Eurogroup Meeting Invites Welcome FX Volatility

GBPUSD – technical overview

Though the broader downtrend remains intact, last week’s break back above 1.5270 has taken the immediate pressure off the downside. But ultimately, any rallies should be well capped ahead of 1.5600, with a  lower top sought out ahead of bearish resumption. Back below 1.5165 will confirm and open renewed downside pressure.

• R2 1.5485 – 23Dec low – Strong
• R1 1.5352 - 6Feb high – Medium
• S1 1.5165 – 5Feb low  – Strong
• S2 1.5139 – 4Feb low  – Medium

GBPUSD – fundamental overview

There have been signs of decent Cable demand in recent trade, with the Pound benefitting somewhat from a bout of broad position squaring on US Dollar longs. Economic data out of the UK has mostly been a wash this week and has not factored much into trade, with developments on the periphery more influential at the moment. UK officials have been warning of the systemic risks to the Greek debt crisis, and would welcome confirmation of the chatter which talks of a deal. Overall, the BOE is the next central bank likely to follow the Fed with a rate hike, and this alone makes Sterling more attractive against most other currencies over the medium term. Looking ahead, Thursday sees the release of the Bank of England Inflation Report.

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. Last Friday’s break above triangle resistance suggests the market could be poised for bullish resumption.

• R2 120.83 – 23Dec high – Strong
• R1 119.97 – 8Jan high – Medium
• S1 118.33 – 9Feb low – Medium
• S2 116.88 – 3Feb low – Strong

USDJPY – fundamental overview

Overall, the Yen has taken a backseat, caught between the flows from safe haven bids and those of diverging central bank policy. Ultimately, it’s the diverging policy flows winning out and sending the Yen lower, with flight to safety Yen lure no longer what it once was. Certainly the strong US jobs from last Friday is supportive of the major pair, with the data widening yield differentials out further in favour of the US Dollar. Still, with the Greek standoff hanging in the balance and risk markets capable of rolling back over, traditional corrections between USDJPY and risk should not be completely abandoned.

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 1.0415 – 9Feb low – Medium
• S2 1.0355 – 30Jan low – Strong

EURCHF – fundamental overview

While SNB Jordan failed to confirm the rumours of a 1.0500 to 1.1000 EURCHF corridor, his comments over the weekend have been enough to keep the market well supported on dips. Jordan said the SNB was still prepared to intervene if needed and although interest were currently sitting at -0.75%, he didn’t believe negative rates had reached their limit yet. Safe haven flows into the Franc on Greece uncertainty and geopolitical risk are looking less attractive these days and the SNB may start to have an easier time defending its bearish Franc stance. Certainly some form of a resolution from the Eurogroup meeting on Greece would be a welcome bullish development for the risk correlated EURCHF rate.

AUDUSD – technical overview

The market has entered a period of consolidation after breaking down to fresh 6 year lows at 0.7625. 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 ahead of 0.8000 in favour of the next major downside extension and bearish continuation towards psychological barriers at 0.7000.

• R2 0.7890 – 29Jan high – Medium
• R1 0.7876 - 6Feb high – Strong
• S1 0.7720 – 29Jan low – Medium
• S2 0.7625 – 3Feb/2015 low – Strong

AUDUSD – fundamental overview

While Aussie has benefitted somewhat from a lightening up of long USD exposure and renewed optimism over a Greek resolution, the currency continues to struggle into rallies as fears over a slowdown in the domestic economy weighs. The RBA policy outlook is not Aussie favourable, while a cooling China makes for an even more unpleasant picture. Aussie consumer confidence and house finance data overnight was slightly upbeat, but could not offset the setbacks from renewed commodity price declines. Macro accounts remain on the offer in size into rallies.

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 1.2700 – Figure – Medium
• R1 1.2644 - 3Feb high – Strong
• S1 1.2451 – 10Feb low – Medium
• S2 1.2352 – 3Feb low – Strong

USDCAD – fundamental overview

Despite Tuesday’s setbacks, there has been a little relief for the Canadian Dollar in recent trade, with the currency still trading well off fresh 6 year lows against the Buck. Signs of a recovery in oil prices and some equally strong employment data out of Canada this past Friday have been helping to limit additional USD gains for now. 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.

NZDUSD – technical overview

The market has entered a period of consolidation 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 ahead of 0.7600 in favour 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 0.7334 – 6Feb low – Medium
• S2 0.7288 – 4Feb low – Medium

NZDUSD – fundamental overview

A nice recovery in Kiwi off 4 year lows, with the currency benefitting from a less dovish RBNZ, solid local data and some broad profit taking on USD longs. But with the central bank recently shifting 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. Throw in last Friday’s impressive US employment report, Greece uncertainty and escalating geopolitical tensions and any Kiwi upside should be limited. Solid offers are reported from macro accounts towards 0.7600.

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 2070 would compromise the bearish outlook and put the focus back on the 2097 record high.

• R2 2o93.00 – 29Dec/Record – Very Strong
• R1 2073.00 – 6Feb 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 rate hike, as reflected in the strong US monthly employment report and backed up by recent comments from Fed’s Lacker and Williams. 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. In the interim, a lot of the focus will be on the Greek saga and whether or not a resolution can be reached. Any sign of a deal could open a retest of the record highs, but in the end, with US rates expected to go higher, the market should have a hard time holding onto gains.

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, the current pullback is viewed as corrective, with the market in search of the next higher low ahead of a bullish continuation towards 1345. Ultimately, only back below 1200 would compromise the recovery outlook and put the pressure back on the downside.

• R2 1308.00 – 22Jan high – Strong
• R1 1269.00 – 6Feb high – Medium
• S1 1228.00 – 6Dec low – Strong
• S2 1200.00 – Psychological – Strong

GOLD (SPOT) – fundamental overview

Short-term long plays have been scared away in recent trade. 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 longer-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 ahead of $1200.

Feature – technical overview

US OIL (spot) has entered a period of legitimate correction since collapsing to fresh multi-year lows at 43.55. A recent push 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

Though there have been signs of a bottom in recent trade, with the market breaking back above $50, the fundamentals continue to weigh on the commodity. A report from the IEA released Tuesday, has been sourced as the primary driver behind this latest pullback, with the organization outlining its concern that massive global oversupply will continue to drag the price before any investment cuts are able to dent production. Still, there are value players down below the $50 level that could keep the market supported for the time being on dips.