Commodity FX Retreats On Declining Oil, Copper

GBPUSD – technical overview

The market has found some relief off 18 month lows in recent sessions, with a short-term corrective rally underway. However, overall, the downtrend remains firmly intact, with any upside seen well capped below previous support at 1.5485. Look for a lower top ahead of the next major downside extension below 1.5035 and towards the 2013 base at 1.4815.

• R2 1.5320 – 5Jan high – Strong
• R1 1.5274 - 6Jan high – Medium
• S1 1.5099 – 12Jan low  – Medium
• S2 1.5035 – 8Jan/2015 low  – Strong

GBPUSD – fundamental overview

Key risk on the economic calendar for Tuesday comes in the form of UK December CPI forecast at 0.7% y/y versus 1.0% previous. An as expected print will require Governor Carney to write the requisite open letter to Chancelor Osborne that inflation has moved away from target by more than one percentage point. This will also significantly diminish prospects for any BOE rate hikes  in 2015 and will further highlight the ongoing BOE, Fed policy divergence theme.

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 119.97 – 8Jan high – Medium
• R1 119.32 – 12Jan high – Medium
• S1 117.45 – 11Dec low – Strong
• S2 116.29 – 17Dec low – Medium

USDJPY – fundamental overview

A boost in Asian equities on the back of solid China trade has helped to keep USDJPY well supported on Tuesday dips. But global equities have come under pressure over the past several days and this has proven to be a weight on USDJPY, with traditional correlations coming into play. Still, overall, the picture hasn’t changed, and with the Fed, BOJ policy divergence theme front and center, there continue to be formidable USDJPY bids reported into dips.

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 last 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

A minor correction underway after the market stalled ahead of the major psychological barrier at 0.8000. Still, the downtrend remains firmly intact and a fresh lower top is now sought out ahead of 0.8400 in favour of the next major downside extension below 0.8000. Ultimately, only back above 0.8541 would compromise the bearish structure.

• R2 0.8375 – 11Dec high – Strong
• R1 0.8255 - 12Jan high – Medium
• S1 0.8105 – 9Jan low – Medium
• S2 0.8033 – 7Jan low/2015 low – Strong

AUDUSD – fundamental overview

Solid China trade data has been helping to offset Australian Dollar weakness brought on by falling commodity prices. Oil continues to extend declines and copper has broken to a fresh 5 year low. While the China data offers some form of a silver lining, ultimately, the outlook for the Chinese economy is still shaky at best and this should keep Aussie bulls from reading too much into this latest release. But it is worth noting that in recent trade, Aussie has managed to outperform its commodity cousins, tracking higher against both Kiwi and Cad.

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 beyond the 2007 peak at 1.1877. This now exposes the major psychological barriers at 1.2000. However, daily studies are looking stretched at the moment, and there is risk for a minor pullback to allow for these studies to unwind, before the market continues higher. Look for setbacks to be well supported ahead of 1.1600, with only a break below 1.1560 to delay.

• R2 1.2000 – Psychological – Strong
• R1 1.1978 - 13Jan/2015 high – Medium
• S1 1.1835 – 12Jan low – Medium
• S2 1.1797 – 8Jan low – Medium

USDCAD – fundamental overview

The Canadian Dollar remains under a good amount of pressure into 2015, with USDCAD recently pushing to fresh +5 year highs into the 1.2000 area. 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. Last Friday’s disappointing Canada employment report showing (-4.3K versus forecasts of +15K) has also not been helping the Loonie’s cause.

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 0.7735 – 12Jan low – Medium
• S2 0.7685 – 6Jan low – Medium

NZDUSD – fundamental overview

Kiwi has been very well supported in recent weeks, aided by attractive yield differentials and most recently by a marginal rise in the global dairy trade auction. 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. Also worth noting the RBNZ last intervened around the 0.8000 area and is not going to be comfortable with the rate up here as it has been quite vocal about the overvaluation in the Kiwi exchange rate.

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

Interestingly enough, while currencies have focused on the softer wage growth component in last Friday’s US employment report, it seems the equity market is reacting to the stronger NFPs and drop in the unemployment rate to its lowest level since 2008. These numbers suggest the Fed will be well on track to raise rates, which is not equity supportive as it takes away from the free money incentive to be long. Meanwhile, distress in global markets has inspired some risk reduction as well, and this could open the door for additional liquidation in the days ahead.

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 1240.00 – 13Jan high – Medium
• S1 1205.00 – 8Jan low – Medium
• S2 1167.00 – 2Jan 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. Profit taking on USD longs and safe haven bids on the back of European political uncertainty and instability are sourced as additional drivers of 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 highly stretched and there is risk building for some form of a major corrective reversal. At the same time, a break back above 50.35 would be required to take the immidiate pressure off the downside.

• R2 50.35 – 6Jan high – Medium
• R1 48.15 – 12Jan high – Medium
• S1 44.00 – Figure – Medium
• S2 40.00 - Psychological– Very Strong

Feature – fundamental overview

The dramatic pullback in oil prices has been major story in global markets, and it’s clear this theme 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 have further depressed prices. Looking ahead, it will be interesting to see if this latest opposition from Venezuela and Iran makes any difference. 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. Meanwhile, Goldman Sachs has come out with calls for lower prices. But even with all of this, there are reports of bargain hunters stepping in.