Moving Past The SNB, Looking Ahead to ECB and Greece

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. Only back above 1.5500 compromises the bearish structure.

• R2 1.5320 – 5Jan high – Strong
• R1 1.5270 - 14Jan high – Medium
• S1 1.5075 – 16Jan low  – Medium
• S2 1.5035 – 8Jan/2015 low  – Strong

GBPUSD – fundamental overview

The Pound has held up relatively well of late despite last week’s softer CPI, which forced Governor Carney to write the requisite open letter to Chancelor Osborne. While the development diminishes prospects for a BOE rate hike in 2015, Governor Carney has been helping the Pound a bit after downplaying the impact of the softer readings. Meanwhile, an early week round of broad based profit taking on USD longs has also helped to keep Cable somewhat supported for the time being. But with US consumer confidence at an 11 year high and the US labour market looking solid, this should keep the medium-term outlook tilted in the Buck’s favour, with any Cable rallies seen well capped. The release of higher Rightmove house prices at +1.4% versus -2.2% previous, has hardly factored into price action.

USDJPY – technical overview

The market remains locked within a very well defined uptrend, with setbacks expected to be supported on 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 a daily close back under 115.55 would delay the bullish structure.

• R2 118.85 – 13Jan high – Medium
• R1 117.96 – 14Jan high – Medium
• S1 115.85 – 16Jan low – Medium
• S2 115.55 – 16Dec low – Strong

USDJPY – fundamental overview

Despite a wave of Yen demand post SNB, setbacks in the major pair have been well supported on heavy interest from macro accounts. The BOJ remains firmly committed to its monetary easing policy and with the Japanese economy on shaky ground, the Yen is still very much exposed irrespective of familiar correlations with safe haven flows. Japan and Switzerland are now in a battle of negative yield on the longer end of the curve and it will be interesting to see how this one plays out in this new world of NIRP. The Yen has found additional bids on Monday after Chinese equities dropped as much as 7% in reaction to news regulators moved to restrict margin lending. There are sizable sell-stops built up below 115.50 and if this level is taken out, we could see an acceleration of declines before fresh buyers reassert. But while 115.50 is supported, there is risk for fresh upside in USDJPY.

EURCHF – technical overview

The market is attempting to settle in a bit following a historic collapse last Thursday, which saw the price drop off from above 1.2000 all the way down to record lows just over 0.8500 (30% decline). We have since seen a range take form, with the key levels to watch above and below coming in at 1.0600 and 0.9710 respectively. Look for a break on either side to determine the next key directional move.

• R2 1.0600 – Range high – Strong
• R1 1.0300 – Figure – Medium
• S1 0.9920 – 19Jan low – Medium
• S2 0.9710 – 15Jan Range low– Strong

EURCHF – fundamental overview

A bombshell of epic proportions from the SNB last Thursday, after the central bank rocked global markets with the shocking announcement it was abandoning its defense of the EURCHF 1.2000 floor. Instead, the SNB moved further into negative interest rate policy adopted back in December, dropping rates 50bps to -0.75%. The market collapsed by an unfathomable 30% to the 0.8500 area in a matter of minutes, before finally settling around parity after the central bank was forced to step in yet again. The stress of defending the floor in a world of uncertainty and diverging central bank policy proved too much of a challenge for the SNB, and with the ECB expected to ramp up QE this week, the task of defending the floor would have become impossible. Markets will now be forced to deal with the fallout over the coming days and weeks. Swiss exporters have not taken the news well.

AUDUSD – technical overview

A correction is underway after the market stalled ahead of the critical psychological barrier at 0.8000. Still, the downtrend remains firmly intact with a fresh lower top sought out below 0.8500 in favour of the next major downside extension through 0.8000 and towards 0.7500. Ultimately, only back above 0.8541 would compromise the bearish structure.

• R2 0.8375 – 11Dec high – Medium
• R1 0.8295 - 15Jan high – Strong
• S1 0.8133 – 15Jan low – Medium
• S2 0.8033 – 7Jan low/2015 low – Strong

AUDUSD – fundamental overview

The Australian Dollar has held up rather well of late on the back of solid Aussie employment data and a revival of demand for gold in the wake of the SNB shock. Last Thursday, Australian employment rose 37.4k, well above the consensus calls for a 4.0k rise, while the unemployment rate dropped more than expected to 6.1%, from a revised 6.2% in November. The data also has traders scaling back RBA rate cut expectations, and has helped to open a nice recovery in an AUDNZD market that had been desperately overextended at record lows. Still, the Fed, RBA monetary policy divergence theme and reduction in global risk appetite are expected to drive this market and should ultimately weigh on the Australian Dollar over the medium-term. Perhaps somewhat surprisingly, the Australian Dollar has help up well on Monday, despite Chinese equities dropping as much as 7% in reaction to news regulators moved to restrict margin lending. China GDP early Tuesday now comes into focus.

