End of Month Flows Factor Into Friday Trade

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 constructive outlook.

• R2 1.5733 – 1Jul high – Strong
• R1 1.5690 – 29Jul high – Medium
• S1 1.5528 – 28Jul low  – Medium
• S2 1.5467 – 24Jul low  – Strong

GBPUSD – fundamental overview

Into Friday trade the Pound is the standout outperformer across the board for the week. Although the US Dollar has performed well, it seems the UK currency has been playing a game of catch up these past couple of weeks, with UK economic data and the BOE outlook more supportive of sooner than later BOE rate hikes. While a good portion of the market had already been pricing in risk for a Fed rate hike come September, the market hadn’t been as hawkish with the BOE and this change in sentiment is getting reflected in the yield differentials. Looking ahead, there is no UK data of note on the calendar today, with US Michigan sentiment the only notable release. Of course, month end flows should not be forgotten.

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 latest topside failure ahead of 125.00 opens the door for deeper setbacks in the sessions ahead, potentially towards the recent 121.32 multi-day low. Monthly studies are highly overbought 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 125.00 – Psychological – Strong
• R1 124.58 – 30Jul high – Medium
• S1 123.33 – 29Jul low – Medium
• S2 123.01 – 27Jul low – Strong

USDJPY – fundamental overview

BOJ Governor Kuroda’s warnings in the previous month against additional Yen depreciation haven’t been forgotten, with USDJPY once again stalling out ahead of 125.00. The major pair had been bid up in the aftermath of a hawkish Wednesday FOMC rate decision, with gains pushing even higher through stops just over 124.50 following the well received Thursday US GDP print. But offers were quick to resurface around 124.50, with the major pair retreating back below 124.00 in early Friday trade. The Yen has also benefited a bit on Friday from the hotter than expected Japanese inflation readings. Although the BOJ’s 2% inflation target is still a ways off, inflation is moving in the right direction and confirms recent comments from Kuroda that additional QQE expansion would not be necessary. Looking ahead, US Michigan sentiment is the only release of note, while end of months flows should not be overlooked.

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 peak, 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 1.0575 – Previous High – Medium
• S2 1.0558 – 27Jul low – Strong

EURCHF – fundamental overview

Recent price action in this cross rate has been rather interesting, with the market rallying in risk off settings and pulling back when risk comes back on. While risk on/risk off correlations are perhaps less relevant than they once were, the fact that the correlation has been a strong inverse correlation in recent days is what is perplexing. The most logical explanation for the price action is that the SNB has been committed to stepping in to weaken the Franc as risk comes off so that it can offset the safe haven Franc demand. But once risk appetite returns to global markets, the SNB no longer needs to intervene as natural forces are supportive of Franc outflows. Of course the danger with all this is if risk really comes off for a sustained period. At that point, it would mostly likely be difficult for the SNB to offset the flows and this would open another major bout of unwelcome Franc demand. But in the interim, the SNB can breath out, with EURCHF well off extreme lows.

AUDUSD – technical overview

Although the downtrend remains firmly intact, with the market considering a drop to psychological barriers at 0.7000, there are signs the market could be looking for some form of a short-term bottom to allow for stretched studies to unwind. Despite subsequent setbacks on Wednesday and Thursday, Tuesday’s bullish outside day formation may have already set the stage for this corrective outlook in the sessions ahead. Ultimately however, any gains should be well capped ahead of 0.7800 in favour of the next lower top and bearish continuation.

• R2 0.7496 – 10Jul high – Strong
• R1 0.7351 – 29Jul high – Medium
• S1 0.7255 – 30Jul/2015 low – Medium
• S2 0.7240 – May 2009 low – Strong

AUDUSD – fundamental overview

Despite some softer Aussie building approvals and a well received US GDP report on Thursday, Aussie has managed to hold up rather well. Indeed, Aussie did drop to a fresh 6 year low at 0.7255 on the back of these negative developments, but the fresh low was only a marginal one and the market recovered impressively back towards 0.7300 into Friday. Aussie PPI out in early Friday trade was mixed and hasn’t really factored into trade and there is very little in the way of any meaningful data for this pair for the rest of the day, with Michigan sentiment data the only notable standout. Otherwise, it’s end of month flows that are likely to dictate direction. Overall however, the Australian Dollar outlook remains quite negative and dealers cite significant sell interest into rallies. Next week is a busy week for the Australian Dollar, with the RBA rate decision due on Tuesday.

