Market Short US Dollar Ahead of Key Event Risk

GBPUSD – technical overview

Though the broader downtrend remains intact, the latest break back above 1.5165 has resulted in a test of key resistance in the form of the 78.6% fib retrace off the 2015 high-low move. Look for the market to now hold below 1.5340 on a daily close basis in favour of a lower top and bearish resumption. However, a daily close above 1.5340 would compromise the structure and open a full retracement back to the 1.5552, 2015 high.

• R2 1.5397 – 3Mar high – Medium
• R1 1.5372 – 4Mar high – Strong
• S1 1.5262 – 27Apr high  – Medium
• S2 1.5175 – 28Apr low  – Strong

GBPUSD – fundamental overview

A softer round of UK GDP data did nothing to stall the recovery rally in the Pound, with this major pair pushing to fresh multi-day highs. Another round of soft data out of the US and increased expectations for a more dovish Fed have been driving the major pair over the past several days, as the US Dollar enters a period of correction following a strong multi-month rally. Lack of any first tier economic data on the UK calendar will leave this market positioning ahead of some big upcoming event risk in the form of US GDP and the FOMC rate decision later today.

USDJPY – technical overview

Although the market remains locked within a well defined uptrend, lack of upside follow through has been discouraging of late, with the pair more content on deferring to a period of consolidation. Still, overall, the broader trend remains highly constructive and any setbacks should continue to be very well supported in favour of the next major upside extension through 122.03 and towards key psychological barriers at 125.00 further up. At this point, only a close below 118.00 would delay, while a break below 115.55 would be required to negate the constructive outlook.

• R2 120.09 – 23Apr high – Strong
• R1 119.43 – 27Apr high – Medium
• S1 118.53 – 20Apr low – Medium
• S2 118.23 – 17Feb low – Strong

USDJPY – fundamental overview

Not much in the way of any meaningful movement for this major pair, with the market still comfortable trading within a tight range. For now, the focus shifts to some upcoming event risk, with US GDP and the FOMC rate decision due later today and the BOJ meeting to follow on Thursday. The market will be watching closely to see if the Fed adopts a more dovish tone, and while no change is expected from the BOJ, there has been chatter the central bank will downwardly revise inflation forecasts and push off the timeline for the 2% inflation objective. Dealers are talking about some heavy stops built up below 118.00.

EURCHF – technical overview

The market has finally put in an impressive rebound after a multi-day drop out from the February, 1.0815 recovery high. Last week’s bullish reversal cleared the previous 8 consecutive daily lower highs, with the strong performance potentially signaling some form of a key low in place at 1.0235. Inability to close below 1.0250 had warned of this bounce and from here, there is risk for additional upside back towards 1.0815 in the days ahead. Ultimately, only below 1.0235 negates.

• R2 1.0605 – 23Mar high – Strong
• R1 1.0550 – 25Mar high – Medium
• S1 1.0380 – 28Apr low– Medium
• S2 1.0315 – 23Apr low – Strong

EURCHF – fundamental overview

Last week, the SNB came out with an announcement that it was reducing the group of sight deposit account holders that would be exempted from negative rates. This helped to finally offer some support to the EURCHF rate, which had been under intense pressure for many weeks. SNB Jordan was also out last week reiterating the central bank’s commitment to act to curb excessive overvaluation in the Franc. There are many out there that are still pricing in additional accommodation from the SNB, taking it deeper into unprecedented negative interest rate policy. Though with Jordan also stressing that current policy should not be taken as the ‘new normal’ it will be interesting to see just how much more the SNB is prepared to do. Meanwhile, some renewed optimism for a Greek resolution has also been helping to support the market ahead of today’s FOMC event risk.

AUDUSD – technical overview

Despite the latest surge through 0.8000, the bearish structure remains intact with the market positioning for a medium-term lower top and next major downside extension. Look for the market to now stall out above 0.8000, around previous support turned resistance at 0.8033. A break back below 0.7933 will help confirm the outlook and put the pressure back on the downside. Ultimately, only back above 0.8300 would compromise the downtrend.

• R2 0.8053 – 23Jan high – Medium
• R1 0.8033 – Previous Support – Strong
• S1 0.7938 – 24Mar high – Medium
• S2 0.7872 – 27Apr high – Strong

AUDUSD – fundamental overview

The Australian Dollar has continued its impressive run, with the currency breaking to fresh multi-day highs against the Buck and clearing major psychological barriers at 0.8000. Stronger economic data, higher inflation, lack of any dovish comments from RBA Stevens, broad based Dollar weakness and a repricing of RBNZ expectations, have all been developments supporting Aussie in recent trade. Still, with the currency running so far so fast and with the Fed monetary policy divergence theme alive and well, there is risk for renewed weakness in the sessions ahead. Also seen weighing a bit in Wednesday trade have been reports that S&P could place Australia on ‘negative outlook.” The market will now wait to digest today’s US GDP and FOMC rate decision, while also not forgetting about the potential impact from the RBNZ.

USDCAD – technical overview

An extended period of multi-week consolidation has been broken to the downside, with the market taking out key support at 1.2350. While the broader uptrend is still firmly intact, the break below 1.2350 now opens the door to the possibility of a deeper correction into the 1.1900 area before the market looks to carve the next meaningful higher low and resume its uptrend. At this point, a daily close back above 1.2350 would be required to once again solidify bullish structure.

