A Story of Pre-FOMC Positioning

GBPUSD – technical overview

Setbacks have been very well supported and the market could be looking to carve out a fresh higher low at 1.5350 in favour of the next major upside extension back towards and above the recent 2015 high at 1.5930. At this point, only back below 1.5350 would negate the constructive outlook and compromise the bullish structure.

• R2 1.5733 – 1Jul high – Strong
• R1 1.5675 – 15Jul high – Medium
• S1 1.5467 – 24Jul low  – Medium
• S2 1.5352 – 8Jul low  – Strong

GBPUSD – fundamental overview

Last week’s horrid UK retail sales and dovish BOE Haldane comments cast some doubt on just how soon the BOE would hike rates over the coming months and this had taken some of the wind out of the sails of a decent Sterling rally. Though the UK currency underperformed relative to most currencies in Monday trade, it still managed to recover against the Buck on the back of the broad based USD outflows. Pre-FOMC positioning has inspired some US Dollar profit taking, while Monday’s mixed US durable goods print has also helped to open a resumption of gains in this pair. The market will continue to look ahead to Wednesday’s Fed, but ahead of tomorrow’s risk, the Pound will be exposed to its own volatility today, with UK GDP due. Later in the day, US consumer confidence will be digested.

USDJPY – technical overview

Although the broader uptrend remains firmly intact, the market has been showing signs of exhaustion off fresh multi-year highs at 125.85. The break back below 124.00 has opened the door for deeper setbacks in the sessions ahead, potentially towards the recent 121.32 multi-day low. Monthly studies are highly overextended and have been warning of the need for additional consolidation and correction to allow for these studies to unwind. As such, for the time being, rallies may continue to be well capped towards 125.00.

• R2 124.48 – 21Jul high – Strong
• R1 123.84 – 27Jul high – Medium
• S1 122.92 – 14Jul low – Medium
• S2 122.42 – 13Jul low – Strong

USDJPY – fundamental overview

With global equities back under pressure, the flight to safety bid environment has invited a fresh round of demand for the correlated Japanese Yen. The US Dollar has already come under some pressure ahead of tomorrow’s FOMC event risk, and with US durable goods coming in mixed on Monday, more players have stepped in to book profit on Yen shorts. Overall, the Fed policy divergence with the Bank of Japan continues to favour the US Dollar side of this trade, but with the market locked in a bit of a holding pattern and waiting for additional clarity, the overwhelming draw to be short Yen has lost some of its appeal. US consumer confidence data is out later today, though the market will mostly be focused on Wednesday’s Fed rate decision.

EURCHF – technical overview

The market looks to be in the process of carving out a meaningful base. From here, there is risk for a recovery back towards the February, 1.0815, with any setbacks expected to be very well supported above 1.0400 on a daily close basis. However, ultimately, only a daily close below 1.0235 would compromise the recovery outlook and give reason for pause.

• R2 1.0815 – 20Feb high – Strong
• R1 1.0692 – 27Jul high – Medium
• S1 1.0600 – Figure – Medium
• S2 1.0558 – 27Jul low – Strong

EURCHF – fundamental overview

Demand for the EURCHF rate has been impressive in recent trade, particularly in light of the downturn in equities markets and some broader risk off price action that normally would be supportive of the Franc. It seems the market is finding more comfort in the fact that the Greece saga is behind us and this has been helping to prop the rate a bit. Overall, reassurances from the SNB that it will continue to support dips in this market have also been well received by investors, happy to ride on the central bank’s back. However, if this equity pullback gains momentum, it could invite renewed downside pressure on the cross rate.

AUDUSD – technical overview

The downtrend remains firmly intact, with the market extending declines to fresh multi-year lows and gravitating closer to next key psychological barriers at 0.7000. Still, with daily studies looking a little stretched, the market could soon defer to a period of short-term consolidation and correction. But look for rallies to be very well capped ahead of 0.7600, with only a break back above to take the immediate pressure off the downside.

• R2 0.7496 – 10Jul high – Strong
• R1 0.7362 – 24Jul high – Medium
• S1 0.7260 – 24Jul/2015 low – Medium
• S2 0.7240 – May 2009 low – Strong

AUDUSD – fundamental overview

There has been some talk making the rounds of a short squeeze in this pair, though no material Aussie bids have emerged just yet. A round of broad based USD weakness ahead of tomorrow’s FOMC rate decision has helped to buoy additional Aussie weakness for now. Still, ongoing commodity weakness, concerns over the China outlook and the RBA/Fed monetary policy divergence theme all continue to weigh on the Australian Dollar. US consumer confidence is due later today. Looking past tomorrow’s Fed, RBA Stevens is scheduled to speak on Thursday.

USDCAD – technical overview

Fresh multi-year highs for this pair, with the market finally surging through the 2009 peak at 1.3065. Daily studies are however tracking in overbought territory and this suggests that gains could soon stall out, with the market deferring to corrective downside before the uptrend reasserts. Still, look for any setbacks to be very well supported ahead of 1.2600 in favour of the next higher low and bullish continuation.

