US Employment, Fed Timeline and Currency Direction

GBPUSD – technical overview

Though the broader downtrend remains intact, Thursday’s break back above 1.5270 takes the immediate pressure off the downside and opens the door for additional corrective activity. Look for the market to push into the 1.5485-1.5600 area from where a lower top will be sought out ahead of bearish resumption. Back below 1.5165 is now required to open renewed downside.

• R2 1.5485 – 23Dec low – Strong
• R1 1.5400 - Figure – Medium
• S1 1.5165 – 5Feb low  – Strong
• S2 1.5139 – 4Feb low  – Medium

GBPUSD – fundamental overview

A nice surge for the Pound in Thursday trade following the as expected Bank of England decision to leave policy on hold at 0.5% and GBP375B. A slew of central bank rate cuts in recent weeks perhaps had some concerned the BOE would cut, and the confirmation of current policy opened the door for renewed Sterling demand. UK trade data out today is unlikely to influence trade too much, with much of the focus on the result from the monthly US employment report. Anything on the soft side out of the US data will likely open additional buying in GBPUSD.

USDJPY – technical overview

The market remains locked in a consolidation 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. The market is nearing the apex of a triangle, warning of a near-term breakout.

• 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 some support this week on news of the nomination of dovish Yasushi Harada to the BoJ Board. Harada is expected to support efforts for further BOJ accommodation. It is also worth noting comments from BOJ Iwata, who said inflation expectations are rising, though weakness in oil prices remained a concern.

EURCHF – technical overview

Medium-term technical studies are still tracking in oversold territory following the dramatic and violent decline from a few weeks back, and the recent 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 1.0645 – 5Feb high – Medium
• S1 1.0470 – 5Feb low – Medium
• S2 1.0355 – 30Jan low – Strong

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. Geopolitical risk has been creeping back in as tensions escalate once again in Ukraine. This could invite some unwelcome Franc safe haven flows.

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 0.7859 - 5Feb 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 and then some, 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 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 quarterly SOMP has done nothing to alter expectations much, with no forward guidance offered by the central bank, though it did manage to downgrade growth and inflation forecasts. Much of the currency’s fate is now at the hands of today’s monthly employment report out of the US.

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 later today with the major monthly employment reports out from the US and Canada.

NZDUSD – technical overview

The market has entered a period of correction after breaking down to fresh 4 year lows at 0.7176. 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 0.7600 ahead of the next major downside extension and bearish continuation towards psychological barriers at 0.7000.

• 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 this week, impressive components within Wednesday’s New Zealand employment data, and some broad based US Dollar profit taking. 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. Much of the direction in the currency from here will be contingent on the Fed outlook and global risk appetite. Look for a pickup in volatility later today with the release of US NFPs.

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 2o93.00 – 29Dec/Record – Very Strong
• R1 2069.00 – 9Jan high – Strong
• 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 today’s US monthly employment report. It is worth noting that stocks could come under pressure whatever the result. Arguably, 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. Still, the market has been trending higher and could just as easily find a positive spin and push to another record level beyond 2100. Key levels to watch above and below come in at 2070 and 2013 respectively.

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. 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. Geopolitical tensions in the Ukraine and ongoing uncertainty around Greece are also gold supportive themes. 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. A weekly close back above 59.00 would be required to force a structural shift.

• R2 59.00 – 18Dec high – Strong
• R1 54.25 – 3Feb high – Medium
• S1 47.35 – 5Feb 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 as market participants started to look to book profits on shorts with the US Dollar selling off and oil correcting from severely oversold technical conditions. Oil bulls also found encouragement on news Saudi Arabia had boosted prices in the US. 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.