Currencies Still Considering September Fed Hike

Chart talk: Technical & fundamental highlights

EURUSD – technical overview

The Euro has extended its correction since breaking above key neckline resistance several days back. Though the medium-term downtrend is still firmly intact, a double bottom formation has triggered, exposing a potential measured move towards the February peak at 1.1535. At this point, current setbacks should be well supported for now, with only a daily close below 1.1050 to put pressure back on the downside.

Screen Shot 2015-05-19 at 5.37.17 AM

  • R2 1.1467 – 15May high – Strong
  • R1 1.1326 – 19May high – Medium
  • S1 1.1279 – 12May high – Medium
  • S2 1.1202 – 13May low – Strong

EURUSD – fundamental overview

Greece uncertainty has crept back into the market, with the Euro pulling back from recent recovery highs. Greece’s inability to compromise on its reform ‘red lines’ has made it seemingly impossible to strike a deal with its creditors, and finding any optimism from Varoufakis, who says a deal is close, isn’t having the same impact as it had the first several times we heard such statements from the finance minister. Greece has a large payment due to the IMF in just a couple of weeks and the closer we get to this deadline, the more the reality of default and potential Grexit comes into play. In the interim, the market will take in German ZEW, Eurozone CPI and some US housing data on Tuesday.

GBPUSD – technical overview

Fresh 2015 highs for this market in the previous week, following an impressive surge through previous resistance at 1.5600. The bullish break takes some of the pressure off the downside and could signal additional upside towards a measured move objective in the 1.5900 area. Still, with the broader downtrend intact, look for the rally to eventually be well capped ahead of 1.6000, with a medium-term lower top sough out ahead of bearish resumption.

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  • R2 1.5745 – 18May high – Strong
  • R1 1.5701 – 15May low – Medium
  • S1 1.5631 – 19May low  – Medium
  • S2 1.5557 – 12May low  – Strong

GBPUSD – fundamental overview

Now that the post UK election euphoria has faded, the reality of upcoming budget cuts and some anxiety over a EU membership vote down the road are playing back into investor minds, with the Pound selling off from recent 2015 highs against the Buck. Still, softer economic data in the US has been propping this major pair over the past several days, and could continue to support on dips. For today, it all comes down to UK inflation data and the market will look to digest these results for the remainder of the day.

USDJPY – technical overview

Although the market remains locked within a well defined uptrend, lack of upside follow through has been discouraging, 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.

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  • R2 120.84 – 13Apr high – Strong
  • R1 120.50 – 5May high – Medium
  • S1 118.88 – 14My low – Medium
  • S2 118.23 – 17Feb low – Strong

USDJPY – fundamental overview

Another surge in US equities to fresh record highs, and a healthy rally in US yields have been supportive of the USDJPY market in recent trade. Still, this market hasn’t really gone anywhere over the past several weeks, with plenty of offers capping rallies above 120.00. From a policy perspective, the Dollar has been at risk in recent weeks, with the prospect for a sooner Fed rate hike fading, while at the same time, the BOJ continues to signal it’s comfortable with its current stance. Looking ahead, we get some Japan GDP data early Wednesday.

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. From here, there is risk for additional upside back towards 1.0815 in the days ahead, with any setbacks expected to be very well supported ahead of 1.0300. Look for a push back above 1.0525 to confirm and accelerate gains. Ultimately, only below 1.0235 negates.

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  • R2 1.0600 – Figure – Medium
  • R1 1.0525 – 30Apr high – Strong
  • S1 1.0385 – 14May low– Medium
  • S2 1.0305 – 7May low – Strong

EURCHF – fundamental overview

Recent SNB measures on sight deposits and an ongoing commitment from the central bank to continue to act to curb excessive overvaluation in the Franc, should help to support this market on dips. Meanwhile, ongoing demand for global equities has also been supportive of this correlated exchange rate. Dealers cite solid demand, with no meaningful stops until below 1.0200. SNB Zurbruegg was out downplaying deflation concerns after saying he remained convinced no 1930’s deflationary spiral was around the corner. On the topic of monetary policy and the Franc, the central banker said the SNB was to committed to negative interest rates ‘as long as needed’ and that the Franc was still highly overvalued.

AUDUSD – technical overview

The recent daily close above previous resistance at 0.8075 strengthens the recovery outlook for this pair, with the break now suggesting the market is attempting to fulfill a more significant double bottom objective in the 0.8300 area. Overall, the broader downtrend remains intact, but for the interim, the pressure is on the topside, and only back below 0.7863 would negate.

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  • R2 0.8163 – 14May high – Strong
  • R1 0.8052 – 18May high – Medium
  • S1 0.7947 – 13May low – Medium
  • S2 0.7863 – 8May low – Strong

AUDUSD – fundamental overview

The release of a more dovish RBA Minutes has inspired some fresh offers in Aussie on Tuesday. The market hasn’t moved all that much on the news, though the revelation the RBA is not prepared to rule out additional rate cuts, along with some serious concern over the outlook for China, could certainly do a good job of capping additional rallies. The RBA has also made it abundantly clear that it is not thrilled with Aussie at current levels and believes the currency should trade lower to help rebalance the economy.

