Peformance chart: This week’s performance v. US dollar (8:35GMT)
Suggested reading
- ‘Good Deflation’? It Doesn’t Exist, G. Ip, Wall Street Journal (February 26, 2015)
- Remembering the Rogue Trader, R. Carlson, Business Insider (February 23, 2015)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The market has finally broken out from a range that had defined price action since late January. The drop below 1.1265 sets the stage for a bearish resumption and retest of the recent 11 year low at 1.1098, below which would confirm a lower top at 1.1534 and open a fresh measured move downside extension towards 1.0665. However, it is worth noting the highly oversold weekly studies and possibility for additional consolidation and correction before any meaningful downside. But only back above 1.1534 would take the immediate pressure off the downside.
EURUSD – fundamental overview
A healthy batch of US economic data has opened a notable breakdown in what had been a multi-day range trade in the major pair, with the stronger readings suggesting the Fed will indeed move to hike rates sooner than later. Perhaps another key takeaway this week has been the inherent weakness in the Euro, with the currency showing no ability to recover on the relief of a Greek bailout extension and some better than expected Eurozone data. Participants seem to be fully aware the Greek saga will come back to haunt the market in 3 months time and are not left encouraged with this fact, or with the idea the ECB is on the verge of embarking on QE. For today, it’s all about Eurozone inflation, along with US GDP, pending home sales and Michigan confidence.
GBPUSD – technical overview
Though the broader downtrend remains intact, the market has entered a period of healthy corrective recovery in search of the next medium-term lower top. A recent break of previous support at 1.5485 opened this latest surge to 1.5552 before the market finally stalled out. Thursday’s strong bearish outside day formation suggests that a lower top could be in place at 1.5552 with the market poised for resumption of the broader downtrend. Look for a break back below 1.5316 to confirm.
GBPUSD – fundamental overview
Thursday’s as expected UK GDP data failed to inspire any additional bids in the Pound, with the currency then coming back under some intense pressure in the US session following an impressive bout of US economic readings. The Pound had been outperforming in recent days on the combination of upbeat and hawkish comments from BOE officials, and pushed back expectations for a Fed rate hike. However, with Thursday’s US data pleasantly surprising, momentum has shifted back in the Buck’s favor with a mid-year Fed hike back on the table. UK consumer confidence came in slightly below forecast but has not factored into Friday trade and the focus for the remainder of the day will be on US GDP, pending home sales and Michigan sentiment.
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.
USDJPY – fundamental overview
Though BOJ Governor Kuroda said he would not hesitate to adjust monetary policy if the inflationary trend changed, the central banker also conceded he still expects the 2% inflation target to be met by FY2015. Elsewhere, softer Japanese housing starts were offset by a better construction spending print, while fresh Yen demand was seen after some risk came out of the market and the Nikkei gave back recent 15 year highs. Overall, with the Fed expected to move sooner than later and with BOJ policy still intensely accommodative, investors should continue to look to build into Yen shorts. For today, US GDP, pending home sales and Michigan sentiment are in focus.
EURCHF – technical overview
The recovery out from the historic low from several weeks back continues, with medium term technical studies breaking up from oversold levels. However, the correction has finally come into some stiff resistance just over 1.0800, with the market rolling back over and at risk for deeper setbacks in the seasons ahead. Still, the recovery remains intact while above 1.0415, with a higher low sought ahead of the next upside extension towards 1.1000. Only back below 1.0415 would give reason for pause.
EURCHF – fundamental overview
Some renewed flight to safety demand for the Franc over the past 24 hours will not be a welcome development for the SNB. The solid batch of economic data out of the US has spooked risk appetite, with the implication this will trigger a sooner than later Fed policy reversal and remove the free money policy that has been incentivizing risk taking. The market had been bid up above 1.0800 this week as talk of a EURCHF 1.0500-1.1000 corridor and ongoing dovish comments from SNB Jordan fueled the gains. But with risk coming off, with plenty of work needed to get done on Greece, and with the ECB about to embark on QE, the SNB will need to keep a close watch, as there is now scope for additional safe haven Franc demand.
AUDUSD – technical overview
The recent range break through 0.7876 looks to have been a false break, with the market stalling out above 0.7900 and reversing sharply on Thursday to put in a strong bearish outside day. This sets the stage for a more immediate bearish resumption, with a break back below 0.7740 to strengthen the outlook and expose a retest of the multi-year low from early February at 0.7625. Only back above 0.7913 negates.
