Yuan Move Still In Question, US Retail Sales Ahead

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 1.5660 – 12Aug high – Medium
• S1 1.5458 – 10Aug low  – Medium
• S2 1.5425 – 7Jul low  – Strong

GBPUSD – fundamental overview

A weaker UK employment print, with softer wages has not been a help to the Pound, though the UK currency did manage to benefit from some broad based US Dollar selling on post China reval positioning. The market had already been pricing in a less aggressive BOE tightening timeline after last week’s more downbeat BOE quarterly inflation report, and Wednesday’s disappointing labour market showing has only emboldened the outlook in the dovish. Looking ahead, the UK calendar is empty on Thursday and the focus will be on US data in the form of retail sales, initial jobless claims and business inventories.

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 more meaningful correction before any bullish trend resumption beyond 125.85. As such, look for Wednesday’s bearish outside day to trigger deeper setbacks, initially towards 123.00. Ultimately, only a daily close back above 125.85 would force a shift in the outlook.

• R2 125.85 – 5Jun/2015 high – Strong
• R1 125.28 – 12Aug high – Medium
• S1 123.81 – 12Aug low – Medium
• S2 123.01 – 27Jul low – Strong

USDJPY – fundamental overview

The uncertainty surrounding the latest Yuan devaluation has resulted in some whipsaw price action in the Yen, with the currency initially softer on the back of the Tuesday PBOC move, but then rallying hard post the 1.6% Yuan depreciation at the Wednesday fixing. The Bank of Japan isn’t expected to respond to these moves with any additional easing of its own, though speculation has ramped up the Fed could be pressured to delay a September hike in light of the development. Fears of a currency war has scared some of the weaker Yen shorts and this could be contributing to a move in yield differentials slightly back in the Yen’s favour. Moreover, a shaky global equity market could also be factoring, with any risk liquidation a benefit to funding currencies like the Yen. The PBOC has raised the USDCNY for a third consecutive day, this time +1.1%, taking the pair to its highest levels since August 2011. Looking ahead, US retail sales, initial jobless claims and business inventories are the standouts on the economic calendar.

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 we are seeing a bit of 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 1.0962 – 12Aug high – Medium
• S1 1.0842 – 12Aug low – Medium
• S2 1.0771 – 11Aug low – Strong

EURCHF – fundamental overview

Finally some profit taking after an impressive surge in this rate over the past several days. The market had blown through stops above 1.0815, trading to its highest levels since the SNB removed the Franc cap back in January. But with the market stretched technically and psychological barriers at 1.1000 just above, a wave of profit taking has set in, opening a well deserved pullback. The SNB has built up a nice cushion these past several days despite some risk off flows on China uncertainty and a resulting liquidation in equities, but it seems with the macro environment less stable at the moment, this could once again invite safe haven Franc flows.

AUDUSD – technical overview

While the downtrend remains firmly intact, with the market breaking to yet another multi-year low this week, there is risk for a period of consolidation in the days ahead to allow for some stretched studies to unwind before any meaningful bearish resumption. Still, rallies are expected to be well capped and look for any corrective gains to stall out ahead of 0.7700.

• R2 0.7500 – Psychological – Medium
• R1 0.7440 – 11Aug high – Strong
• S1 0.7283 – 11Aug low – Strong
• S2 0.7215 – 12Aug/2015 low – Medium

AUDUSD – fundamental overview

The ongoing China Yuan revaluation has been a major volatility generator for the Australian Dollar this week, with the highly correlated Australian economy trying to make sense of the development. The initial reaction was Aussie negative, with the currency sinking to a fresh 6 year low, culminating after the second big Yuan depreciation in as many days, though the market mounted an aggressive recovery off the lows as Wednesday progressed. We have since seen a third consecutive raised fixing, with USDCNY up 1.1%, the highest levels since August 2011. For the moment, Aussie traders are considering the possibility the China move will have a positive impact on global markets, though the jury is still very much out on this one. A scaling back of Fed liftoff expectations and an impressive rebound in Aussie Westpac consumer confidence may also be factoring a bit into the recovery. Looking ahead, US retail sales, initial jobless claims and business inventories will be the focus in today’s 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 1.3157 – 12Aug high – Medium
• S1 1.2943 – 31Jul low – Medium
• S2 1.2861 – 29Jul low– Strong

