What Will The ECB Do Post SNB, BoC?

GBPUSD – technical overview

The market has found minor relief off 18 month lows in the form of a short-term consolidation. 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 1.5270 – 14Jan high – Medium
• R1 1.5200 - 20Jan high – Medium
• S1 1.5035 – 8Jan/2015 low  – Strong
• S2 1.5000 – Psychological  – Strong

GBPUSD – fundamental overview

Although UK employment data came in better than expected, the revelation of a unanimous 9-0 vote in the BOE Minutes to leave rates on hold at 0.50%, has been enough to keep Sterling offered into rallies. While the BOE is probably the most closely aligned to the Fed monetary policy trajectory, the unanimous decision has scaled back expectations for a rate hike in 2015.  For today, the market will take in BOE Miles and Fisher, along with a batch of public finance data.

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 119.97 – 8Jan high – Strong
• R1 118.87 – 20Jan high – Medium
• S1 117.18 – 21Jan low – Medium
• S2 115.55 – 16Dec low – Strong

USDJPY – fundamental overview

Short covering has been the name of the game in Japan this week. The Yen has recovered a decent amount since the BOJ put an end to chatter of a cut in the deposit rate and left rates unchanged in a Wednesday 8-1 vote. Moreover, Governor Kuroda remained steadfast in his calls for 2% inflation by the end of 2015, while also embracing the positive economic benefits from lower oil prices. Still overall, any Yen appreciation is expected to continue to find offers into rallies, with the more prominent central bank divergence theme and discouraging Japanese fundamentals driving the price action. All eyes today will be on the what the ECB does and how it impacts EURJPY yield differentials.

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 around 0.8500. 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 1.0225 – 20Jan high – Medium
• S1 0.9850 – 21Jan low – Medium
• S2 0.9710 – 15Jan Range low– Strong

EURCHF – fundamental overview

Markets are still trying to recover from the SNB bombshell, after the central bank abandoned its defense of the EURCHF 1.2000 floor and moved further into negative rate policy. 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. Still, the reaction has been severe and investors will need to reassess the benefits of this flight to safety play. It will now be interesting to see how the Franc responds once the ECB event risk is out of the way, and what actions, if any, the SNB takes going forward. SNB Zurbruegg was out earlier today saying the central bank is now “keeping all monetary policy options open,” while also adding “there would be a damper on economic growth,” the extent to which would be “dependent on where the (franc) appreciation settles.”

AUDUSD – technical overview

The latest corrective rally has stalled out ahead of 0.8300 and the market has since rolled back over, looking poised for a bearish continuation. A break below the critical psychological barrier at 0.8000 will confirm and open the next major downside extension towards 0.7500. Ultimately, only back above 0.8541 would compromise the bearish structure.

• R2 0.8295 – 15Jan high – Strong
• R1 0.8160 - 20Jan low – Medium
• S1 0.8033 – 7Jan low/2015 low – Strong
• S2 0.8000 – Psychological – Strong

AUDUSD – fundamental overview

Aussie declines have been propped a bit in recent days on some solid local employment data and a resurgence in gold demand. However, this is unlikely to keep the pair elevated for much longer, with monetary policy divergence themes at the forefront. There has been a growing expectation the next RBA move will be a cut, and following yesterdays shocking Bank of Canada decision, these expectations have only intensified. Throw in concern over the outlook for China and some broader risk reduction, and the Australian Dollar could be at risk for a decline towards 0.7500 in the weeks ahead. Heavy stops are reported below 0.8000. The fallout from today’s ECB decision will play an added role in Aussie’s direction.

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 and acceleration towards the next major psychological barriers at 1.2500. However, technical studies are stretched across the board, and there is risk for a meaningful pullback to allow for these studies to unwind, before the market continues higher. Still, any setbacks should be well supported into the 10-Day SMA, with only a break and close below to delay.

• R2 1.2500 – Psychological – Strong
• R1 1.2394 - 21Jan/2015 high – Medium
• S1 1.2115 – 20Jan high – Medium
• S2 1.2063 – 21Jan low – Strong

USDCAD – fundamental overview

Another central bank shocker, this time from the Bank of Canada. Wednesday’s decision to slash rates 25bps to 0.75% caught everyone off guard, with USDCAD racing to fresh multi-year highs into the 1.2400 area on the news. Governor Poloz had warned the decline in oil prices would be reflected in the BoC’s decision, though no one expected it would be in the form of a cut. Market participants had actually considered the next BoC move to be a rate hike pre-event risk. The Bank of Canada said the move was taken as insurance against the economic downturn resulting from slumping oil prices.

NZDUSD – technical overview

A multi-week bearish consolidation has finally been broken, with the drop below 0.7600 opening the door for the next major downside extension towards a measured move objective at 0.7200. Look for any rallies to be well capped ahead of 0.7800, with only a break back above 0.8035 to negate the medium-term bearish structure.

• R2 0.7710 – 21Jan high – Medium
• R1 0.7578 - 22Jan high – Medium
• S1 0.7500 – Psychological – Strong
• S2 0.7450 – Mid-figure – Weak

NZDUSD – fundamental overview

Wednesday’s surprise Bank of Canada rate cut was the final straw for the Kiwi market, which relented to the pressure of the decision, breaking down to fresh multi-month lows below 0.7600. The higher yielding Kiwi had already been feeling the pressure from softer local CPI, stocks looking vulnerable off record highs, oil in a free fall, and the global outlook in question. But with this latest decision, RBNZ policy is looking particularly exposed, and the central bank will likely be forced to start thinking about accommodation.

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 2050.00 – Psychological – Medium
• S1 1968.00 – 16Dec low – Strong
• S2 1920.00 – 2Oct low – Medium

US SPX 500 – fundamental overview

US equities have come under some pressure since posting fresh record highs in December and continue to show signs of topping. Recent moves from central banks to take on additional accommodation have tempered declines somewhat, while the expectation the Fed could hold off on a tightening given external pressures is also helping to support. But overall, the Fed is still inching closer to a hike and the solid economic data will make it hard to argue against the less accommodative stance. This in conjunction with concern over the effectiveness of central bank policy to stimulate growth has cast a shadow on investor optimism, and could ultimately result in a capitulation if the market loses faith.

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 1305.00 – 21Jan high – Medium
• S1 1272.00 – 19Jan low – Medium
• S2 1217.00 – 12Jan low – Strong

GOLD (SPOT) – fundamental overview

Accommodative central policy action around the globe has opened the door for significant currency depreciation and has left market participants with a lack of confidence. This has resulted in fresh wave of demand for gold, with the price of the yellow metal surging through key resistance. Investors are now comfortable holding the hard asset and could continue to rally the metal as the ripple effects from these central bank actions work their way through the rest of the market. Today’s focus will be on the size of the ECB QE package.

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. Look for a push back above 51.25 to confirm basing, while below 44.20 opens fresh downside towards 40.00

• 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, and according to Iran, there would be no Saudi intervention until the $25 level. Oversupply, lack of demand, and downgraded global growth forecasts have further depressed prices and it will be important to keep an eye on US shale producers to see just how much longer they can sustain business at current levels. But even with all the negatives, there are reports of bargain hunters stepping in over the past two weeks.