Currencies Supported on Stretched Technicals, Chatter

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 1.4989 – 30Jan low  – Medium
• S2 1.4952 – 23Jan/2015 low  – Strong

GBPUSD – fundamental overview

Despite setbacks in the month of January, the Pound managed to hold up relatively well against the Buck. 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 unquestionably helped to slow the pace of declines. Meanwhile, softer US GDP data, talk of tightening from Governor Carney and last week’s hawkish comments from BOE Forbes have also all contributed to the price action. But overall, the US Dollar remains the currency of choice, and even rallies in Sterling should be well offered against the Buck. Market participants will start to focus on this Friday’s US monthly employment report, but for today, its UK manufacturing PMIs and US ISM that will be digested.

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 116.98 – 2Feb low – Medium
• S2 115.55 – 16Dec low – Strong

USDJPY – fundamental overview

The Yen has taken a backseat of late, caught between the flows from 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.

EURCHF – technical overview

A multi-session consolidation between 0.9710 and 1.0250 has been broken, opening the door for additional corrective upside. Medium-term technical studies are still tracking in oversold territory following the dramatic and violent decline from a few weeks back, and the break above 1.0250 has opened 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 1.0700 – Measured Move – Strong
• R1 1.0525 – 30Jan high – Medium
• S1 1.0215 – 29Jan low – Medium
• S2 1.0080 – 27Jan low – Strong

EURCHF – fundamental overview

A weekend piece from Tages Anzeiger has been getting a lot of attention, after reporting the SNB will operate with an unofficial EURCHF exchange rate corridor of 1.0500 to 1.1000. SNB Danthine had already come out the other week warning the central bank was still prepared to intervene and though the Tages Anzeiger report hasn’t been confirmed, the market has taken it as an opportunity to prop the EURCHF market back above 1.0500.

AUDUSD – technical overview

The market has finally traded down into the next measured move objective area around 0.7700. But with daily studies tracking in oversold territory, there is risk for some form of a corrective bounce in the sessions ahead to allow for stretched studies to unwind. Look for a lower top somewhere ahead of 0.8150 ahead of the next downside extension towards 0.7500.

• R2 0.7890 – 29Jan high – Medium
• R1 0.7858 - 26Jan low – Medium
• S1 0.7720 – 29Jan/2015 low – Medium
• S2 0.7700 – Measured Move – Strong

AUDUSD – fundamental overview

There has been a growing expectation the next rate cut out of the central banking world will come from the RBA early Tuesday. 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. It looks as though there is a 50/50 shot at a cut, with some opposing the idea on the basis Aussie has already fallen sharply, there has been a pickup in house price inflation and the labour market has shown signs of improvement. Whatever the case, whether the RBA cuts or not, we can definitely expect a statement that leans to the dovish side.

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 towards the 2009 peak at 1.3065 in the days ahead. 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 1.2900 – Figure – Medium
• R1 1.2800 - 30Jan/2015 high – Medium
• S1 1.2608 – 30Jan low – Medium
• S2 1.2513 – 29Jan low – Strong

USDCAD – fundamental overview

The Loonie continues to extend declines as the divergence between the US and Canada economies becomes even more pronounced. The surprise Bank of Canada rate cut opened a fresh wave of CAD liquidation, while last week’s upgraded outlook from the FOMC and 15 year low in US initial jobless claims intensified the pace of Canadian Dollar declines. Also weighing tremendously on the Canadian Dollar has been the bottomless drop in oil prices which posted another multi-year low last week. Macro accounts will be looking to build into existing USDCAD longs, with the BoC reportedly open to additional rate cuts, but may wait for the pair to correct a bit from severely overbought technical readings. While Friday’s Canada GDP was soft, perhaps the even softer US GDP data and recovery in oil prices will trigger the onset of this technical correction.

NZDUSD – technical overview

The market has come under intense pressure since breaking down out of a multi-week consolidation between 0.7600-0.8000. The 400 point consolidation warned of a fresh 400 hundred point move on a break of the range, and we have since seen the pair trade from 0.7600 down towards the measured move objective around 0.7200. From here, deeper setbacks are expected towards 0.7000, but most probably not before a healthy corrective bounce to allow for stretched studies to unwind. Look for a lower top to carve out somewhere ahead of the previous range base at 0.7600.

• R2 0.7398 – 26Jan low – Medium
• R1 0.7329 - 29Jan high – Medium
• S1 0.7215 – 30Jan/2015 low – Medium
• S2 0.7200 – Measured Move – Strong

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. Many now expect the rate to head down to the 0.6500 level touted by PM Key some months back.

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 2026.00 – 30Jan high – 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 last week’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. A softer US GDP print and China manufacturing PMIs slipping below 50 for the first time since September 2012 have not helped.

GOLD (SPOT) – technical overview

The market continues to show signs of medium-term basing following the break of key resistance at 1256 a few weeks back. As such, and pullbacks are viewed as corrective, with the market in search of the next higher low ahead of a bullish continuation towards 1345. Ultimately, only back below 1217 would compromise the recovery outlook and put the pressure back on the downside.

• R2 1345.00 – 6Jul high – Strong
• R1 1308.00 – 22Jan high – Medium
• S1 1252.00 – 29Jan low – Medium
• S2 1238.00 – 10Dec high – Medium

GOLD (SPOT) – fundamental overview

Though Gold pulled back sharply from recent multi-week highs on Thursday, this shouldn’t do anything to change a new picture taking form. 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. There is talk of solid demand in the $1220-$1250 area.

Feature – technical overview

US OIL (spot) recoveries have been short-lived, with the market deferring to a period of consolidation off fresh multi-year lows at 43.55. However, medium-term studies are highly stretched and there is risk building for some form of a major correction. Look for Friday’s bullish reversal day to trigger the onset of the overdue correction, with a break above 51.25 to confirm and officially take the immediate pressure off the downside.

• R2 51.25 – 15Jan high – Strong
• R1 49.05 – 22Jan high – Medium
• S1 43.55 – 29Jan/2015 low – Medium
• S2 40.00 - Psychological – Very Strong

Feature – fundamental overview

Finally some signs of a bottom in oil prices, as the sell-off starts to take its toll on US shale producers. There has been a lot of talk in recent days about idle oil rigs and reports have surfaced that rig counts will drop off dramatically in 2015. It seems this in conjunction with bargain hunting off multi-year lows has been helping to support the beaten down commodity, at least for now.