Pound Stands Out As Traders Digest UK Inflation

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. Look for a daily close above 1.5690 to confirm and accelerate gains. At this point, only back below 1.5350 would negate the constructive outlook and compromise the constructive outlook.

• R2 1.5750 – Mid-Figure – Medium
• R1 1.5690 – 17Aug high – Strong
• S1 1.5535 – 12Aug low  – Medium
• S2 1.5425 – 7Jul low  – Strong

GBPUSD – fundamental overview

Hawkish weekend comments from BOE Forbes helped to give the Pound a nice initial bid tone on Monday, though the gains could not be sustained with the market running into solid offers ahead of 1.5700. Forbes warned that keeping rates low would result in unwelcome distortions while adding the key rate would have to rise well before inflation reached 2%. But the Forbes comments didn’t have any meaningful impact on the OIS curve, which continues to be quite dovish, pricing in less than 1% in hikes a year out. Monday’s US data was mixed with Empire manufacturing disappointing and NAHB coming in solid. Looking ahead, the key focus in today’s trade will unquestionably be a batch of UK inflation data. We also get UK housing data, but this, US building permits and housing starts will take a back seat to the UK inflation readings.

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 the latest topside failure 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 125.28 – 12Aug high – Strong
• R1 125.00 – Psychological – Medium
• S1 123.81 – 12Aug low – Medium
• S2 123.01 – 27Jul low – Strong

USDJPY – fundamental overview

A mild bid tone for the major pair in Monday trade, with USDJPY perhaps rallying a bit on the back of stronger equity market. Still, market conditions have been razor thin and we have been confined to some tight range trade. Bids have also been well capped into rallies, after Japan’s Amari reiterated the government’s moderate growth recovery expectations, with no plans for additional stimulus. Amari also added the government was not targeting a weaker Yen. Monday’s round of US data was mixed and didn’t factor too much into price action. The pair sold off a bit on the weaker Empire manufacturing but found bids on the healthy NAHB housing print. Looking ahead, the calendar is light with only US building permits and housing starts standing out. 

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 1.0815 – 17Aug low – Medium
• S2 1.0771 – 11Aug low – Strong

EURCHF – fundamental overview

There has been a lot of talk of the SNB taking advantage of the very thin summer months to cheaply intervene and weaken the Franc to more comfortable levels. Though there has been no clear indication, whatever the case, the Swiss central bank is certainly sitting more comfortable than it had been just a few weeks back. The SNB has also had the added advantage of potentially doing all this while staying under the radar with the market so focused on the timing of Fed liftoff and a Yuan devaluation. Overall, with the SNB balance sheet ballooning to around 85% of GDP, it is unlikely there is a lot left in the tank for future interventions. But at least at current levels, any downturn in global sentiment that invites renewed Franc bids will be more palatable, now that the EURCHF rate is closer to 1.1000 and well off earlier lows. Swiss retail sales and sight deposits are getting digested in Monday trade.

AUDUSD – technical overview

While the downtrend remains firmly intact, with the market breaking to yet another multi-year low in the previous 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 RBA Minutes have come out in early Tuesday trade, but not much movement on the release, with the Minutes echoing the latest monetary policy statement which said the central bank would continue to monitor incoming data to assess if rates are appropriate, and the fall in the Australian Dollar was helping to balance the economy. The Minutes also said the Australian Dollar would weaken further as the Fed began to raise rates. Overall, the monetary policy divergence theme is expected to continue to keep Aussie well capped into any corrective rallies.

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 1.3016 – 14Aug low – Medium
• S2 1.2952 – 12Aug low– Strong

USDCAD – fundamental overview

A healthy Canada international securities transactions report and softer US Empire manufacturing gave weak USDCAD longs enough of an excuse to book some profit on an extended US Dollar rally. There were also signs of a potential bottom in OIL on Monday, which offered additional support to the Loonie, though OIL prices sold off into the close to mitigate any positive impact from these flows. Looking ahead, the Canada economic calendar is empty today, with the only standouts coming out of the US in the form of housing starts and building permits.

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 0.6739 – 29Jul high– Medium
• R1 0.6648 – 12Aug high– Medium
• S1 0.6468 – 12Aug/2015 low – Strong
• S2 0.6400 – Figure – Medium

NZDUSD – fundamental overview

The New Zealand Dollar has recovered off recent multi-year lows against the Buck, with the currency finding some bids on the back of a softer US Empire manufacturing release. Commodity prices have also stabilised, helping to give the correlated currency a bit of an added boost into Tuesday. There is risk for additional corrective gains for Kiwi in the sessions ahead, with today’s GDT auction expected to yield positive results this time round. Still overall, the RBNZ is on pace for additional rate cuts and there are plenty of offers reported into rallies towards 0.7000. Also out on Tuesday are US building permits and housing starts.

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

US equities aren’t exactly excited about solid US economic data these days, with the improvement in the US economy pushing the Fed closer to a rate liftoff and removal of current ultra accommodative central bank policy. This free money has served as an incentive to be buying risk assets since the early stages of the financial markets crisis, and if the Fed goes ahead and raises rates next month, the incentive will start to come off the table. And so, it wasn’t much of a surprise to see stocks higher on Monday with the soft Empire manufacturing print scaling back Fed rate hike expectations. Overall however, most indicators have been showing a healthy recovery and this should still keep the Fed on course for liftoff next month, which does not bode well for stocks.

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 1127.00 – 13Aug 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 decent recovery of recent multi-year lows. The initial reaction to last week’s 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. 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

USDTRY remains locked in a well defined uptrend, with the market breaking to fresh record highs beyond 2.8000. From here, there is risk for the current gains to extend towards a measured move in the 2.9000 area, though with monthly technical readings through the roof, additional upside could be hard to come by. The monthly RSI reading is tracking at a violently overbought level of 85, quite often a red flag for some form of a reversal the other way.

• R2 2.9000 – Psychological – Medium
• R1 2.8770 – 18Aug/Record – Strong
• S1 2.7975 – 31Jul high – Medium
• S2 2.7600 – 11Aug low – Strong

Feature – fundamental overview

Turkish PM Davutoglu had promised Monday’s presser would be ‘nice’ though it was hard to find anything encouraging in the PM’s statement, which continued to point to an early election. Davutoglu confirmed what had already been suspected, that the MHP would not support a coalition or short-term government with the AKP. The political risk and instability in the Turkish government has been a major weight on an already struggling Lira these past few months and this latest development has resulted in a drop to yet another record low TRY. This sets up a very interesting CBRT rate decision today, with many now expecting the central bank to adopt a more hawkish outlook. Some banks have even come out calling for a hike with this segment calling for a move of anywhere between 50 to 100 bps. The CBRT is now in a very tough position as any additional hikes will likely strangle the struggling local economy.