USDCAD – fundamental overview

The currency market seems to be considering the possibility of a scaled back Fed liftoff timeline in light of the Yuan devaluation, and this in conjunction with a stabilisation in the price of OIL has helped to generate some renewed interest in the beaten down Canadian Dollar, trading off 11 year lows against the Buck. Clearly the price of OIL has been an added stress for the Loonie on top of all the China uncertainty and the price action in the black gold should continue to dictate direction going forward. On the data front, Wednesday Canada housing data was solid, and the market will digest some more Canada housing figures today along with US retail sales, initial jobless claims and business inventories.

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

The New Zealand Dollar has recovered nicely off fresh multi-year lows in early Wednesday trade, with the currency benefitting from a broad based bout of profit taking in the US Dollar. It seems market participants are looking to scale back Fed liftoff prospects in light of the Yuan devaluation and this has helped widen rate differentials back in Kiwi’s favour. But overall, with the New Zealand economy struggling and dairy prices on the decline, the RBNZ is still expected to take further easing measures in the months ahead, sentiment shared by FinMin English earlier this week. On the data front, softer New Zealand business PMIs haven’t factored into Thursday price action. Looking ahead, US retail sales, initial jobless claims and business inventories are the key events for today, though this market will also be looking past US data to early Friday New Zealand retail sales.

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 2052.00 – 12Aug low – Medium
• S2 2040.00 – 11Mar low– Strong

US SPX 500 – fundamental overview

The stock market is trying to figure out how to react to the latest Yuan devaluation, not knowing if the move will support the global economy on the commitment to keep the Chinese economy moving along, or if the intervention efforts are a sign of instability in a shaky emerging economy showing signs of worrying deterioration. The resulting price action has been quite choppy, though setbacks have been supported as investors try to focus on the positives. One such positive investors are hoping for is a scaled back Fed liftoff timeline that will keep looser monetary policy incentivizing further investment. Looking ahead, US retail sales and initial jobless claims standout in today’s 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 daily close 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 1126.00 – 12Aug high – Medium
• S1 1102.00 – 12Aug low – Medium
• S2 1073.00 – 20Jul/2015 low – Strong

GOLD (SPOT) – fundamental overview

Despite broader downside pressure in commodities markets, GOLD has managed to mostly shrug off these flows to mount a solid recovery into Thursday. The initial reaction to the Yuan deval news was negative for the commodities markets, though the ensuing USD sell-off on the back of scaled back Fed rate liftoff expectations has been a positive driver for the yellow metal which shares inverse correlations with the Buck. Longer-term gold bugs have also been circling following the dip below $1100 and have been looking to do some bargain buying with inflation expected to pick up over the coming months and the GOLD hedge projected to make a comeback.

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 to 12.8750 thus far. A daily close above 12.8750 will now 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 12.8750 – 12Aug/2015 high – Strong
• S1 12.5965 – 7Aug low – Strong
• S2 12.4690 – 29Jul low – Strong

Feature – fundamental overview

Moody’s was out warning that South Africa’s credit rating could be cut if the government faltered in its debt stabilisation path, though the news didn’t get much attention, with the Rand more focused on broader macro flows and US Dollar interest rate differentials. It seems the threat of a currency war in light of the latest China deval is increasing expectations the Fed may take this into consideration at upcoming meetings and scale back its liftoff timeline. This has helped inspire some renewed demand for the Rand, though ultimately, the unstable macro environment and inevitability of Fed rate hikes at some point over the coming months should continue to weigh on the emerging market currency.