• R2 1.2195 – 27Apr high – Strong
• R1 1.2117 – 28Apr high – Medium
• S1 1.2015 – 28Apr low – Medium
• S2 1.1900 – Measured Move – Strong

USDCAD – fundamental overview

Though Governor Poloz remained relatively upbeat and offered no new insights on monetary policy direction in his Tuesday testimony, comments that ‘a lower CAD was absolutely of net benefit’ caught some attention. But the comments failed to hurt the Loonie, with the currency shrugging them off and extending its rally against the Buck. Still, with the Canadian Dollar already rallying quite a bit in recent trade, with the broader fundamentals supporting an ongoing monetary policy divergence with the Fed, and with OIL finding renewed offers into this rally, fresh USDCAD demand from medium-term players is resurfacing on dips. Dealers cite plenty of fresh demand for this pair towards 1.1900. Looking ahead, it’s all about US GDP and the FOMC rate decision.

NZDUSD – technical overview

Though we have seen some strength in recent trade, the market remains locked within a broader, well defined downtrend. As such, look for a more pronounced bearish reversal in the sessions ahead, back towards the key low of 0.7176, below which opens the next major downside extension towards psychological barriers at 0.6500. Ultimately, only back above 0.7890 would compromise and give reason for pause.

• R2 0.7800 – Figure – Medium
• R1 0.7741 – 28Apr high – Strong
• S1 0.7616 – 28Apr low – Medium
• S2 0.7537 – 23Apr low – Strong

NZDUSD – fundamental overview

It seems we are seeing a bit of a repricing of RBNZ expectations, with last week’s softer New Zealand inflation data followed up by dovish RBNZ McDermott comments. Any Kiwi upside is seen limited against the Buck from here, with sizable medium-term players stepping in to sell the market despite broader USD weakness. There has also been a good deal of demand on the AUDNZD cross rate, which many believe to be overdone and at risk for a major reversal off recent record lows. We will get more clarity today, with this market taking in both the FOMC and RBNZ rate decisions. Plenty of volatility is expected.

US SPX 500 – technical overview

The most recent rally is stalling after only slightly exceeding critical resistance in the form of the previous record high from February at 2120. This suggests we could be in the process of carving out a more meaningful top. Still, while the market holds above 2040, the broader uptrend remains firmly intact, with a break below 2040 ultimately required to confirm a topping structure and accelerate declines. Initially, the market will need to close below Tuesday’s low to encourage the reversal prospect.

• R2 2150.00 – Psychological – Medium
• R1 2126.00 – 27Apr/Record – Strong
• S1 2071.00 – 17Apr low – Medium
• S2 2040.00 – 11Mar low – Strong

US SPX 500 – fundamental overview

There is a growing sense that with equities so elevated, any additional upside should be limited with a potential capitulation in the works. At this point, the market has yet to relent, but if today’s FOMC continues to show signs of liftoff in the months ahead, this could be the final straw that breaks this artificially supported market’s back. Otherwise, a more dovish Fed will scale back expectations and fuel additional record high gains towards 2200.

GOLD (SPOT) – technical overview

The market has been in a consolidation mode since recovering out ahead of the 2014 base. The bounce suggests the market could now be poised for additional upside in the sessions ahead in an attempt to carve out a more meaningful longer-term base. Still, a daily close above 1224 will be required to strengthen the constructive prospect. Meanwhile, a daily close back below 1175 delays the recovery and puts pressure back on the downside.

• R2 1246.00 – 10Feb high – Medium
• R1 1224.00 – 6Apr high – Strong
• S1 1175.00 – 24Apr low – Medium
• S2 1143.00 – 17Mar low – Strong

GOLD (SPOT) – fundamental overview

The gold market continues to show signs of demand since stalling out several days back ahead of the 2014 base. Many investors already feel that with currencies across the board in a downward spiral, and global equities at risk for major capitulation, there is no better place to be invested than in the yellow metal. Gold has since pulled back a bit since rallying above $1220, but there is healthy demand reported into dips, with no real sell-stops seen until below $1175.

Feature – technical overview

USDTRY is in the process off correcting just off fresh record highs. Technical studies are looking a little stretched overall, and there is risk for additional weakness in the sessions ahead to allow for these studies to unwind. But ultimately, the broader uptrend remains firmly intact with any setbacks expected to be very well supported in favour of bullish continuation. A break back below 2.5390 would now be required to take the immediate pressure off the downside.

• R2 2.8000 – Psychological – Medium
• R1 2.7430 – 24Apr/Record – Strong
• S1 2.6115 – 10Apr low – Medium
• S2 2.5390 – 23Mar low – Strong

Feature – fundamental overview

Last week’s announcement from the CBRT that it would be increasing the rate paid on Lira reserve requirements by 50bp as of May, didn’t do much to offset an on hold rate decision. The central bank continues to be in a very tough spot, with a mix of rising inflation, a declining currency and struggling economy, making it impossible to make any moves on rates. Adding more fuel to the fire, Turkish PM Erdogan continues with his criticism of higher rates and the negative impact on the local economy. For now, much of the Lira’s fate rests in the hands of this week’s Federal Reserve decision. Some broad US Dollar selling has provided interim relief, along with chatter the CBRT could raise rates ahead of the elections.