Bank of England Policy Decision, US NFPs in Focus

GBPUSD – technical overview

The market has been well supported on a recent dips below 1.5000. However, the overall pressure remains on the downside and deeper setbacks are seen towards the 2013 base at 1.4813. Still, a break and close back above 1.5270 would take the immediate pressure off the downside and open a more significant correction towards previous support at 1.5485.

• R2 1.5220 – 5Jan high – Medium
• R1 1.5270 - 14Jan high – Strong
• S1 1.4989 – 30Jan low  – Medium
• S2 1.4952 – 23Jan/2015 low  – Strong

GBPUSD – fundamental overview

For now, the focus will be on today’s Bank of England rate decision, with the BOE widely expected to leave policy on hold (0.5% and Gbp 375B). However, in light of all the accommodation around the globe, most recently from the PBOC, it will certainly be interesting to get a feel for the BOE’s tone. The BOE is the central bank that is probably closest to the Fed with its policy reversal outlook (though still well behind), and as such, the colour we get could be insightful.

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 116.88 – 3Feb 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. USDJPY has received a bit of a prop on news of the nomination of Yasushi Harada to the BoJ Board. Harada is a known dove and his presence suggests more easing on the way from the BOJ. Central bank decisions over the past few 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 1.0250, while only a daily close back below this level would compromise the recovery structure.

• R2 1.0700 – Measured Move – Strong
• R1 1.0590 – 2Feb high – Medium
• S1 1.0355 – 30Jan low – Medium
• S2 1.0215 – 29Jan low – Medium

EURCHF – fundamental overview

Rumours of a new EURCHF exchange rate corridor of 1.0500 to 1.1000 have yet to be confirmed, though the market continues to be well supported on this expectation. Perhaps the SNB’s reluctance to comment has been taken as confirmation, with the rate recently rallying above 1.0600. Still, market participants have been careful not to get too carried away in light of recent volatility and potential for sudden moves lower, particularly in a more unstable global environment.

AUDUSD – technical overview

The market has entered a period of correction after breaking down to fresh 6 year lows at 0.7626. Additional upside over the coming sessions should not be ruled out to allow for the oversold studies to unwind. But the downtrend remains firmly intact and look for a lower top to carve out somewhere around 0.8000 ahead of the next major downside extension and bearish continuation towards psychological barriers at 0.7000.

• R2 0.7890 – 29Jan high – Medium
• R1 0.7853 - 3Feb high – Medium
• S1 0.7720 – 29Jan low – Medium
• S2 0.7626 – 3Feb/2015 low – Strong

AUDUSD – fundamental overview

The Australian Dollar has managed to recoup all of its post RBA rate cut losses, with the currency recovering from 6 year lows on the back of a broader sell off in the US Dollar. Still, with Treasurer Hockey warning the RBA still has more room to move on rates, any recovery rallies are expected to met with formidable resistance from macro accounts looking to increase short exposure. The RBA decision once again reminds the markets just how dominant the theme of monetary policy divergence is right now, and that it should continue to drive trade over the medium-term. Mixed Aussie retail sales has failed to factor into price action.

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 in the process of unwinding from overbought, and there is risk for additional weakness to allow for these studies to unwind before the market continues higher. Still, any setbacks should be well supported into the 20-Day SMA, with only a break and close below the short-term moving average to delay.

• R2 1.2644 – 3Feb high – Strong
• R1 1.2593 - 4Feb high – Medium
• S1 1.2352 – 3Feb low – Medium
• S2 1.2245 – 20-Day SMA – Strong

USDCAD – fundamental overview

Finally some relief for the Canadian Dollar in recent trade, with the currency recovering off fresh 6 year lows against the Buck. Some broad selling in the US Dollar and signs of a potential recovery in oil prices have been helping the Loonie a bit. Yet, with the Bank of Canada open to additional rate cuts and with the oil recovery still quite shallow, more Canadian Dollar weakness is in the cards. Macro accounts will be looking to build into existing USDCAD longs, but may wait for the pair to correct a bit more from overbought technical readings. Volumes have picked up quite a bit in this pair and things could even busier come Friday’s major employment reports out from the US and Canada.

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 through the measured move objective at 0.7200. From here, deeper setbacks are expected towards 0.7000, but not before additional corrective activity to allow for stretched studies to unwind. Look for a lower top to carve out somewhere around the previous range base at 0.7600.

• R2 0.7495 – 28Jan high – Strong
• R1 0.7449 - 4Feb high – Medium
• S1 0.7288 – 4Feb low – Medium
• S2 0.7176 – 3Feb/2015 low – Strong

NZDUSD – fundamental overview

A nice recovery in Kiwi off 4 year lows, with the currency recovering on the back of some perceived less dovish RBNZ Wheeler comments and impressive components within Wednesday’s New Zealand employment data. While Wheeler certainly wasn’t talking rate hikes, the central banker exuded a neutral tone stressing stability on interest rates was the most prudent option. But with the central bank shifting only last week from a more hawkish stance, and with pressures mounting for more central bank accommodation globally, the RBNZ may just be stalling ahead of an inevitable shift towards all out dovish policy.

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 2055.00 – 4Feb high – Medium
• S1 2013.00 – 3Feb 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 the most recent 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. The focus now shifts to Friday’s monthly employment report out of the US. It is worth noting that stocks could come under pressure whatever the result on Friday. There isn’t much the Fed can do if the print is weaker, while a stronger print will reaffirm likelihood of a sooner than later rate hike.

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

Short-term long plays have been scared away this week, with investor sentiment picking back up on some diminished Grexit risk. However, while the metal has pulled from recent highs, this shouldn’t do anything to change a newer, bigger picture taking form. Accommodative central policy action around the globe has opened the door for significant currency depreciation and has left medium-term investors with a lack of confidence. These market participants are now comfortable holding the hard asset and continue to buy the metal on dips 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) has finally entered a period of legitimate correction since collapsing to fresh multi-year lows at 43.55 last week. Tuesday’s close above 51.25 now opens the door to the possibility for fresh upside towards next key resistance at 59.00 in the sessions ahead. Still, the overall downtrend remains firmly intact and rallies are expected to stall out ahead of bearish resumption. Only a weekly close above 59.00 would take the pressure off the downside.

• R2 59.00 – 18Dec high – Strong
• R1 54.25 – 3Feb high – Medium
• S1 46.65 – 2Feb low – Medium
• S2 43.55 - 29Jan/2015 low – Strong

Feature – fundamental overview

Finally some signs of a bottom in oil prices, with a number of themes driving the price action. Initially, the market had been bid up a bit on talk of rig reductions in the US. But the rebound intensified on Tuesday as market participants started to look to book profits on shorts with the US Dollar selling off and oil already expected to correct from severely oversold technical conditions. Oil bulls also found encouragement on the news of BP’s plan to cut capital expenditures 13% in 2015. But overall, fears of reduced global demand and oversupply issues are not going away that fast and are still weighing on the commodity into rallies. Data showing US crude supply rising to its highest level in 80 years was the primary driver for the Wednesday retreat.