Commodities, Equities, Event Risk and US Retail Sales

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 – Medium
• R1 1.5274 - 6Jan high – Medium
• S1 1.5078 – 13Jan low  – Medium
• S2 1.5035 – 8Jan/2015 low  – Strong

GBPUSD – fundamental overview

The Pound has held up relatively well in the face of Tuesday’s softer than expected CPI print at 0.5% versus 0.7% expected. This has forced Governor Carney to write the requisite open letter to Chancelor Osborne outlining why inflation has moved away from target by more than one percentage point. This development significantly diminishes prospects for any BOE rate hikes in 2015 and will further highlight the ongoing BOE, Fed policy divergence theme. Still, Carney has helped the Pound a bit after mitigating the impact of the latest inflation slide.

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 119.32 – 12Jan high – Strong
• R1 118.35 – 13Jan high – Medium
• S1 117.33 – 14Jan low – Weak
• S2 116.29 – 17Dec low – Medium

USDJPY – fundamental overview

A lot of uncertainty in the market at the moment and this has thrown USDJPY back into traditional correlations with risk. The big stories on Wednesday are the ongoing slide in oil, collapse in copper prices to +5 year lows and downgrade of global growth forecasts from the World Bank. Stocks have taken a hit on the news and this has opened the door for some fresh weakness in the major pair below 117.00. Still, with the monetary policy divergence theme the primary medium-term macro driver, there is good USDJPY demand expected on dips towards 116.00.

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 consolidation 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 at 0.8255 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 – Medium
• R1 0.8255 - 12Jan high – Strong
• S1 0.8077 – 14Jan low – Weak
• S2 0.8033 – 7Jan low/2015 low – Strong

AUDUSD – fundamental overview

A free fall in the price of copper has not been a friend to the Australian Dollar, with the commodity currency underperforming on Wednesday as selling intensifies. Copper was getting close to being down 10% before the market found some temporary and much needed relief. Also seen weighing on Aussie has been the World Bank downgrade of global growth forecasts to 3.0% versus 3.4% previous. Macro accounts and leveraged funds have been cited as the big sellers.

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 opens the door for a push through 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 meaningfully higher. Look for setbacks to be well supported ahead of 1.1600, with only a break below 1.1560 to delay.

• R2 1.2050 – Mid-Figure – Medium
• R1 1.2000 - Psychological – Strong
• S1 1.1926 – 13Jan low – Medium
• S2 1.1835 – 12Jan 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 beyond 1.2000. 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 has been backed up on Tuesday after BoC Deputy Governor Lane confirmed the decline in oil posed ‘important risks to Canada’s economic outlook.’

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 0.7865 - 12Jan high – Strong
• S1 0.7678 – 6Jan low – Medium
• S2 0.7609 – 9Dec/2014 low – Strong

NZDUSD – fundamental overview

Kiwi had been very well supported in recent weeks but is finally relenting to external pressure. With stocks looking vulnerable off record highs, commodities in a free fall, and the global outlook in question, the higher yielding risk correlated currency has been exposed. This could put more pressure on the local economy and in turn, force the RBNZ to reconsider its less accommodative stance. Very good offers from medium-term accounts reported.

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 2069.00 – 9Jan high – Strong
• S1 1990.00 – 6Jan low – Medium
• S2 1968.00 – 16Dec low – Strong

US SPX 500 – fundamental overview

Distress in global markets is inspiring some risk reduction, with investors increasingly unsettled by a free fall in copper to fresh +5 and a half year lows, and a downgrade in growth forecasts at the World Bank. Throw in a relatively strong US economy and the prospect for a sooner than later Fed rate hike, and the incentive to be long US equities is becoming far less attractive than it once was. Still, these external risks could force the Fed to hold off on a rate hike in 2015, which would support the current round of setbacks. Fed Kocherlakota has been helping this cause after saying he does not believe the Fed should raise rates in 2015.

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 1245.00 – 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 45.00. 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 and daily close back above the 10-Day SMA would be required to take the immidiate pressure off the downside.

• R2 50.35 – 6Jan high – Strong
• R1 48.75 – 10-Day SMA – Medium
• S1 44.20 – 13Jan low – 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 the negatives, there are reports of bargain hunters stepping in below $45.