USDCAD – technical overview

The outlook for this pair remains highly constructive, with the price breaking medium-term resistance and pushing to fresh +5 year highs. This has opened the door for break of major psychological barriers at 1.2000. However, daily studies are stretched, and there is risk for a more meaningful pullback to allow for these studies to unwind, before the market continues higher. Still, any setbacks should be well supported ahead of 1.1600, with only a break below 1.1560 to delay.

• R2 1.2100 – Figure – Medium
• R1 1.2047 - 16Jan/2015 high – Strong
• S1 1.1890 – 9Jan high – Medium
• S2 1.1803 – 15Jan low – Strong

USDCAD – fundamental overview

Signs of a potential bottom in the price of oil would be a welcome development for a beaten down Canadian Dollar, trading at its lowest levels against the Buck since mid-2009. 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 nearly 60% of its value since June 2014. Bank of Canada Governor Poloz has warned the drop in oil prices could be reflected in this week’s monetary policy statement, and this has been backed up by BoC Deputy Governor Lane who said oil posed ‘important risks to Canada’s economic outlook.’ Though much of the Loonie’s fate is predicated on the price of oil, even with an oil rebound, the Canadian Dollar could remain under pressure if the BoC downgrades growth and inflation forecasts, or offers any hints of a potential rate cut.

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 0.7975 – 17Nov high – Strong
• R1 0.7890 - 15Jan high – Medium
• S1 0.7690 – 14Jan low – Medium
• S2 0.7609 – 9Dec/2014 low – Strong

NZDUSD – fundamental overview

Kiwi has been very well supported in recent weeks but is at risk of relenting to external pressure. With stocks looking vulnerable off record highs, oil in a free fall, and the global outlook in question, the higher yielding risk correlated currency is exposed. This could put more pressure on the local economy and in turn, force the RBNZ to reconsider its less accommodative stance, particularly in a world where central banks are in an intense currency devaluation race, where no one wants to be left holding the bag of a strong currency. Very good offers from medium-term accounts reported ahead of 0.7900. Key risk for this market in the week ahead comes on Wednesday in the form of NZ CPI.

US SPX 500 – technical overview

Finally signs of reversal and a major top, with the market very well capped and rolling over. Look for a break and daily close below key support at 1968 to confirm the topping structure and open the door for a fresh downside acceleration exposing the October 2014, 1820 area base. Ultimately, only back above 2069 would compromise the bearish outlook and put the focus back on the 2097 record high.

• R2 2o69.00 – 9Jan high – Strong
• R1 2033.00 – 15Jan high – Medium
• S1 1968.00 – 16Dec low – Strong
• S2 1920.00 – 2Oct low – Medium

US SPX 500 – fundamental overview

US equities have come under a good amount of pressure over the past several days and continue to show signs of topping off December record highs. While the prospect of a Fed rate hike has already started to weigh on investor sentiment, this latest move by the SNB to remove its currency cap has opened the door to a credibility crisis where central bank integrity is being called into question. If the SNB was unable to hold to its word and successfully follow through with its policy strategy, who is to say the BOJ, ECB and Fed are not the next to be exposed. The recovery in the global economy has relied on central bank policies that incentivize investment in risk to stimulate growth. But if these strategies are called into question, the market will become fearful and could capitulate quickly. For Monday, we have seen additional downside in reaction to news China regulators have moved to restrict margin lending.

GOLD (SPOT) – technical overview

The market has taken out critical medium-term resistance at 1256 to suggest a major base could be in place at 1131. Look for the latest break to open the next upside extension back towards key resistance in the form of the July 2014 peak at 1345. Only below the weekly low at 1217 would negate the new found bullish momentum.

• R2 1345.00 – 6Jul high – Strong
• R1 1300.00 – Psychological – Medium
• S1 1217.00 – 12Jan low – Strong
• S2 1204.00 – 8Jan low – Medium

GOLD (SPOT) – fundamental overview

The shocking move by the SNB to abolish the cap on the Swiss Franc and expand negative interest rate policy has left market participants with a lack of confidence in currencies and little incentive to be long safe haven FX that offer no yield protection. This has opened a massive wave of fresh demand for gold, with the price of the yellow metal surging through key resistance in the form of the October peak. Investors are now comfortable holding the hard asset and could continue to rally the metal as the ripple effects from the SNB move work their way through the rest of the market.

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, medium-term studies are highly stretched and there is risk building for some form of a major corrective reversal. Friday’s daily close back above the 10-Day SMA could trigger such a reversal and take the immidiate pressure off the downside. Look for a push back above 51.25 to confirm.

• R2 52.65 – 5Jan high – Medium
• R1 51.25 – 15Jan high – Strong
• S1 45.00 – 14Jan low – Medium
• S2 44.20 - 13Jan/2015 low – 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 a wave of 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 the negatives, there are reports of bargain hunters stepping in.