Fed’s Dovish Warnings Get No Love

GBPUSD – technical overview

The market has been well supported on a recent dip to fresh multi-month lows below 1.5000. However, the overall pressure remains on the downside and deeper setbacks are seen towards the 2013 base at 1.4813 over the coming sessions. Ultimately, a break and close back above 1.5270 would be required to take the immediate pressure off the downside.

• R2 1.5270 – 14Jan high – Strong
• R1 1.5223 - 27Jan high – Medium
• S1 1.5060 – 27Jan low  – Medium
• S2 1.4952 – 23Jan/2015 low  – Strong

GBPUSD – fundamental overview

Despite a wave of USD demand post FOMC, the Pound is outperforming across this board this week. The combination of a stretched Dollar move and Bank of England that is seen closest to the Fed with its monetary policy reversal timeline, have helped drive the outperformance in recent trade. Calls from new BOE MPC member Forbes for sooner than later BOE rate hikes have further contributed to the supportive 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 medium-term 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. Central bank decisions over the past two weeks further highlight the pronounced monetary policy divergence theme between the Fed and rest of the central banking world, inviting more US Dollar demand. Macro accounts continue to look for opportunities to add to existing long USDJPY exposure and could use this latest disappointing Japanese retail sales showing as an excuse to build into those longs.

EURCHF – technical overview

A multi-session consolidation between 0.9710 and 1.0250 has been broken and this opens the door for additional corrective upside over the coming sessions. Technical studies are still tracking in oversold territory following the dramatic and violent decline from a couple of weeks back, and the break above 1.0250 now opens a push towards a measured move objective around 1.0700 over the coming sessions. Look for any setbacks to be well supported above 1.0000, while only a daily close back below this level would compromise the recovery structure.

• R2 1.0500 – Psychological – Medium
• R1 1.0385 – 27Jan high – Strong
• S1 1.0080 – 27Jan low – Medium
• S2 0.9710 – 15Jan Range low– Strong

EURCHF – fundamental overview

SNB Danthine seems to have inspired a fresh round of bids in the EURCHF market this week, with the rate breaking out of its post SNB shock range consolidation. Danthine has reminded investors the SNB has not gone away and is still “fundamentally prepared” to intervene in the FX market. The EURCHF rate had already been supported back above parity pre-Danthine, with traders reconsidering the benefits of a flight to safety Franc play, with the currency overbought and carrying a much heavier cost.

AUDUSD – technical overview

Last week’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. As such, look for recovery rallies to be well capped ahead of 0.8150 in favour of bearish continuation. Ultimately, only back above 0.8295 would delay the bearish structure.

• R2 0.8025 – 28Jan high – Strong
• R1 0.7975 - 27Jan high – Medium
• S1 0.7833 – 29Jan/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 in the coming week. The combination of accommodation from other central banks (including this most recent shift from the RBNZ), 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. RBA watcher McCrann has also added to Aussie bearishness after coming out with his call for an RBA rate cut next week.

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 push beyond 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 1.2600 – Mid-figure – Medium
• R1 1.2545 - 29Jan/2015 high – Weak
• S1 1.2380 – 27Jan low – Strong
• S2 1.2313 – 22Jan low – Medium

USDCAD – fundamental overview

Though there were signs of dovishness from the Fed on Wednesday, the monetary policy statement didn’t do enough to convince market participants the Fed would be holding off on a rate hike this year. This comes in sharp contrast to last week’s surprise cut from the Bank of Canada and has resulted in another drop to fresh +5 year lows in the Loonie. Also weighing on the Canadian Dollar has been the ongoing drop in oil prices which have broken to yet another multi-year low. Macro accounts will be looking to build into existing USDCAD longs but may wait for the pair to correct a bit from some severely overbought technical readings.

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 0.7700, with only a break back above 0.8035 to negate the medium-term bearish structure.

• R2 0.7495 – 28Jan high – Strong
• R1 0.7398 - 26Jan low – Medium
• S1 0.7296 – 29Jan/2015 low – Weak
• S2 0.7250 – Mid-figure – Medium

NZDUSD – fundamental overview

The latest RBNZ decision has thrown another wrench in the New Zealand Dollar, after the central bank revised its outlook, shifting from a hawkish to neutral stance. Clearly the weight of other central bank accommodative actions could not be ignored, and the RBNZ responded accordingly. The central bank also reminded investors the currency is still well overvalued at current levels and is expected to trade lower.

US SPX 500 – technical overview

Finally signs of a major top, with the market very well capped on rallies. 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 2o69.00 – 9Jan high – Strong
• R1 2020.00 – 27Jan low – Medium
• S1 1977.00 – 16Jan low – Medium
• S2 1970.00 – 16Dec low – Strong

US SPX 500 – fundamental overview

Overall, the Fed is still inching closer to a hike, as indicated in Wednesday’s monetary policy statement, and this will make it hard to argue against a less accommodative stance. This in conjunction with concern over the effectiveness of global accommodative central bank policy to stimulate growth is starting to cast a shadow on investor optimism, and could ultimately make it difficult for stocks to hold onto recent gains off record highs.

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 in recent weeks, with the price of the yellow metal taking out some 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. Consider the possibility for additional gains later today if the Fed comes out more dovish.

Feature – technical overview

US OIL (spot) recoveries have been short-lived, with the market deferring to a period of consolidation at fresh multi-year lows below 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 a daily close below 44.00 will negate and open fresh downside towards 40.00

• R2 51.25 – 15Jan high – Strong
• R1 47.75 – 23Jan high – Medium
• S1 44.05 – 28Jan/2015 low – Medium
• 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, with the market dropping to another low. 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. Recent comments from OPEC’s secretary-general El-Badri that prices could rise to as much as $200 per barrel have fallen on deaf ears, with market participants reacting more to record high US stockpiles.