Volatility To Pick Up Despite Lighter August 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 1.5549 – 31Jul low  – Medium
• S2 1.5467 – 24Jul low  – Strong

GBPUSD – fundamental overview

Monday’s slightly firmer UK manufacturing PMIs didn’t do anything to help the Pound, with the UK currency trading lower on the day, albeit in some very light, quiet trade. With so many market participants off the desks for August holidays, it isn’t too shocking to see this market defer to some consolidation. The BOE is out on Thursday, followed by Friday’s US NFPs, and things will likely pick up in the latter half of the week. For today, the market will digest UK Nationwide house prices, UK construction PMIs and US factory orders.

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 123.52 – 31Jul low – Medium
• S2 123.01 – 27Jul low – Strong

USDJPY – fundamental overview

Although the US Dollar was broadly bid in Monday trade, the Buck didn’t fare as well against the Yen. Unquestionably, the pullback in equities played a key role in the price action, with the risk off trade fueling positive Yen flows. Still, setbacks were mild and there was some support for the market with a John Hilsenrath WSJ piece getting some attention. Hilsenrath cautioned doves that the Fed wouldn’t necessarily need to see a tick up in wage growth to move in September. Nevertheless, the famed Fed watcher said September would be a ‘cliffhanger.’ 

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 1.0532 – 31Jul 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 breathe 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. The recent break above 0.7350 has triggered a double bottom that could open the door for a push to 0.7450-0.7500 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 0.7367 – 31Jul high – Medium
• S1 0.7235 – 31Jul/2015 low – Strong
• S2 0.7200 – Figure – Medium

AUDUSD – fundamental overview

The Australian Dollar has come into the spotlight on Tuesday, and is outperforming early on, after taking in a round of solid data in the form of above forecast Aussie retail sales and trade, while also digesting the latest RBA decision. Though the RBA left rates on hold at 2% as widely expected, the fact that the accompanying statement was seemingly less dovish than many had feared has given an added prop to the currency. The line in the monetary policy statement that “the Australian dollar is adjusting to the significant declines in key commodity prices” is far less aggressive than the central bank has been in the past with respect to its talking down of the local currency. This is suggestive of some moderation and is helping to fuel Tuesday gains. Looking ahead, US factory orders is the only other notable release on the day. However, sentiment towards China and performance in equities and commodities will undoubtedly influence trade.

USDCAD – technical overview

The market is locked within a well defined, strong uptrend, pushing to fresh multi-year highs. However, with daily studies tracking in overbought territory, there is risk for some form of a meaningful corrective pullback in the sessions ahead to allow for these stretched studies to unwind. Ideally, any corrective declines should be well supported ahead of 1.2600, with a higher low sought out in favour of a bullish continuation.

• R2 1.3200 – Figure – Medium
• R1 1.3177 – 4Aug/2015 high – Strong
• S1 1.3080 – 3Aug low – Medium
• S2 1.2941 – 31July low– Strong

USDCAD – fundamental overview

Canada’s Monday holiday left this market focused on US developments and commodities prices. Data out of the US was mixed on the whole, with ISM manufacturing and construction disappointing, while personal income, personal spending and core PCE impressed. This left the market heavily influenced by performance in commodities, with the highly correlated OIL market dropping to fresh multi-day lows, inspiring another multi-year low in the Canadian Dollar. GOLD also closed lower on the day which did not help the Loonie. Looking ahead, Canada manufacturing PMIs and US factory orders are the standouts in today’s trade, while OIL price action will continue to play a major role. Another influence over the coming weeks will be political uncertainty, with the ruling Conservatives calling for an October election.

NZDUSD – technical overview

Daily studies have turned 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 0.6739 – 29Jul high– Strong
• R1 0.6674 – 31Jul high– Medium
• S1 0.6536 – 31Jul low – Medium
• S2 0.6498 – 16Jul/2015 low – Strong

NZDUSD – fundamental overview

The local economy has already been struggling with a deterioration in the dairy sector, declining commodities prices and uncertainty surrounding the China outlook, and last week’s ugly NBNZ business confidence only adds yet another sour note to the New Zealand Dollar’s prospects. This market will now start to position ahead of the upcoming dairy auction and Wednesday employment data, while also not forgetting about Friday’s all important monthly employment report out of the US. Lack of any meaningful economic data releases today leaves the market focused on broader macro themes including equity market sentiment, commodities prices and interest rate differentials. Second tier Kiwi housing data hasn’t factored and the only other release of note comes later in the day in the form of US factory orders.

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

Sellers continue to emerge into rallies ahead of the record high from May and there is a growing sense this market could be in the process of carving out some form of a material top. The reality of a September liftoff is something the equity market has not properly considered to date, but with last week’s FOMC rate decision coming out on the more hawkish side, the market may be getting a little jittery with the idea the Fed will start taking free money incentive to be long risk assets off the table. A WSJ Hilsenrath piece warns the Fed won’t necessarily need to see higher wage growth to move in September and this could be factoring into some of the latest downside pressure. Clearly Friday’s monthly employment report out of the US will be a volatility generator, with anything on the solid side to further cement September liftoff odds.

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 GOLD market remains under intense pressure at multi-year lows, with the prospect for a Fed rate hike and broad based US Dollar demand opening intense downside pressure in the beaten down metal. Speculative positioning has recently shifted to the short side and the market is now contemplating the next major drop down towards critical barriers at $1000. Friday comments from famed investor John Paulson (see today’s ‘further reading’ section) that the yellow metal is now fairly valued haven’t done anything to bolster demand, and it comes as no surprise after the buy-sider has taken a hit on the long side, significantly reducing long exposure in recent years. Dealers cite stops above 1140 and below 1070.

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

The combination of a deteriorating China economy and Federal Reserve on the verge of rate liftoff has not been a welcome recipe for the emerging market currencies, which continue to get hit hard on these themes. The latest slide in China manufacturing PMIs has invited fresh USDSGD bids from proprietary funds, while a downturn in US equities on Monday and warnings from WSJ Fed watcher Hilsentrath that the Fed could still hike rates even without higher wage growth have fueled additional Singapore Dollar weakness.