• R2 1.3150 – Mid-Figure – Medium
• R1 1.3103 – 24Jul/2015 high – Strong
• S1 1.2980 – 27Jul low – Medium
• S2 1.2948 – 23July low– Strong

USDCAD – fundamental overview

The Canadian Dollar has managed to benefit just a bit from some broad based profit taking on USD longs ahead of tomorrow’s FOMC rate decision, though the gains have been far from impressive thus far. The Loonie trades just off fresh multi-year lows set in the previous week, with ever declining OIL prices dragging on the Canadian economy and forcing the Bank of Canada to adopt a more accommodative monetary policy outlook. Any recovery in OIL prices will almost certainly be a welcome development for a Canadian Dollar looking quite stretched. Leveraged accounts have been reported on the bid into USDCAD dips, while real money and corporate names are on the offer. Canada industrial and raw material prices are due later on along with US consumer confidence and some other second tier US data.

NZDUSD – technical overview

Daily studies have been turning up from deep oversold territory, and there is risk for additional consolidation in the sessions ahead to allow for these studies to further unwind before the market considers a bearish continuation below the recent multi-year low at 0.6498. Still, any rallies should be well capped ahead of 0.6850 in favour of the existing downtrend.

• R2 0.6695 – 23Jul high– Strong
• R1 0.6640 – 27Jul high– Medium
• S1 0.6553 – 22Jul low – Medium
• S2 0.6498 – 16Jul/2015 low – Strong

NZDUSD – fundamental overview

Kiwi continues to show mild support off recent multi-year lows, aided by last week’s PM Key comments expressing concern over the pace of the currency’s declines, and a slightly less dovish RBNZ rate decision. Meanwhile, the market has seen some broad based profit taking on US Dollar longs ahead of Wednesday’s FOMC announcement, which is providing another source of support for the beaten down commodity currency. Still, with the Fed expected to move on rates as early as September, with the dairy sector struggling and with China on the slide, the prospect for any meaningful Kiwi recovery is looking quite bleak. RBNZ Wheeler is slated to speak on Wednesday and could provide added colour on the monetary policy outlook.

US SPX 500 – technical overview

The market has stalled out just shy of the May record high, with the lack of bullish momentum suggestive of exhaustion and warning of deeper setbacks ahead. Look for the latest daily close back below 2100 to now strengthen the bearish outlook in favour of deeper setbacks below the critical March low at 2040. At this point, only a break and daily close above 2137 would negate and open a bullish continuation.

• R2 2137.00 – 19May/Record – Strong
• R1 2121.00 – 23Jul high – Medium
• S1 2062.00 – 7May low – Medium
• S2 2040.00 – 11Mar low– Strong

US SPX 500 – fundamental overview

The US equity market is once again showing signs of exhaustion, with the market stalling ahead of the May record high and rolling over on some disappointing Q2 earnings numbers and some renewed concern over the China outlook (China stocks down over 8% on Monday). Overall, stocks are looking quite expensive at current levels and investors also need to be reminded of the risk for Fed rate liftoff, with the move to higher rates taking away from the incentive to be long stocks. It seems participants have been ignoring this fact despite it being priced in other asset classes. More clarity on this issue will be offered tomorrow when the Fed meets.

GOLD (SPOT) – technical overview

The market remains under intense pressure, breaking to fresh multi-year lows below 1100. At this point, the downside break opens the door for the possibility of another drop towards major psychological barriers at 1000. However, it is worth noting that daily studies are extremely oversold and there is room for a short-term bounce. But a break back above 1175 would be required to take the immediate pressure off the downside.

• R2 1175.00 – 6Jul high – Strong
• R1 1146.00 – 17Jul high – Medium
• S1 1073.00 – 20Jul/2015 low – Medium
• S2 1000.00 – Psychological – Strong

GOLD (SPOT) – fundamental overview

The downside pressure in the GOLD market has intensified in July, with the primary driver coming from an accelerated Fed rate liftoff timeline. The expectation for higher rates has resulted in another liquidation in the yellow metal, this time below $1100. Recent data also shows China buying less GOLD as had been forecast, and this has been yet another let down for the commodity. In fact, the latest speculative positioning data shows the market actually net short the yellow metal for the first time. There seems to be very little out there GOLD bugs can source as a near term catalyst for a resurgence in demand, though additional equity weakness and rising inflation could be potential sparks to get this market bid up again.

Feature – technical overview

USDSGD remains locked in a very well defined uptrend, with the market closing in on a retest of the multi-year peak from March at 1.3938. Look for any setbacks to now be very well supported ahead of 1.3500, while only a break back below 1.3284 would compromise and force a shift in the structure.

• R2 1.3938 – 13Mar/2015 high – Strong
• R1 1.3758 – 24Jul high – Medium
• S1 1.3609 – 22Jul low – Medium
• S2 1.3440 – 30Jun low – Strong

Feature – fundamental overview

The Singapore Dollar has found some relief ahead of tomorrow’s FOMC event risk, with the currency recovering off recent lows on pre-event risk US Dollar profit taking and a mixed US durable goods showing. Though the US durable goods headline came in better than expected, the story wasn’t all peachy given other worrying data components and some downward revisions. Still, there hasn’t been much to suggest the Fed will hold off on hiking in September and with monetary policy divergence the name of the game right now, additional Singapore Dollar weakness is to be expected. Macro funds have been reported as meaningful buyers on dips in USDSGD. Meanwhile, last week’s horrid Singapore industrial production and contraction in GDP have not been forgotten and offer more fuel for SGD bears.