USDCAD – technical overview

Finally some cooling off after the market broke to fresh multi-year highs just over 1.3100. Technical studies were well stretched and the current round of setbacks is welcome to allow for these studies to normalize. There risk for additional declines in the sessions ahead, with the market looking for the next medium-term higher low ahead of a bullish continuation. Ultimately, any setbacks should however be well supported ahead of 1.2600.

• R2 1.3103 – 24Jul/2015 high – Strong
• R1 1.3044 – 30Jul high – Medium
• S1 1.2943 – 30Jul low – Medium
• S2 1.2861 – 29July low– Strong

USDCAD – fundamental overview

Speculation over when Canada PM Harper will call the next federal election is bringing some political jitters back into this market, though most of the volatility comes from Fed timeline expectations and OIL prices. In recent days, we have seen the Canadian Dollar recover some from multi-year lows on a mild rebound in OIL prices, though the hawkish Fed monetary policy statement and a well received US GDP report have kept the US Dollar well supported on dips. Looking ahead, Friday is a big day on the Canada calendar, with all eyes on Canada GDP. Otherwise, US Michigan sentiment and end of month flows will also factor into trade.

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 0.6924 – 25Jun high– Strong
• R1 0.6739 – 29Jul high– Medium
• S1 0.6566 – 30Jul low – Medium
• S2 0.6498 – 16Jul/2015 low – Strong

NZDUSD – fundamental overview

Thursday’s disappointing New Zealand building permits has been followed up on Friday with another sorry round of local data. The ANZ activity outlook came in at 19.0 versus 23.6 previous, while NBNZ business confidence plummeted to a 6 year low at -15.3 versus -2.3 previous. The data has added additional weight to an already offered Kiwi, with a more hawkish FOMC and well received US GDP print fueling broad based USD demand. Looking ahead, US Michigan sentiment and end of month flows are the things to watch for the remainder of the day.

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 topside failure to 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 to fresh record highs.

• R2 2137.00 – 19May/Record – Strong
• R1 2121.00 – 23Jul high – Medium
• S1 2063.00 – 27Jul low – Medium
• S2 2040.00 – 11Mar low– Strong

US SPX 500 – fundamental overview

An impressive rebound for stocks this week after the market once again stalled out ahead of the illusive March low. It seems this market has been moving on its own fundamentals, though it’s possible sentiment was bolstered post FOMC after the monetary policy statement showed no concern for softer commodities or external risk in China. Still, this week’s Fed rate decision was interpreted by FX markets as more hawkish and this should not be as equity bullish, with the hawkish implication suggesting the Fed could very well move in September. Thursday’s well received US GDP data only reaffirmed this fact. A move to higher rates would act as a disincentive to be long risk assets and could spark an overdue stock market capitulation.

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 oversold and there is room for a short-term bounce. But a daily close back above the previous 2015 base at 1142 would be required to take the immediate pressure off the downside.

• R2 1175.00 – 6Jul high – Strong
• R1 1142.00 – Previous Low – Medium
• S1 1073.00 – 20Jul/2015 low – Medium
• S2 1000.00 – Psychological – Strong

GOLD (SPOT) – fundamental overview

The downside pressure in the GOLD market 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. Looking ahead, month end flows could factor into trade today and drive additional volatility.

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 1.3800 – Figure – Medium
• S1 1.3609 – 22Jul low – Medium
• S2 1.3440 – 30Jun low – Strong

Feature – fundamental overview

A hawkish Fed monetary policy statement and well received US GDP have resulted in an upgraded expectation for a September Fed rate hike. Futures are pricing a 50% chance for a move in September, which is up from 39% before the Fed decision on Wednesday. This of course has resulted in some fresh weakness in the Singapore Dollar, with emerging market FX hypersensitive to monetary policy divergence. Adding more downside pressure on the Singapore Dollar into the end of the week and month has been a shakier outlook for Chinese markets, as reflected through some choppy China equity market performance.