Currency Direction Contingent on US Employment Report

GBPUSD – technical overview

The market remains under intense pressure, dropping to fresh 18 month lows. From here, deeper setbacks are now seen towards the 2013 base at 1.4814, while only back above 1.5620 would delay the bearish outlook. Daily studies are however well oversold and there is risk for some corrective price action in the sessions ahead.

• R2 1.5320 – 5Jan high – Strong
• R1 1.5156 - 7Jan high – Medium
• S1 1.5035 – 8Jan low  – Weak
• S2 1.5000 – Psychological – Strong

GBPUSD – fundamental overview

The BOE left policy unchanged as was widely expected, with rates steady at half a percent and the APT at 375B. Cable has been trading lower in sympathy with the Euro, but has also been finding its own weakness, on the back of softer economic data. The Pound sits at 18 month lows and is at risk for a full retracement to the 2013 base just ahead of 1.4800, with many now pricing out any chance for a BOE hike in 2015. While there is talk of profit taking, ultimately, over the medium-term, the market should remain under pressure as the Fed diverges further from the BOE and yield differentials move more favourably in the Buck’s direction.

USDJPY – technical overview

The market remains locked within a very well defined uptrend, with setbacks continuing to be very well supported on minor dips. The recent correction off fresh 7-year highs at 121.85 has stalled out at 115.55 and a fresh higher low is now sought ahead of the next major upside extension back through 121.85 and towards the 125.00 area further up. Only back under 115.55 delays.

• R2 120.83 – 23Dec high – Strong
• R1 119.97 – 8Jan high – Medium
• S1 118.05 – 6Jan low – Medium
• S2 117.45 – 11Dec low – Strong

USDJPY – fundamental overview

Comments from Fed Kocherlakota that a rate hike in 2015 would hinder a recovery in inflation have been weighing on the major pair a bit in early Friday trade. But overall, USDJPY continues to be very well supported on minor dips and is widely considered an attractive long play in 2015 as economic data further highlights the ongoing policy divergence between the Fed and BOJ. An equity market rebound over the past couple of sessions has inspired fresh long interest. Also supporting USDJPY has been a worry that falling commodities prices will prevent the BOJ from achieving its 2% inflation objective. Market participants will be looking to today’s monthly US NFP report for added dictional insight.

EURCHF – technical overview

Although the market has been showing some signs of the formation of a major base above 1.2000, recent attempts through key resistance at 1.2045 have failed to garner momentum. Look for a daily close above 1.2045 to confirm the constructive outlook and open the door for a test of next key resistance at 1.2140 further up. However, inability to close above 1.2045 keeps the immediate pressure on the downside, with a 1.2000 breach still possible.

• R2 1.2098 – 18Dec high – Very Strong
• R1 1.2045 – Previous Support – Strong
• S1 1.2007 – 17Dec/2014 low – Strong
• S2 1.2000 – Psychological– Very Strong

EURCHF – fundamental overview

The impact of the SNB’s negative interest rate policy move is diminishing with each passing day, as the EURCHF market fails to break away from the 1.2000 floor. It seems the likelihood for some form of additional accommodation from the ECB on January 22nd could be offsetting the case for Franc depreciation and this is surely an unwelcome development for the SNB. Increasing deflation risk and the weight of a potential Greek exit is certainly not helping. The SNB remains committed to defending the 1.2000 floor, but until it steps in with an intervention, it looks like the market will continue to test the central bank’s resolve. SNB Jordan was on the wires Monday with his first public comments since the central bank introduced NIRP on December 18th. Jordan did not back down from the SNB’s commitment to defend the floor saying, “the cap is absolutely central for maintaining the adequate, correct monetary conditions for Switzerland.”

AUDUSD – technical overview

The pair continues to extend declines to fresh yearly and multi-year lows, with the price approaching the next key psychological barrier at 0.8000. While the structure remains intensely bearish, daily studies are a little stretched and there is room for a minor correction to allow for these studies to unwind a bit. But ultimately, any rallies should prove to be very well capped ahead of 0.8400, with only a break back above 0.8540 to negate the bearish outlook.

• R2 0.8274 – 16Dec high – Medium
• R1 0.8216 - 31Dec high – Strong
• S1 0.8033 – 7Jan low – Medium
• S2 0.8000 – Psychological – Strong

AUDUSD – fundamental overview

Any gains from Thursday’s solid Aussie building approvals are being offset by the weaker Friday Aussie retail sales data (0.1% versus 0.2% expected and 0.4% previous) and heavy offers from medium-term macro accounts. The Australian Dollar is trading just off +5 year lows, and remains at risk for deeper setbacks in 2015. US economic data has been strong and will put more pressure on the Fed to move sooner than later with a rate hike in 2015, while the Australian economy is contending with a slowing China and declining commodities prices. RBA Stevens has done nothing to help Aussie’s cause, welcoming an exchange rate closer to 0.7500. The focus now shifts to today’s monthly employment report out of the US.