USDCAD – technical overview

While the broader uptrend is still firmly intact, the market has entered a period of healthy correction following a recent break below support at 1.2350, exposing a measured move extension to 1.1865 further down. But look for the market to be well supported around the 1.1865 area, with only a weekly close below this level to compromise the constructive outlook.

Screen Shot 2015-05-19 at 5.38.28 AM

  • R2 1.2205 – 1May high – Strong
  • R1 1.2171 – 19May high – Medium
  • S1 1.2067 – 15May high – Medium
  • S2 1.2011 – 18May low – Strong

USDCAD – fundamental overview

The Canadian Dollar has come back under pressure in recent trade, with a broad recovery in the US Dollar and slightly lower oil market fueling the price action. Still, Monday’s CAD relative underperformance may have been a little overdone, with the thinner trading conditions, on account of the Victoria Day holiday perhaps factoring in a bit. Looking ahead, the market will take in US housing starts and building permits along with a BoC Governor Poloz speech.

NZDUSD – technical overview

Despite a minor bounce, the market remains locked within a broader, well defined downtrend and looks to be in the process of carving out the next medium-term lower top. 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.

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  • R2 0.7564 – 14May high– Strong
  • R1 0.7458 – 18May high– Medium
  • S1 0.7359 – 19May low – Medium
  • S2 0.7318 – 13May low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has been having a very hard time holding onto gains, even in the face of broad US Dollar weakness, with a recent shift in the RBNZ policy outlook and discouraging developments on the local front, driving Kiwi underperformance. Most recently, weekend news the New Zealand government will take additional measures to curb the overheating property market, and some softer Tuesday PPI have been weighing. Still, Kiwi has managed to recover off recent lows against the Buck, and with US equities pushing fresh record highs, this should be somewhat supportive of the higher yielding, risk correlated currency. Looking ahead, the upcoming GDT auction will be the key focus.

US SPX 500 – technical overview

The latest break and close above 2126 has opened the door for fresh record highs and the next major upside extension in this market, potentially towards a measured move in the 2200 area. At this point, a break back below 2100 would now be required to take the immediate pressure off the topside.

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  • R2 2150.00 – Psychological – Strong
  • R1 2140.00 – Figure – Medium
  • S1 2084.00 – 12May low – Medium
  • S2 2062.00 – 7May low – Strong

US SPX 500 – fundamental overview

Investors are feeding back into the broader uptrend in this market, with stocks breaking to fresh record highs. However, despite the gains, the market has demonstrated an inability to establish any meaningful bullish momentum thus far, and could be at risk for stalling out yet again. For now, scaled back Fed rate hike expectations have seemingly been supportive of the flows, though there is a sense these gains are lacking in conviction and could be poised for capitulation over the coming sessions.

GOLD (SPOT) – technical overview

The market has been in a corrective 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. Monday’s daily close above 1225 strengthens the constructive prospect.

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  • R2 1246.00 – 10Feb high – Medium
  • R1 1232.00 – 18May high – Strong
  • S1 1170.00 – 1May low – Medium
  • S2 1143.00 – 17Mar low – Strong

GOLD (SPOT) – fundamental overview

The gold market continues to show signs of demand since stalling ahead of the 2014 base. Many investors already feel that with currencies across the board looking less attractive in a low yield environment, and with global equities looking vulnerable at record highs, there is no better place to be invested than in the yellow metal. Throw in this latest slide in the Dollar and the market could be poised for a surge back towards $1300 in the sessions ahead.

Feature – technical overview

USDTRY has been in corrective mode over the past several days, with the market pulling back sharply from the 2.7430 record high from late April. Though there is still risk for additional corrective weakness, this market remains locked within a more well defined medium-term uptrend and should start to find support into the 2.5400 area ahead of a bullish resumption and next major upside extension. Ultimately, only a close below 2.5390 would force a shift in the structure.

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  • R2 2.6225 – 13May low – Medium
  • R1 2.5995 – 15May high – Strong
  • S1 2.5560 – 6Apr low – Medium
  • S2 2.5390 – 23Mar low – Strong

Feature – fundamental overview

Some revisions to CPI forecasts aren’t really factoring into price action, with the outlook pretty much offsetting. Into the end of the year Turkish CPI is seen slightly higher, while over the next 12 months the indicator is forecast lower. Looking out 24 months, inflation is only expected to be slightly firmer than current levels. Perhaps more importantly, on the rate front, markets are no longer pricing any rate cuts, with the CBRT expected to hold firm at 7.50%. This has perhaps helped the Lira a little in recent trade, though broad based US Dollar weakness has unquestionably been the the biggest driver of price action. Looking ahead, the market will position ahead of Wednesday’s CBRT decision, though no change is expected.

Peformance chart: Tuesday’s performance v. US dollar (7:00GMT)

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