Dovish FOMC Minutes Deflates Dollar Momentum

GBPUSD – technical overview

Though the broader downtrend remains intact, the recent break back above 1.5270 has taken the immediate pressure off the downside. The market is now looking to carve the next medium-term lower top and scope exists for the correction to extend into the 1.5485-1.5590 area before bearish resumption. At this point, a drop back below 1.5196 would be required to put pressure back on the downside.

• R2 1.5590 – Measured Move – Strong
• R1 1.5485 - 23Dec low – Strong
• S1 1.5316 – 17Feb low  – Medium
• S2 1.5196 – 10Feb low  – Strong

GBPUSD – fundamental overview

Quite a contrast in Thursday trade, with the BOE Minutes coming in on the more hawkish side, while the Fed Minutes were more dovish. While the BOE has diminished deflation concern and expressed optimism over growth, the Fed has sounded more cautious and seems to prefer to want to keep rates lower for longer. This in conjunction with equally contrasting economic data has helped fuel a healthy recovery in the Pound. Still, the market shouldn’t get too far ahead of itself, with medium-term fundamentals supporting a sooner than later Fed hike, and the UK outlook still very much in question. Participants will now look ahead to Thursday’s US initial jobless claims and Philly Fed.

USDJPY – technical overview

A push in the major pair beyond multi-day triangle resistance has produced a lackluster follow through thus far, with the market stalling well ahead of the 121.85, 7 year peak from December and retreating back into mid-range. Still, the broader bullish structure is firmly intact, with eventual upside projected through 121.85 and towards 125.00 further up. Setbacks should continue to be well supported ahead of 117.00, while only back below 115.55 would delay the highly constructive outlook.

• R2 120.83 – 23Dec high – Strong
• R1 119.42 – 17Feb high – Medium
• S1 118.24 – 17Feb low – Medium
• S2 118.00 – 4Feb high – Strong

USDJPY – fundamental overview

Activity in the Yen has been a little lighter than normal on Thursday after most Asian markets were closed for Chinese New Year holidays. The currency has found some mild demand against the Buck following the more dovish Fed Minutes, though softer Japanese trade data and supported risk assets have offset declines. Overall, the direction in this market will be dictated by risk sentiment and monetary policy divergence. There have been signs of potential exhaustion in record high US equity markets, and if we do see some capitulation in the sessions ahead, it could open USDJPY declines and delay the broader bullish outlook for the pair.

EURCHF – technical overview

The recovery out from the historic low from several weeks back continues, with medium term technical studies still correcting from oversold levels. A recent multi-session range consolidation has been broken, with the push above 1.0650 opening the door for the next measured move extension towards the psychological barrier at 1.1000. At this point, only back below 1.0415 would compromise the constructive outlook.

• R2 1.1000 – Psychological – Strong
• R1 1.0800 – Figure – Medium
• S1 1.0630 – 18Feb low – Medium
• S2 1.0550 – 16Feb low – Strong

EURCHF – fundamental overview

Though the impact of Swiss economic data on Franc direction is a rare event, Thursday’s Swiss ZEW expectations release was one such event after the data series tumbled sharply to -73.0 from -10.8 previous, putting in the largest dive on record. The EURCHF market had already been very well supported on comments from SNB Jordan who said the Franc was significantly overvalued and the SNB was prepared to do more, with this latest release only contributing further to EURCHF gains. Dealers now cite interest all the way up to the 1.1000 barrier.

AUDUSD – technical overview

The market remains locked within a well defined downtrend, with deeper setbacks seen ahead. However, should the market put in a daily close above 0.7876, this would open the possibility for a larger correction towards 0.8125 before a resumption of the underlying downtrend. Inability to establish a daily close above 0.7876 will keep the immediate pressure on the downside for a retest of the 0.7625 key low.

• R2 0.7975 – 27Jan high – Medium
• R1 0.7876 - 6Feb high – Strong
• S1 0.7742 – 17Feb low – Medium
• S2 0.7625 – 3Feb/2015 low – Strong

AUDUSD – fundamental overview

The Australian Dollar has been underperforming in Thursday trade, after S&P came out with a warning that Australia’s federal budget would be vulnerable to a global economic shock, which could put the country’s AAA rating at risk. While the news isn’t Aussie positive, is also shouldn’t come as much of a surprise given recent RBA warnings on the matter. Setbacks have been well contained as a result, with the broader US Dollar weakness post a more dovish Fed Minutes also keeping the Australian Dollar supported. Perhaps the more notable Aussie price action for the moment is on the AUDNZD cross, which has broken to another record low on Thursday.

