Will The Fed Be Forced To Change Its Tune?

GBPUSD – technical overview

The latest round of consolidation has been broken, with the market taking out support at 1.5035 to open the next downside extension towards the 2013 base at 1.4815. A lower top has been confirmed at 1.5270 and a break back above this level would now be required to alleviate immediate downside pressure.

• R2 1.5270 – 14Jan high – Medium
• R1 1.5212 - 22Jan high – Medium
• S1 1.4951 – 23Jan/2015 low  – Medium
• S2 1.4813 – 2013 Low  – Strong

GBPUSD – fundamental overview

The revelation of a unanimous vote to leave rates unchanged in the BOE Minutes, along with a broader currency market under pressure against the Buck, has opened the door for fresh multi-month lows in Cable. However, the Pound is showing signs of outperformance against most other currencies, with the Bank of England still seen closest to the Fed with its monetary policy reversal timeline. Perhaps last week’s solid UK employment readings will also help to support the Pound, while calls from new BOE MPC member Forbes for sooner than later BOE rate hikes have not gone unnoticed.

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

The Yen has taken a bit of a backseat of late, and seems to be caught between the flows of safe haven bids and those of diverging central bank policy. But ultimately, it should be the diverging policy flows that win out and send the Yen lower, with flight to safety Yen lure no longer what it once was. The latest ECB decision further highlights the pronounced monetary policy divergence theme between the Fed and rest of the central banking world, and has invited more US Dollar demand. Macro accounts continue to look for opportunities to add to existing long USDJPY exposure.

EURCHF – technical overview

The market is attempting to settle in a bit following a historic collapse the other week, 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 1.0035 – 22Jan high – Medium
• R1 0.9915 – 23Jan high – Medium
• S1 0.9776 – 23Jan low – Medium
• S2 0.9710 – 15Jan Range low– Strong

EURCHF – fundamental overview

Market participants are taking time to assess the benefits of the flight to safety Franc play that now carries a literal cost. Interestingly enough, the latest slide in the Euro post ECB EUR1TN bazooka and Greek Syriza victory has not weighed as much on EURCHF and this could suggest the SNB is quietly stepping back into the market. The market has rallied on Monday, with SNB sight deposits rising to CHF365.5B from CHF339.6B. SNB Zurbruegg was out last Thursday 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.” It seems any additional shocks to the currency should not be forthcoming and we will continue to settle into a new trading range as the new fundamentals are absorbed.

AUDUSD – technical overview

The latest corrective rally has stalled out ahead of 0.8300 and the market has since rolled back over to confirm a fresh lower top. Last Thursday’s break below the critical psychological barrier at 0.8000 now opens the next major downside extension towards a measured move objective at 0.7700 over the coming sessions. Ultimately, only back above 0.8295 would delay the bearish structure.

• R2 0.8136 – 22Jan high – Medium
• R1 0.8053 - 23Jan high – Strong
• S1 0.7858 – 26Jan low/2015 low – Weak
• S2 0.7800 – Figure – Medium

AUDUSD – fundamental overview

There has been a growing expectation the next rate cut out of the central banking world will come from the RBA next week. The combination of accommodation from other central banks, uncertain global environment and declining commodity prices are all variables factoring into the rate cut forecast. Iron ore exports are critical to the health of the Australian economy, and the headwinds in this market, at +5 year lows, have been a major drag on local sentiment. This week, we get Aussie business survey data and inflation readings, which will shed further light on the February 3rd RBA event risk. Australia was closed for holiday today, but this didn’t stop AUDUSD from dropping to another low early Monday in reaction to the risk off Greek Syriza victory. The market has since stabilized.

USDCAD – technical overview

The outlook for this pair remains highly constructive, with the price breaking medium-term resistance, surging to fresh +5 year highs. This has opened the door for a test of the next major psychological barrier at 1.2500. However, technical studies are highly 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 the short-term moving average to delay.

• R2 1.2500 – Psychological – Strong
• R1 1.2460 - 26Jan/2015 high – Weak
• S1 1.2360 – 23Jan low – Medium
• S2 1.2313 – 22Jan low – Medium

USDCAD – fundamental overview

The Canadian Dollar has extended declines post the surprise Bank of Canada rate cut last week, with the ECB bazooka, decline in oil prices and Syriza victory contributing further to the ongoing divergence between the US and rest of the world. While the market was expecting something big from the ECB on Thursday, Wednesday’s BoC decision to slash rates 25bps to 0.75% caught everyone off guard. The Bank of Canada said the move was taken as insurance against the economic downturn resulting from slumping oil price, while also adding weak oil prices were “unambiguously negative” for Canada’s economy. Canada inflation has since come in on the softer side, doing nothing to help the cause of the beleaguered Loonie.

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 0.7584 – 22Jan high – Strong
• R1 0.7527 - 23Jan high – Medium
• S1 0.7406 – 26Jan/2015 low – Weak
• S2 0.7350 – Mid-figure – Medium

NZDUSD – fundamental overview

Kiwi has not been immune to the impact of central bank accommodation moves, with the currency breaking down to fresh multi-month lows below 0.7600 against the Buck. The higher yielding Kiwi had already been feeling the heat from softer local CPI and declining dairy prices and the external central bank pressures proved to be the final straw. RBNZ policy is looking particularly exposed at the moment, and the central bank will likely be forced to reconsider its stance this week and start thinking more about accommodation, which would add to downside pressure on the higher yielding currency. The RBNZ meets on Thursday.

US SPX 500 – technical overview

Finally signs of 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 a daily close above 2069 would compromise the bearish outlook and put the focus back on the 2097 record high.

• R2 2o93.00 – 29Dec/Record high – Strong
• R1 2069.00 – 9Jan high – Strong
• S1 2025.00 – 22Jan low – Medium
• S2 1968.00 – 16Dec low – Strong

US SPX 500 – fundamental overview

Recent moves from central banks to take on additional accommodation have supported the equity market, while the expectation the Fed could hold off on a tightening in light of policy divergence risk is also helping to support. But overall, the Fed is still inching closer to a hike and the solid US economic data will make it hard to argue against a 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 make it difficult for stocks to extends gains much further.

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 1308.00 – 22Jan 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.

Feature – technical overview

US OIL (spot) recoveries have been short-lived, with the market deferring to a period of consolidation off the recent 44.20 multi-year low. 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 a daily close below 44.20 will negate and open fresh downside towards 40.00

• R2 51.25 – 15Jan high – Strong
• R1 47.75 – 23Jan high – Medium
• S1 44.20 – 13Jan/2015 low – Strong
• S2 40.00 - Psychological – Very Strong

Feature – fundamental overview

The best thing going for oil right now has been its ability to stop falling so sharply. And yet, there are still no signs of any serious profit taking on shorts or the emergence of healthy demand. The Saudis have said they will continue with production and will do nothing to help support prices at current levels. According to recent chatter, the Saudis wouldn’t step in until $25 oil. News of  elevated crude stockpiles in Cushing, Oklahoma and reports of a partial shutdown at a BP oil refinery in Whiting, Indiana have been sourced as the driver behind the latest weakness to the recent lows.