FX Chops on Fischer and China, German ZEW Digested

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 1.5690 – 29Jul high – Strong
• R1 1.5651 – 5Aug high – Medium
• S1 1.5458 – 10Aug low  – Medium
• S2 1.5425 – 7Jul low  – Strong

GBPUSD – fundamental overview

The GBP OIS curve has been moving lower since last Thursday’s Bank of England quarterly inflation report. The more downbeat inflation outlook and concerns over the price of OIL are fueling more dovish bets, taking 2015 rate hike prospect off the table. Still, the Pound has made a nice recovery in the early week, with the UK currency supported on broad based profit taking fueled most recently by less than forthcoming comments from Fed Vice Chair Fischer with regard to a September liftoff. Overall, we are seeing some very thin summer trade, with Tuesday’s economic calendar offering nothing of note.

USDJPY – technical overview

The rally has been well capped for now around 125.00 and ahead of the critical multi-year peak from June at 125.85. Though the broader uptrend remains firmly intact, longer-term studies are well overbought and warn of some form of a correction before any meaningful bullish trend resumption through 125.85. Last Friday’s bearish outside day formation could be the catalyst that now triggers a more sizable bearish reversal.

• R2 125.85 – 5Jun/2015 high – Strong
• R1 125.07 – 7Aug high – Medium
• S1 124.02 – 5Aug low – Medium
• S2 123.52 – 31Jul low – Strong

USDJPY – fundamental overview

The major pair has put a decent recovery since the Friday close, with the price action driven off a rebound in equities and less than forthcoming comments from Fed Vice Chair Fischer on the timing of Fed liftoff. Though Fischer acknowledged the US labour market was near maximum employment, he also expressed concern over the still very low inflation environment, despite lower prices being attributed to transitory factors. The economic calendar for today is exceptionally thin and this market is expected to trade off broader risk sentiment themes. Any renewed downside pressure in equity markets could invite renewed Yen demand and in turn weigh on USDJPY.

EURCHF – technical overview

The market looks to be in the process of carving a meaningful base since taking out key multi-day range resistance at 1.0575 several days back. This has opened the latest break above the February peak at 1.0815 which now exposes fresh upside towards psychological barriers at 1.1000 further up. At this point, daily studies are however a little stretched, so there is risk for a short-term retreat to allow for these studies to unwind. But any setbacks should be well supported ahead of 1.0575.

• R2 1.1000 – Psychological – Strong
• R1 1.0900 – Figure – Medium
• S1 1.0760 – 10Aug high – Medium
• S2 1.0671 – 6Aug low – Strong

EURCHF – fundamental overview

Hopes for a Greek bank recapitalization and a healthy rebound in equity markets has helped to inspire yet another push in this recently well bid market. The Monday rally has resulted in a break  to the highest levels since the SNB removed the Franc cap back in January, with the price clearing stops above 1.0815. The SNB has built up a nice cushion for itself these past several days and dealers now talk of demand all the way up to 1.1000. Still, with the Franc correlated to risk, any renewed downside pressure in stocks could open a resurgence in safe haven currency demand which would invite renewed unwelcome downside pressure in EURCHF.

AUDUSD – technical overview

The recent break back above 0.7350 has triggered a double bottom that could open the door for a push to 0.7500 in the sessions ahead. Ultimately however, the broader downtrend remains firmly intact and any gains should be very well capped ahead of 0.7800 in favour of the next lower top and bearish continuation.

• R2 0.7496 – 10Jul high – Strong
• R1 0.7449 – 21Jul high – Medium
• S1 0.7300 – Figure – Medium
• S2 0.7235 – 31Jul/2015 low – Strong

AUDUSD – fundamental overview

Market expectations for a China fiscal and monetary stimulus package have helped inspire mild demand for risk assets, with the flows also supporting the correlated Australian Dollar. The suffering currency has also been helped by a rebound in commodities prices and some less than forthcoming comments from Fed Vice Chair Fischer over the timing of a liftoff. Still, a bit of a wrench into Tuesday after China weakened the Yuan reference rate by the most on record (1.9%) and NAB business confidence data came in softer. Looking ahead, the economic is exceptionally light for the remainder of the day. The Australian Dollar is expected to trade off broader macro themes in this thin summer trade.

USDCAD – technical overview

The market is locked within a well defined uptrend, recently pushing to fresh 11-year highs. However, with daily studies now unwinding from overbought territory, there is risk for some form of a more meaningful corrective pullback towards support at 1.2861 in the sessions ahead to allow for these stretched studies to unwind. Ultimately, any corrective declines should be well supported ahead of 1.2600, with a higher low sought out in favour of a bullish continuation.

