Market Finds Stability, But Still In Danger Zone

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. Monday’s bullish close above 1.5690 confirms and should accelerate gains. At this point, only back below 1.5350 would compromise the constructive outlook.

• R2 1.5930 – 18Jun/2015 high – Strong
• R1 1.5804 – 24Aug high – Medium
• S1 1.5630 – 24Aug low  – Medium
• S2 1.5562 – 18Aug low  – Strong

GBPUSD – fundamental overview

The Pound continues to be well supported on dips amidst a bout of broad based profit taking on USD long positions. Scaled back expectations for a Fed liftoff have been driving most of the price action, with the Fed will now likely to sit back and do nothing in September, in light of the China fallout, ongoing slide in OIL prices, and collapsing global equities. Still, with many expecting the Bank of England to be next in line to raise rates behind the Fed, the scaling back in Fed rate hike bets has indirectly weighed on the Pound, with participants also scaling back Bank of England bets. This has prevented the Pound from making any serious upside moves. Additionally, gains have also been tempered by offsetting data last week after UK inflation was hotter, while UK retail sales disappointed . Looking ahead, there is no UK data scheduled today, with the focus on US data in the form of Case Shiller, new home sales and consumer confidence.

USDJPY – technical overview

The market has finally rolled over after stalling out ahead of the multi-year high from June at 125.85. Monthly technical studies were severely overbought and warned of such a correction, and the pullback has not let down, with the market collapsing back towards 116.00 ahead of the latest minor consolidation. From here, the market could be looking for a medium-term higher low above 115.00 ahead of a bullish resumption, though at this point, more consolidation is expected before any directional breakout moves.

• R2 122.03 – 24Aug high – Strong
• R1 120.50 – Mid-Figure – Medium
• S1 118.25 – 25Aug low – Medium
• S2 116.12 – 24Aug low – Strong

USDJPY – fundamental overview

The Yen has been a strong outperformer in recent trade, with the currency benefitting on two fronts. We have seen a resurgence in demand on the back of scaled back Fed interest rate hike expectations following last week’s more dovish FOMC Minutes. Meanwhile, the sharp drop in global equities has also been fueling demand, with market participants liquidating risk assets and moving back into funding currencies. Fed Lockhart was out on Monday conceding the fact that the latest Yuan moves and commodity rout were making the Fed’s timeline more complicated. Still, Lockhart said he expected rate hikes in 2015. Looking ahead, the focus for the economic calendar will be on US data in the form of Case Shiller, new home sales and consumer confidence.

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 1.0962 – 12Aug high – Strong
• R1 1.0879 – 24Aug high – Medium
• S1 1.0690 – 27Jul high – Strong
• S2 1.0575 – Previous Resistance – Medium

EURCHF – fundamental overview

It is incredibly impressive the Franc has remained relatively offered in the face of the broader risk liquidation. But if this rotation away from risk assets keeps up, it could spell trouble major trouble for the SNB. 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.

AUDUSD – technical overview

Setbacks have accelerated sharply to the downside to yet another multi-year low, with the market stalling just shy of critical psychological barriers at 0.7000. At this point, technical studies are unwinding from stretched levels, and there is risk for some choppy consolidation in the sessions ahead before the possibility of a bearish resumption below 0.7000. Any rallies should continue to be well capped below 0.7440.

• R2 0.7409 – 13Aug high – Strong
• R1 0.7312 – 24Aug high – Medium
• S1 0.7100 – Figure – Medium
• S2 0.7040 – 24Aug/2015 low – Strong

AUDUSD – fundamental overview

The Australian Dollar isn’t too sure which way to break right now, with the currency tempted to move in both directions. Broad based USD selling on the back of scaled back Fed liftoff bets has been helping to keep the currency supported off Monday’s wild drop to fresh multi-year lows just shy of 0.7000, while a downturn in global sentiment on deteriorating fundamentals in China and falling commodities have been fueling the offers. Fed Lockhart comments may have contributed to Aussie’s sharp rebound after the hawkish central banker conceded recent moves in the Yuan and OIL were making the Fed’s outlook more complicated. Looking ahead, the market will continue to digest these latest developments, while monitoring the price action in broader FX and risk assets for directional insight. The economic calendar for Monday is quite light, with the only notable releases in the US coming in the form of Case Shiller, new home sales and consumer confidence.

USDCAD – technical overview

The market is locked within a well defined uptrend, pushing to fresh 11-year highs and closing in on next major psychological barriers at 1.3500. However, with medium-term studies looking stretched, there is risk for some form of a meaningful corrective pullback in the sessions ahead to allow for these stretched studies to unwind. Ultimately however, any corrective declines should be well supported with a higher low sought out in favour of a bullish continuation.

• R2 1.3400 – Figure – Medium
• R1 1.3290 – 24Aug/2015 high – Strong
• S1 1.3151 – 24Aug low – Medium
• S2 1.3060 – 21Aug low– Strong

USDCAD – fundamental overview

Although the Canadian Dollar couldn’t avoid dropping to yet another 11 year low, volatility in the Loonie was rather mild compared to its commodity cousins. Impressive recoveries off multi-year lows in Aussie and Kiwi failed to carry over to the Canadian Dollar, with the currency still very much a victim of highly correlated declining OIL prices. OIL went ahead and continued to extend its own declines to multi-year lows and this kept the Loonie under pressure into the Monday close. The weakness in OIL has resulted in a pricing in of additional rate cuts from the Bank of Canada in the months ahead and market participants will be looking for more colour later today when deputy governor Schembri speaks. Otherwise, the Canadian economic calendar is empty, with only US data featured, in the form of Case Shiller, new home sales and consumer confidence.

