Stocks Surge, Oil Pressured, Currencies Consolidate

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

UK Gfk consumer confidence came in a good deal weaker than expected, falling to its lowest levels in 9 months. However, the market hasn’t really reacted to the disappointing reading, perhaps finding more confidence in the earlier release of the very solid UK retail sales. UK public sector net borrowing data will be taken in on Friday, though the major pair is likely to trade off of broader macro flows.

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, with the market trading back into the 38.2% fib retrace off the major October to December move. From here, a daily close above the 10-Day SMA will suggest a fresh higher low is in place around 115.50 ahead of the next major upside extension beyond 121.85, while inability to close above the 10-Day will open the door for deeper corrective declines before the market looks for bullish resumption.

• R2 120.20 – 8Dec low – Medium
• R1 119.92 – 10Dec high – Medium
• S1 118.25 – 18Dec low – Medium
• S2 117.44 – 11Dec low – Medium

USDJPY – fundamental overview

No change to Bank of Japan policy as was widely expected. The BOJ reaffirmed its easing initiative and confirmed monetary policy efforts were having a positive impact. The central bank also said it would continue with the policy to achieve its inflation target of 2%. The Kuroda press conference offered very little additional insights, though the central banker said it was desirable for FX to move in a stable manner, while also adding that it was possible the drop in oil prices could prevent inflation from accelerating in first half of 2015.

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 Friday 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 1.2037 – 19Dec low – Medium
• S2 1.2007 – 17Dec/2014 low– Strong

EURCHF – fundamental overview

Finally some movement in EURCHF, with the SNB catching the market off guard this week, introducing negative interest rate policy (“NIRP”). The SNB moved rates to minus 0.25% and opened the door for a decline in the Franc and breakout in the EURCHF market. 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. SNB Jordan explained the recent crisis with the Ruble had resulted in massive inflows that forced the SNB to take action. It’s also interesting to note the SNB’s NIRP will take effect on the same day as the next ECB policy decision (January 22). 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

The Australian Dollar has enjoyed a nice little bounce in recent trade, with the currency benefitting from the resurgence in demand for equities and latest SNB move to negative interest rates. Still, any Aussie gains are not expected to last given the ongoing policy divergence with the Fed and slowing Aussie economy. The Fed is still on track for a rate hike in the first half of 2015, and the RBA is moving in the opposite direction. 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

Although we have seen a mild recovery over the past few sessions, the Canadian Dollar remains under a good amount of pressure, with USDCAD at 5 year highs. 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. For today, the focus will be on Canada CPI data out at 13:30GMT.

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 0.7680 – 18Dec low – Medium
• S2 0.7609 – 9Dec/2014 low – Strong

NZDUSD – fundamental overview

Though the gains are mild, the New Zealand Dollar is the only major currency up against the US Dollar on the week into Friday trade. Currencies have mostly been pressured post Fed, after the central bank kept with its timeline for a rate hike in the first half of 2015. But the resurgence in demand for US equities, SNB move to negative interest rates, and much better than expected New Zealand GDP, have all helped to inspire fresh demand for the higher yielding commodity currency. But gains are not expected to last, with heavy offers from larger macro players seen around the 0.7800 area and all the way up to 0.8000. Many of these players are looking for a strong US Dollar and softer equities in 2015, which should translate into Kiwi underperformance.

US SPX 500 – technical overview

The broader uptrend is well intact, with the market putting in a higher low this week by the top of the daily Ichimoku cloud and reversing sharply back towards record highs. A break above 2080 will open the door for a test of the next major psychological barrier at 2100. However, inability to take out 2080, followed by a drop back below Thursday’s low, could warn the market is now trying to carve out a meaningful top.

• R2 2100.00 – Psychological – Very Strong
• R1 2080.00 – 5Dec/Record High – Strong
• S1 2033.00 – 12Dec high – Medium
• S2 2010.00 – 18Dec low – Strong

US SPX 500 – fundamental overview

The stock market has 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. Later today, Fed Lacker is on the wires and participants will be paying attention to this first Fed speak post this week’s decision.

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

US OIL (spot) recoveries have been short-lived, despite some very overextended technical readings. From here, there is risk for another downside extension on a break below 53.60, which could expose a measured move objective at 48.20. However, with the market having dropped so sharply in recent months, there is also good risk for some form of stabilization and the formation of an interim base.

• R2 61.65 – 11Dec high – Medium
• R1 59.00 – 18Dec high – Strong
• S1 53.60 – 16Dec/2014 low – Strong
• S2 53.00 - Figure – Medium

Feature – fundamental overview

There have been no signs of any bottom in oil prices yet, and the drop of some 50% since June is starting to have a major impact. Chevron has put an indefinite hold on plans to drill in Canada’s Arctic, while Marathon cut its 2015 capital expenditure by some 20%. Canadian oil producers have also been scaling back on budgets. Some of these names include Husky, MEG, and Penn West Petroleum. US shale producer hedges are also now exposed, after the price has dropped below the floor of three way collar strategies. A break below 53.60 could open the door for a fresh drop below the 50.00 barrier.