• R2 1.3214 – 5Aug/2015 high – Strong
• R1 1.3100 – Figure – Medium
• S1 1.2941 – 31Jul low – Medium
• S2 1.2861 – 29July low– Strong

USDCAD – fundamental overview

The Canadian Dollar is finally finding some decent bids post the latest slide to fresh 11-year lows against the Buck. The currency had been trading flat following last Friday’s offsetting in line employment data out of the US and Canada, but has since recovered on the back of a well deserved bounce in beaten down OIL prices. The Bank of Canada has been forced to adopt a more accommodative stance in recent months, with the deterioration in OIL prices weighing on the economy. As such, any signs of a bottom or recovery will do a good job of taking pressure off the central bank to consider more easing measures. Looking ahead, Canada housing starts are the standout release in some light Tuesday trade.

NZDUSD – technical overview

Daily studies are in the process of unwinding from oversold off fresh multi-year lows and there is risk for additional correction in the sessions ahead to allow for these studies to further unwind before the market considers a legitimate bearish continuation below 0.6500. 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 0.6529 – 7Aug low – Medium
• S2 0.6491 – 5Aug/2015 low – Strong

NZDUSD – fundamental overview

New Zealand credit card retail spending has come in on the whole better than the previous showing for this series which has helped to support the commodity currency into Tuesday trade. Overall, Kiwi has been trying to bounce from recent multi-year lows against the Buck, with some broad based US Dollar profit taking helping to fuel the modest Kiwi bid. Less than forthcoming Fed Vice Chair Fischer comments with regard to a September liftoff have resulted in some USD selling, while a rebound in commodities and better bid stock market on added China stimulus talk has also factored into price action. Still, a bit of a hiccup for Kiwi into Tuesday after China weakened the Yuan reference rate by the most on record (1.9%) in an effort to bolster exports. Looking ahead, there is no data of significance on the calendar for the remainder of the day, and  broader macro themes will influence in the thin August trade.

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 weakness 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 2117.00 – 31Jul high – Medium
• S1 2063.00 – 27Jul low – Medium
• S2 2040.00 – 11Mar low– Strong

US SPX 500 – fundamental overview

Speculation for a sizable China fiscal and monetary stimulus package along with Fed speak from Vice Chair Fischer casting doubt over the likelihood for a September Fed rate liftoff have helped fuel a resurgence in demand for US equities. Still, with the Fed on course for a sooner than later hike and with a fading incentive to be long stocks at current levels in light of the Fed tightening cycle, there is a growing risk the market could be on the verge of a major capitulation. Throw in the fact that the China stimulus measures are only a function of deteriorating economic fundamentals and there shouldn’t be a whole lot of confidence in this latest rally in very thin trade.

GOLD (SPOT) – technical overview

Finally some signs of a potential base since breaking down to fresh multi-year lows below 1100. Still, the downtrend remains firmly intact and the market could be looking for a fresh lower top ahead of the next major downside extension towards critical psychological barriers at 1000. At this point a break back above the previous 2015 low at 1142 would be required to take the immediate pressure off the downside.

• R2 1142.00 – Previous Low – Strong
• R1 1110.00 – Figure – Medium
• S1 1073.00 – 20Jul/2015 low – Medium
• S2 1000.00 – Psychological – Strong

GOLD (SPOT) – fundamental overview

A broader rebound in commodities markets on Monday, along with a sell-off in the US Dollar have helped to open a bit of a recovery in the beaten down yellow metal. Comments from Fed Vice Chair Fischer casting doubts on the likelihood for a September liftoff have been supportive and sourced as a primary driver. Still, there are plenty of offers reported into rallies and participants will be looking for any excuse to sell the metal. Perhaps China’s latest move to weaken the Yuan reference rate by the most on record (1.9%) is one of those excuses weighing on the metal in Tuesday trade.

Feature – technical overview

USDZAR remains locked in a well defined uptrend, but has seen some corrective weakness in recent sessions off multi-year highs. From here, there is risk for additional declines towards support in the 12.3000 area before the market considers a fresh higher low and bullish resumption. But ultimately, only a daily close below 12.2900 would take the pressure off the topside and force a shift in the structure.

• R2 13.000 – Psychological – Medium
• R1 12.8280 – 5Aug/2015 high – Strong
• S1 12.4690 – 29Jul low – Strong
• S2 12.3750 – 23Jul low – Medium

Feature – fundamental overview

The Rand has had the good fortune of finding some welcome bids in recent trade, with the emerging market currency benefitting from broad based profit taking on USD longs off multi-year highs. Still, with capital outflows a major headwind for the South African currency in the face of diverging Fed policy and ongoing weakness in the commodity markets, any strength in the Rand is viewed as temporary. The SARB may be forced to raise rates to keep up with the Fed, and while this may initially help the currency, ultimately, the impact of higher rates in a still struggling South African economy, could backfire and open a more intensified depreciation in the Rand. Emerging market currencies have taken a bit of a hit into Tuesday following the news of China weakening its Yuan reference rate by the most on record in an effort to bolster struggling exports.