USDCAD – technical overview

The outlook for this pair remains highly constructive, with the price recently breaking some medium-term resistance and pushing to fresh +5 year highs. The next key topside objective comes in at the 1.1877, 2007 high, while any setbacks are now expected to be very well supported ahead of previous resistance turned support at 1.1280. Ultimately, only back below 1.1280 would stall the bullish momentum.

• R2 1.1900 – Figure – Medium
• R1 1.1877 - 2007 high – Strong
• S1 1.1732 – 6Jan low – Medium
• S2 1.1674 – 15Dec high – Strong

USDCAD – fundamental overview

The Canadian Dollar remains under a good amount of pressure into 2015, with USDCAD recently pushing to fresh 5-year highs. The ongoing slide in oil prices has been a major drag on the Loonie, with the Canada economy heavily correlated to the direction in the commodity, which has given up more than half its value since June, breaking down below the critical $50 barrier. Recent speculative positioning data shows a pickup in Canadian Dollar short positions in reaction to the oil slide. 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. Throw in solid US data, highlighted by the most recent ADP print, and a Fed that is expected to hike rates sooner than later, and the outlook for the pair remains constructive over the medium-term. For the short-term, the focus will be on today’s Canada employment readings, which come out at the same time as US NFPs. The market is looking for the Canadian data to produce  a net change in employment of 15k versus -10.7k previous and a steady unemployment rate at 6.6%.

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 0.7200 on a break below 0.7600. Look for the 0.7800-0.7900 area to continue to act as formidable resistance, while ultimately, only back above 0.8035 would compromise the bearish outlook.

• R2 0.7912 – 1Dec high – Strong
• R1 0.7872 - 11Dec high – Medium
• S1 0.7763 – 8Jan low – Medium
• S2 0.7685 – 6Jan low – Medium

NZDUSD – fundamental overview

Kiwi has been very well supported in recent weeks, aided by the attractive yield differentials and most recently by a marginal rise in the global dairy trade auction, and recovery in stocks. But with stocks still looking vulnerable off record highs, commodities under constant pressure, and the global outlook in question, the risk correlated currency could soon be due for relative underperformance. Solid US economic data only further highlights the ongoing Fed, RBNZ policy divergence and should weigh on the higher yielding Kiwi in 2015. Very good offers from medium-term accounts reported in the 0.7800-0.7900 area.

US SPX 500 – technical overview

Finally signs of reversal and a major top after the market put in a bearish outside week off record highs. Initial setbacks have been supported at 1992 and a fresh lower top is now ideally sought out somewhere below 2075 ahead of the next major downside extension through critical support at 1970. However, a daily close above 1975 would compromise bearish momentum and open the door for a bullish resumption to fresh record highs through 2100.

• R2 2o97.00 – 29Dec/Record high– Very Strong
• R1 2074.00 – 78.6% Fib – Medium
• S1 2027.00 – 8Jan low – Medium
• S2 1992.00 – 6Jan low – Strong

US SPX 500 – fundamental overview

Now that we are finally into 2015 and portfolio managers have successfully pushed equities to yet another record high in 2014, we are finally seeing signs of capitulation as reality sets in. The Fed is expected to raise rates sooner than later and with easy money incentives fading away, the motivation to be long equities could dissipate. Meanwhile, distress in global markets has inspired some risk reduction, and this could open the door for additional liquidation in the days ahead. Stock market participants will be keying in on today’s monthly US employment report for any additional indication of Fed timing. While we have seen a healthy rally off the weekly low, volume has been less than impressive and the market is at risk of stalling out again.

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 1167.00 – 2Jan low – Medium
• S2 1131.00 – 7Nov/2014 low – Strong

GOLD (SPOT) – fundamental overview

We are seeing a bit of a battle in the gold market with decent two way demand. But bulls have been winning out of late, with speculators increasing long exposure, doubling bets since November. These speculators still see gold as an attractive play in an historically low interest rate environment that should ultimately translate into a pickup in global inflation. Safe haven bids have also helped this week, with the Greek election uncertainty and Eurozone deterioration inspiring additional demand for the tangible asset.

Feature – technical overview

US OIL (spot) recoveries have been short-lived, with the market once again breaking down through a bearish consolidation to fresh multi-year lows through major support at 50.00. However, daily studies are looking stretched and there is risk building for some form of a major corrective reversal. As such, any weakness below 50.00 is expected to be well supported over the short-term. Back above 60.00 required to force shift.

• R2 52.65 – 5Jan high – Strong
• R1 50.35 – 6Jan high – Medium
• S1 46.80 – 7Jan low – Medium
• S2 46.00 - Figure– Medium

Feature – fundamental overview

The dramatic pullback in oil prices has been  major story in global markets, and it’s clear this is a theme that will continue to garner attention in 2015. Saudi Arabia has been quite vocal it will do nothing to help prop the price, while oversupply and lack of demand has further depressed prices. Looking ahead, it will be interesting to see if opposition from other OPEC countries opens the door for a lift in prices. It will also be important to keep an eye on US shale producers to see just how much longer they can sustain business at current levels. Geopolitical risk is another theme that could influence in 2015 and should not be overlooked. Data showed specs scaling back long bets in December, but there are new bargain hunters stepping in, calling for a $40 floor.