China At It Again, UK Employment In Focus

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

Not much going on for the Pound in the early week, with all things China dominating trade. BOE Miles was on the wires on Tuesday and may have helped to prop the UK currency a bit after the central banker said he thought there was a reasonable case to vote for a rate hike in August, while also adding ‘the longer you leave it (current policy), the slightly more steep that trajectory becomes.’ Expectations for a sooner BOE rate hike have been scaled back since last week’s more dovish QIR, though by almost all accounts, the BOE should be the next central bank behind the Fed to hike rates when the time comes. Looking ahead, things get more interesting today with the market taking in UK employment data.

USDJPY – technical overview

The rally has been well capped 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 beyond 125.85. As such, look for this latest push higher to stall out in the sessions ahead, with only a daily close above 125.85 to force a shift in the outlook.

• R2 125.85 – 5Jun/2015 high – Strong
• R1 125.50 – Mid-Figure – Medium
• S1 124.52 – 11Aug low – Medium
• S2 124.02 – 5Aug low – Strong

USDJPY – fundamental overview

A interesting couple of sessions for the Yen, with the currency extending declines against the Buck despite a major pullback in equity markets post the Yuan devaluation news. It seems the market is initially more concerned with the currency war impact from the weaker Yuan than it is about Yen safe haven flows. Dealers have talked about USDJPY stops being cleared above 125.10 which has invited fresh demand as players look to push the major pair towards the June multi-year peak at 125.85. The early Wednesday BOJ Minutes and Japanese inflation readings have failed to influence price action. There is little on the economic calendar for the remainder of the day and participants will continue to digest the implications from the latest China move, while keeping an eye on risk flows.

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 1.0950 – Mid-Figure – Medium
• S1 1.0760 – 10Aug high – Medium
• S2 1.0671 – 6Aug low – Strong

EURCHF – fundamental overview

The cross rate continues to extend gains to the highest levels since the SNB removed the Franc cap back in January, with the price now closing on major psychological barriers at 1.1000. The SNB has built up a nice cushion these past several days despite some risk off flows and liquidation in equities. But with very little in the way of any meaningful resistance since breaking 1.0815, there aren’t too many out there that want to step in and sell. Even a softer German ZEW failed to weigh in Tuesday trade. Still, with the Franc correlated to risk, any intensified downside pressure in stocks this week could open resurgence in safe haven Franc demand, which would invite renewed unwelcome downside pressure in EURCHF.

AUDUSD – technical overview

The downtrend remains firmly intact, with the recovery rally stalling out ahead of 0.7500 in favour of the next downside extension to fresh multi-year lows below 0.7235. Look for a daily close below 0.7235 to open an acceleration of declines towards the next key psychological barrier at 0.7000. Only back above 0.7500 would take the immediate pressure off the downside.

• R2 0.7440 – 11Aug high – Strong
• R1 0.7400 – Figure – Medium
• S1 0.7215 – 12Aug/2015 low – Strong
• S2 0.7200 – Figure – Medium

AUDUSD – fundamental overview

The Australian Dollar hasn’t been able to shake off the negative fallout from the record Yuan devaluation move, with the currency trading back to fresh multi-year lows against the Buck in early Wednesday trade on another aggressive sell-off in the Yuan at today’s fixing. An upbeat Aussie Westpac consumer sentiment reading might be helping to mitigate declines a bit but there are reports of additional offers with the macro environment increasingly unstable. Today’s China data in the form of industrial production and retail sales are adding more volatility to the beaten down commodity currency. 

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 1.3150 – 11Aug high – Medium
• S1 1.3049 – 7Aug low – Medium
• S2 1.2992 – 10Aug low– Strong

USDCAD – fundamental overview

The commodity bloc currencies have been quite exposed in the aftermath of the China deval news, with the Canadian Dollar coming back under pressure in Tuesday trade. The Loonie has already been hit hard given its strong correlation to OIL prices. Tuesday’s OIL slide has fueled additional CAD selling after the Loonie had benefitted a bit in Monday trade from a short covering rally in OIL that has since been wiped out. Canada housing starts also came in a tad softer and have not helped the Loonie’s cause. Looking ahead, broader macro flows will dictate trade on Wednesday with secondary data out of Canada and the US unlikely to factor.

NZDUSD – technical overview

Daily studies are in the process of unwinding from oversold off fresh multi-year lows and there is risk for additional consolidation 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 0.6637 – 7Aug high– Medium
• R1 0.6558 – 12Aug high– Medium
• S1 0.6468 – 12Aug/2015 low – Strong
• S2 0.6400 – Figure – Medium

NZDUSD – fundamental overview

Commodity bloc currencies have been very cold to the latest China currency deval news, with Kiwi coming under renewed downside pressure, trading back towards recent multi-year lows. New Zealand FinMin English hasn’t done anything to help the New Zealand Dollar after saying there was still ‘plenty of room for interest rate cuts.’ The New Zealand economy has been struggling with a rapid decline in dairy and risk associated with a slowing China and although rates have come off of late, the currency is still the highest yielding of the major currencies and is therefore sensitive to global risk sentiment. Equity markets have been looking quite shaky in recent weeks and this only adds to the negative Kiwi flows.

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

Investor reaction to the China deval news has not been warm, with equities pulling back as participants grow increasingly uneasy with the risk associated from a deterioration in the Chinese economy. China has aggressively ramped up its intervention efforts to support the economy, though these moves are not without serious worry. One such fear is the possibility the Fed still goes ahead and moves in September despite the deterioration in the global macro backdrop. A recipe of tighter Fed policy and a struggling global economy does not bode well for elevated stock markets.

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 1120.00 – 11Aug high – Medium
• S1 1073.00 – 20Jul/2015 low – Medium
• S2 1000.00 – Psychological – Strong

GOLD (SPOT) – fundamental overview

Despite some downside pressure on commodities in Tuesday trade, GOLD managed to mostly shrug off these flows and trade higher on the day. The China deval news was a primary driver of downside pressure in the commodities sector, though the ensuing risk off trade also helped inspire some safe haven demand for the already beaten down yellow metal. Investors are also considering the possibility the Fed now holds off on a rate hike in September which invites additional upside to the commodity given its inverse correlation with the US Dollar.

Feature – technical overview

USDZAR remains locked in a well defined uptrend, with the market breaking to fresh multi-year highs beyond the recent 2015 peak at 12.8290. A daily close above 12.8290 on Wednesday will open the door for the next major upside extension exposing the 13.2000 area further up. Any setbacks are viewed as corrective and should be well supported in the 12.4500 area.

• R2 13.000 – Psychological – Medium
• R1 12.8700 – 12Aug/2015 high – Strong
• S1 12.4690 – 29Jul low – Strong
• S2 12.3750 – 23Jul low – Medium

Feature – fundamental overview

The China deval news has hit emerging market FX hard, with the development further confirming fears of a deteriorating China economy. South African manufacturers won’t be too excited with the prospect of a weaker Yuan that detracts from incentive to be purchasing local product. This has clearly overshadowed any positives on Tuesday from a slightly better than expected (but still negative) South Africa manufacturing production reading. There are also very few signs of any pickup in domestic demand which is a worry for South Africa GDP numbers.