AUDUSD – fundamental overview
It hasn’t been a great second half of the week for the Australian Dollar, with the currency initially coming under pressure early Thursday on the horrid Aussie Q4 capex data, and then further accelerating to the downside after a batch of healthy US economic data increased the likelihood for a sooner than later Fed rate hike. The policy divergence in this market has instantly become more pronounced as a result, with the market now pricing in an increased 50% chance of a rate cut from the RBA next week. Macro accounts remain aggressive Aussie sellers on rallies and deeper setbacks are to be expected. For today, US GDP, pending home sales and Michigan sentiment are in focus.
USDCAD – technical overview
The outlook for this pair remains highly constructive, after recently breaking to fresh +5 year highs at 1.2800. This has opened the door for a push towards the next major objective in the form of the 2009 peak at 1.3065. However, the market has since entered a period of consolidation in search of the next medium-term higher low, and will need to break back through 1.2800 to trigger a bullish resumption. In the interim setbacks have been very well supported ahead of 1.2350.
USDCAD – fundamental overview
Anyone out there betting on another rate cut from the Bank of Canada was sorely let down this week following Governor Poloz comments. The central banker said last month’s rate cut had bought the BoC time to see how the economy responded to the latest drop in oil prices. Still, the overarching themes of the Fed rate outlook and US oil dominate trade, and with oil unable to establish a meaningful recovery and Thursday’s US data increasing the likelihood for a sooner Fed rate hike, USDCAD should continue to remain very well supported on dips. For today, the focus will be on US GDP, pending home sales and Michigan sentiment.
NZDUSD – technical overview
The market remains locked within a very well defined downtrend, with deeper setbacks seen ahead. Recent corrective gains have stalled out at critical previous support turned resistance just over 0.7600 and a fresh medium-term lower top is now sought out ahead of the next major downside extension through 0.7176 and towards the 0.6500 area further down. Ultimately, only a daily close back above 0.7614 would delay the bearish outlook.
NZDUSD – fundamental overview
A recovery in the New Zealand Dollar could be at risk, with the currency coming back under pressure Thursday on the back of a solid batch of US economic data suggesting the Fed will hike rates sooner than later. Solid New Zealand trade data had helped Kiwi rally back into some critical resistance just over 0.7600, before the currency finally relented to the broader USD gains. The RBNZ hasn’t been welcoming of Kiwi strength and with sentiment coming off, the risk correlated currency could be vulnerable to additional weakness in the days ahead. There were already heavy offers from macro accounts waiting to build into exiting shorts on this latest rally and more selling is expected ahead.
US SPX 500 – technical overview
Still no signs of any let up just yet, with the market extending gains to fresh record highs well beyond 2100. The recent 2100 break has ended a period of consolidation and could expose a fresh upside extension towards 2150 in the sessions ahead. At this point, a drop back below 2083 would be required at a minimum to take the immediate pressure off the topside.
US SPX 500 – fundamental overview
Earlier in the week, Fed Chair Yellen reminded investors that policy had been accommodative for a long time, and if data continued to improve, we could see a sooner than later Fed rate hike. And so, with Thursday’s US data coming in on the healthy side, expectations for a June rate hike were bolstered significantly, with risk coming off as a result on the pricing out of free money central bank policy. Any signs of additional strength in today’s US GDP, pending home sales and Michigan sentiment, will likely open the door for additional capitulation in overinflated, record high US equities. The market will then look ahead to next week’s highly anticipated US NFP print.
GOLD (SPOT) – technical overview
The market continues to show signs of medium-term basing following the break of key resistance at 1256 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. Tuesday’s bounce from 1190 encourages the constructive outlook, with only a daily close back below this level to delay the recovery outlook and put the pressure back on the downside. Look for a push back towards the 1307, 2015 high in the days ahead.
GOLD (SPOT) – fundamental overview
Overall, accommodative central policy action around the globe has opened the door for significant currency depreciation, leaving longer-term investors with a lack of confidence in fiat currency. 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 has entered a period of legitimate correction since collapsing to fresh multi-year lows at 43.55. A recent push back above 50.00 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 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.
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 global oversupply can not be shaken. The market will now need to break back above 54.25 to further encourage recovery prospects. It is also worth noting the role politics are playing at current levels, with many governments welcoming the lower price as a stimulus measure given the benefit to the consumer.