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, stretched technical studies are in the process of unwinding, and there is risk for additional correction before the market pushes back through 1.2800. Still, any setbacks should be well supported around 1.2000, with only a weekly close below this level to compromise the uptrend.

• R2 1.2537 – 13Feb high – Medium
• R1 1.2478 - 17Feb high – Medium
• S1 1.2352 – 3Feb low – Strong
• S2 1.2300 – Figure – Medium

USDCAD – fundamental overview

Despite a more dovish Fed Minutes and downbeat US economic data, the Canadian Dollar has failed to extend its recovery thus far, clearly influenced more heavily by the direction in the price of oil. Thursday’s bearish reversal in oil has compromised the commodity’s recovery, opening the door for some renewed weakness in the correlated Canadian Dollar. Overall, with the Bank of Canada prepared to cut rates again, the bigger yield differential picture still favours the US Dollar. The market will now look ahead to US initial jobless claims and the Philly Fed.

NZDUSD – technical overview

The market remains locked within a very well defined downtrend, with deeper setbacks seen ahead. However, we are currently in the process of a correction in which the market is seeking out the next medium-term lower top ahead of bearish resumption. The recent break back above 0.7495 opens the door for a fresh extension that exposes previous support at 0.7609. But additional gains beyond will prove hard to come by, with only a close back above 0.7609 to delay the negative outlook.

• R2 0.7710 – 21Jan high – Medium
• R1 0.7609 - Previous Base – Strong
• S1 0.7502 – 18Feb low – Medium
• S2 0.7470 – 16Feb low – Medium

NZDUSD – fundamental overview

A drop off in New Zealand consumer confidence and softness in local PPI data haven’t done much to threaten the Kiwi recovery, with the market closing in on a retest of the previous base from 2014, just over 0.7600. It seems the broader US Dollar selling on the back of a more dovish Fed Minutes is playing a larger role at the moment, while supported risk assets have further contributed to the higher yielding Kiwi’s gains. The New Zealand Dollar is also getting a lot of attention on Thursday, with the currency rallying to yet another record high against the Australian Dollar. Still, despite being supported, risk assets are looking exhausted at current levels, and this could start to weigh more heavily on the New Zealand Dollar going forward.

US SPX 500 – technical overview

The market has taken out the December peak, breaking to yet another fresh record high through 2100. However, only a weekly close above 2100 would convince of any meaningful upside from current levels, while inability to do so will warn of trend exhaustion and the onset of a major structural shift. Key short-term support comes in at 2083 and the market will need to put in a daily close below this level to take the immediate pressure off the topside.

• R2 2150.00 – Psychological – Medium
• R1 2102.00 – 17Feb/Record – Strong
• S1 2083.00 – 17Feb low – Medium
• S2 2041.00 – 9Feb low – Strong

US SPX 500 – fundamental overview

US equities trade at record highs on the expectation central banks will continue to backstop the global economy. The latest dovish Fed Minutes is a testament to this fact, after members of the Fed expressed interest in keeping rates lower for longer. But with central banks having very little left in the tank, there is also a growing concern over the effectiveness of such policy going forward. This could ultimately make it difficult for stocks to hold onto these record high levels. If stocks fail to extend gains on the dovish Minutes, the event could mark a critical inflection point for risk assets.

GOLD (SPOT) – technical overview

The market continues to show signs of medium-term basing following the break of key resistance at 1256 a several weeks back. As such, the recent pullback is viewed as corrective, with the market in search of the next higher low ahead of a bullish continuation towards 1345. Wednesday’s bounce of major trend-line support encourages the constructive outlook, with only a daily close back below 1197 to delay the recovery outlook and put the pressure back on the downside.

• R2 1246.00 – 10Feb high – Medium
• R1 1237.00 – 16Feb high – Strong
• S1 1197.00 – Trend-Line – Strong
• S2 1183.00 – 17Dec low – Medium

GOLD (SPOT) – fundamental overview

Gold is finding some welcome support in recent trade, with the more dovish Fed Minutes and post event US Dollar declines fueling the gains. Overall, 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 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.

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 has opened the door to the possibility for fresh upside towards next key resistance at 59.00 in the sessions ahead. But the market will now need to establish back above 54.25 to keep the recovery structure intact. On the other hand, inability to establish above 54.25 followed by another downside break below 47.35 will put the pressure back on the downside for a retest of the 43.55 multi-year low from late January.

• 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

Although there have been signs of stabilization around $50, the market is still having a hard time managing any decent recovery. Geopolitical risk, cutbacks and rig reductions have all helped to slow the rapid pace of declines, and yet the overbearing theme of oversupply can not be shaken. US inventories are expected to rise to another record, while a possible rise in Saudi output has added to recent bearishness. The market will now need to break back above 54.25 to further encourage recovery prospects.