Market Settles In Ahead Of FOMC Event Risk

GBPUSD – technical overview

The market has done a nice job recovering in recent sessions after taking out key support at 1.5170. Still, the outlook favours additional weakness in the sessions ahead, with a lower top sought out ideally below 1.5500 ahead of the next downside extension towards psychological barriers at 1.5000. Only a daily close back above 1.5500 would compromise.

• R2 1.5550 – Mid-Figure – Medium
• R1 1.5509 – 27Aug high – Strong
• S1 1.5413 – 8Sep high  – Medium
• S2 1.5339 – 10Sep low  – Strong

GBPUSD – fundamental overview

The delivery of a less dovish than expected Bank of England rate decision has helped the Pound emerge as one of the stronger performing currencies this week. Market participants had been worried that the combination of China risk and some soft UK data would force the Bank of England to adopt a more cautious tone, and this didn’t prove to be the case on Thursday, with the central bank once again downplaying external risk. While there were some downward adjustments to GDP forecasts, the view of the majority of higher productivity versus wages helped to offset. Meanwhile, Fed rate hike expectations have been scaled back this week, offering further ammunition for Sterling bulls. Looking ahead, UK construction output, some UK inflation data, US PPI and Michigan confidence are the key releases for the day.

USDJPY – technical overview

The latest rally has been well capped ahead of 122.00 and a lower top is now sought out in favour of a resumption of declines back towards the recent extreme low at 116.12. At this point, only a daily close back above 122.00 would negate the short-term bearish outlook and put the pressure back on the topside.

• R2 121.74 – 28Aug high – Strong
• R1 121.32 – 10Sep high – Medium
• S1 119.80 – 9Sep low – Medium
• S2 118.60 – 4Sep low – Strong

USDJPY – fundamental overview

Although Fed rate expectations for next week’s meeting have been scaled back, now down to about 26% from 30% at the start of the week, the major pair has been supported on offsetting news out of Japan. The release of softer Japanese GDP data has reignited the prospect for further accommodation from the Bank of Japan when it next meets and this along with a mild recovery in stocks has helped to support the US Dollar into Friday trade. Looking ahead, US PPI and Michigan confidence are due, while the market will continue to watch equities and position ahead of next week’s Fed decision.

EURCHF – technical overview

The recovery outlook remains intact, with the price piercing through key resistance at 1.0962, confirming a higher low at 1.0714 and opening the next major upside extension towards a measured move objective in the 1.1200 area. Only back below 1.0714 would negate.

• R2 1.1200 – Measured Move – Strong
• R1 1.1000 – Psychological – Medium
• S1 1.0800 – 4Sep low – Medium
• S2 1.0714 – 20Aug low – Strong

EURCHF – fundamental overview

Overall, an impressive recovery in this market over the past several weeks, despite ongoing uncertainty. The recovery rally has resulted in a fresh post-SNB Franc cap cancellation high, with the market now trying to establish above 1.1000. Softer Swiss inflation readings and some strong language from SNB Jordan have been notable drivers of recent Franc weakness, while a recovery in stocks has also factored. Still, overall, risk correlated markets are standing on less than solid foundations at the moment and all of this could deteriorate rather quickly, which could pose problems for EURCHF upside prospects going forward.

AUDUSD – technical overview

Setbacks recently accelerated to the downside to yet another multi-year low, below critical psychological barriers at 0.7000. The drop opens the door for a fresh measured move downside extension towards 0.6830 in the sessions ahead. Technical studies are however unwinding from oversold readings which suggests the market could be poised for additional correction in the coming sessions. Still, any rallies are expected to be very well capped, with only a break back above 0.7440 to compromise the bearish outlook.

• R2 0.7206 – 28Aug high – Strong
• R1 0.7154 – 1Sep high – Medium
• S1 0.7005 – 9Sep low – Medium
• S2 0.6946 – 10Sep low – Strong

AUDUSD – fundamental overview

The Australian Dollar has emerged as the strongest performing liquid currency over the past week, with most of the strength coming late in the week. Thursday’s much better than expected Aussie employment report has been sourced as a primary driver for outperformance, with the currency also benefitting from scaled back Fed rate hike bets following a disturbing drop in US import prices. The Australian Dollar had already been due for a bit of a bounce after the currency had been beaten down to fresh multi-year lows, and the market will now look to position ahead of next week’s all important FOMC. For today, US PPI and Michigan confidence are in focus, while broader market sentiment will likely also dictate direction.

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, we are seeing the onset of a correction to allow for these stretched studies to unwind. But ultimately, any corrective declines should be well supported with a higher low sought out ideally above 1.2860 in favour of a bullish continuation.