NZDUSD – technical overview

Daily studies are in the process of unwinding from oversold off a violent decline to 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 0.6130. Still, any rallies should be well capped below 0.6740 in favour of the existing downtrend.

• R2 0.6686 – 24Aug high– Strong
• R1 0.6607 – 21Aug low– Medium
• S1 0.6300 – Figure – Medium
• S2 0.6130 – 24Aug/2015 low – Strong

NZDUSD – fundamental overview

A dramatic start to the week for the New Zealand Dollar, with the currency initially getting smashed to fresh multi-year lows at 0.6130 before recovering sharply back above 0.6500 into Tuesday trade. The setbacks had been driven off the fallout in China and collapsing global equities, though concurrent scaled back Fed rate hike expectations have helped to keep investors interested in the higher yielding Kiwi. Perhaps Monday’s Fed Lockhart comments also helped to bolster the currency, after the hawkish Fed official conceded the latest Yuan moves and ongoing commodity rout had made the Fed’s outlook more complicated. The early Tuesday rise in New Zealand inflation expectations hasn’t factored all that much into price action, with the RBNZ still favoured to cut rates some more. Looking ahead, US data features Case Shiller, new home sales and consumer confidence.

US SPX 500 – technical overview

The recent breakdown below 2040 has been a significant development, with the move confirming the formation of a major top off record highs. We have since seen a rapid acceleration of declines, with the market crashing through a measured move downside extension objective at 1940, stalling just shy of 1800 thus far. Technical studies are now correcting from super stretched readings, so there is risk for some additional consolidation and corrective upside towards 2000 before the market looks to carve the next lower top for a bearish continuation below 1800.

• R2 2000.00 – Psychological – Strong
• R1 1940.00 – Previous Support – Medium
• S1 1833.00 – 24Aug low – Medium
• S2 1819.00 – 15Oct low – Strong

US SPX 500 – fundamental overview

Stock market participants have finally grown highly uncomfortable with the market at lofty levels in the face of ongoing global uncertainty, highlighted by a deterioration in the China economy. This in conjunction with the prospect for a Fed rate hike in the months ahead have made it far less attractive to be long the market. While there has been some comfort the Fed may now hold off in September in light of the China outlook and collapse in stocks, there isn’t much left the central bank can do to keep the market artificially supported. This leaves participants very unsettled and still heading for the exits. All of this has not been lost on the VIX, with the fear index breaking back above 50 on Monday, reaching its highest levels since early 2009.

GOLD (SPOT) – technical overview

Finally signs of a potential base since breaking down to fresh multi-year lows below 1100. The latest break and close back above the previous 2015 base at 1142 strengthens the recovery outlook and could open the door for additional upside towards 1233 over the coming days. Look for any setbacks to now be well supported on dips ahead of 1100. Only a daily close below 1100 negates and puts the pressure back on the downside.

• R2 1188.00 – 29Jun high – Strong
• R1 1175.00 – 6Jul high – Medium
• S1 1132.00 – 20Aug low – Medium
• S2 1110.00 – 18Aug low – Strong

GOLD (SPOT) – fundamental overview

GOLD continues to mount an impressive recovery out from recent multi-year lows below $1100. The metal has managed to extend gains on a combination of a scaled back Fed liftoff timeline, which has fueled broad based selling in the US Dollar against many of the more developed currencies, and a pickup in safe haven demand with risk assets rolling over. The threat of risk associated with China and the deterioration in emerging markets has finally invited renewed demand for the beaten down yellow metal.

Feature – technical overview

USDTRY remains locked in a well defined uptrend, with the market breaking to fresh record highs beyond 3.0000. However, at this point, with technical readings through the roof, additional upside should be limited. Daily, weekly and monthly RSI readings are tracking in severe overbought territory, in need of some form of decent corrective pullback before a bullish trend resumption. Look for last Thursday’s bearish close off record highs to potentially act as the catalyst for a deeper correction.

• R2 3.1000 – Psychological – Medium
• R1 3.0030 – 20Aug/Record – Strong
• S1 2.8660 – 18Aug low – Medium
• S2 2.7610 – 11Aug low – Strong

Feature – fundamental overview

Turkish economic minister Zeybacki has been on the wires quite a bit of late and has come out trying to talk down local currency declines, saying the slide in the Lira is not reflective of economic realities. Zeybacki seems to be attributing a good portion of the Lira’s weakness to the political uncertainty and believes the currency will strengthen once there is more certainty on this front. Lower OIL is also something that has been helping the Lira a bit off recent record lows. Furthermore, Turkey is not as connected to the fallout in China and as such, could become a more attractive relative value play in the emerging market space. But overall, with political uncertainty still present, with the Fed still on pace for a rate hike in the months ahead, and with interest rates already so high in a struggling economy, there is risk for additional Lira declines.