economy, while at the same time letting the markets know it would still be ‘patient’ on rates. While it is unclear how much longer the easy money angle will support an overinflated equity market, for the time being, participants are welcoming the decision. Still, Yellen has signaled a possible rate hike as soon as April, and this could be something that starts to weigh more heavily on stocks over the coming days. The fact that the US Dollar appreciated in reaction to the Fed could be a bit of a red flag.

GOLD (SPOT) – technical overview

The market has done a good job of mounting a healthy recovery over the past several weeks, out from multi-year lows at 1131. The price action could be suggestive of some form of a meaningful base in the works. But a break back above 1256 would be required to strengthen this outlook. Inability to clear 1256 would keep the underlying downtrend intact and leave the market vulnerable to another test of the 1131 base.

• R2 1256.00 – 21Oct high – Strong
• R1 1238.00 – 10Dec high – Medium
• S1 1183.00 – 17Dec low – Medium
• S2 1131.00 – 7Nov/2014 low – Strong

GOLD (SPOT) – fundamental overview

Even with the latest setbacks, gold has still been very well supported in recent weeks. Though there has been no specific catalyst for a resurgence in demand, signs of ongoing stress in the global economy, despite aggressive monetary policy efforts, 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. The latest decision by the Fed to stay ‘patient’ is also seen supporting the yellow metal in recent trade. There are still good offers out there from bearish commodity players, but dealers are now citing solid two way interest, with larger macro accounts on the bid.

Feature – technical overview

SILVER (spot) has enjoyed a nice recovery over the past few weeks, with the market bouncing out from multi-year lows at 14.10. There is some evidence of a meaningful base in the works, with the longer-term chart showing the 14.00 area as trend-line support off an uptrend that began in 2002. As such, the market should be looking to carve out a higher low somewhere in the 14.00 area ahead of bullish resumption. For now, a break back above 17.30 would do a good job of strengthening this outlook. Back under 14.10 delays.

• R2 17.30 – 10Dec high – Strong
• R1 16.65 – 16Dec high – Medium
• S1 15.05 – 2Nov low – Medium
• S2 14.45 - 1Dec/2014 low – Very Strong

Feature – fundamental overview

Despite a notable cutback in silver production for 2014, there is still very good demand out there in the market. For the moment, silver has not been immune to the massive slide in commodities prices over the past several months, with the metal getting hit hard in the face of a global slowdown and Fed policy divergence. At the same time, the commodity has many good uses commercially that extend well beyond those of gold, while the Gold/Silver ratio sits at historically high levels, making the long silver play highly compelling as a mean reversion trade. Moreover, a closer look at the longer-term chart shows the market at ideal buy levels, with the 14 area coinciding with rising trend-line support from 2002.