• R2 1.3354 – 25Aug/2015 high – Strong
• R1 1.3327 – 31Aug high – Medium
• S1 1.3137 – 3Sep low – Medium
• S2 1.3117 – 31Aug low– Strong

USDCAD – fundamental overview

The Canadian Dollar hasn’t been able to muster any significant demand post the more neutral Bank of Canada rate decision this week. Instead, the currency has deferred to consolidation as it prepares for next week’s event risk in the form of the Fed rate decision. Thursday’s offsetting US data of solid initial jobless claims and disturbing import prices has done nothing to inspire a range breakout, while more consolidation in the price of OIL is also keeping the Loonie quiet just off 11-year lows. Looking ahead, US PPI and Michigan confidence are the key releases for the day.  

NZDUSD – technical overview

The market remains under pressure just off fresh multi-year lows, locked within a well defined downtrend. Deeper setbacks are favoured below 0.6130, with the break to open the next major downside extension through psychological barriers at 0.6000. Any rallies are viewed as corrective and ultimately, only a break back above 0.6740 would compromise the bearish structure.

• R2 0.6425 – 9Sep high– Strong
• R1 0.6354 – 10Sep high– Medium
• S1 0.6244 – 7Sep low – Medium
• S2 0.6130 – 24Aug/2015 low – Strong

NZDUSD – fundamental overview

An upbeat New Zealand business PMI print and some scaled back Fed liftoff expectations on a disturbing US import price showing has helped to support Kiwi off weekly lows and distract the market from this week’s more dovish RBNZ. Improved sentiment and higher equities have also helped prop Kiwi off its weekly low. Still, overall, with the RBNZ looking for more Kiwi weakness and signaling additional monetary policy accommodation, it is unlikely this Kiwi rally extends much further, particularly as the market settles in ahead of next week’s FOMC. For today, the focus will be on US PPI and Michigan confidence.

US SPX 500 – technical overview

The market has been locked in some choppy consolidation following the sharp pullback from record high territory several days back. The breakdown reflects a major structural shift in the works, with deeper setbacks now favoured over the coming days and weeks. The rebound out from the 1830 area low is viewed as corrective, with a lower top sought out at 1996 ahead of the next major downside extension and bearish continuation below 1800. Only a close back above 2000 would delay the newly adopted bearish outlook.

• R2 2032.00 – 21Aug high – Strong
• R1 1996.00 – 28Aug high – Medium
• S1 1932.00 – 8Sep low – Medium
• S2 1902.00 – 1Sep low – Strong

US SPX 500 – fundamental overview

US equities haven’t done a whole lot this week, with the market mostly confined to some choppy pre-FOMC consolidation trade. Scaled back Fed liftoff bets have helped support the market somewhat, while ongoing expectation for additional China stimulus has also helped. Yet overall, there is still a good amount of uncertainty in the air, and a sense that even if the Fed holds off in September, it will still be on pace for an unwelcome policy reversal that makes investment in risk assets less attractive. Looking ahead, US PPI and Michigan confidence are due.

GOLD (SPOT) – technical overview

Finally signs of a potential base since breaking down to fresh multi-year lows below 1100. The recent recovery to 1170 strengthens the outlook and could open the door for additional upside towards 1233 over the coming days. Look for the latest round of setbacks to now be well supported above 1100 on a daily close basis. Only a daily close below 1100 negates and puts the pressure back on the downside.

• R2 1188.00 – 29Jun high – Strong
• R1 1170.00 – 24Aug high – Medium
• S1 1101.00 – 9Sep low – Medium
• S2 1073.00 – 20Jul/2015 low – Strong

GOLD (SPOT) – fundamental overview

The GOLD market has been struggling with two-way flows, not knowing whether to fixate on the negative driver of broader US Dollar demand or to put the focus on the supportive catalyst of risk liquidation and flight to safety. For now, it seems the former is winning out, with broader Dollar demand opening the recent pullback in the metal. However, it has also been difficult for many funds to ignore the lure of safe haven GOLD appeal on a deterioration in global sentiment. Still, some mild Dollar selling this week has helped to support the market off the weekly low ahead of $1100 where dealers already cite solid demand.

Feature – technical overview

USDSGD continues to push to fresh +5-year highs and remains highly constructive. The uptrend is firmly intact with the latest break above 1.4170 opening the next measured move upside extension towards 1.4400. In the interim, look for the current round of setbacks to be well supported above 1.3900. Only a daily close below 1.3900 will delay the bullish outlook.

• R2 1.4400 – Figure – Medium
• R1 1.4294 – 8Sep/2015 high – Strong
• S1 1.4110 – 9Sep low – Medium
• S2 1.4048 – 31Aug low – Strong

Feature – fundamental overview

Risk markets are feeling a little more comfortable into the end of the week, in light of scaled back Fed rate hike expectations and more China stimulus talk. This has opened a welcome recovery in a beaten down Singapore Dollar that has been a victim of major outflows in the emerging markets. Thursday’s massive China state bank selling of USDCNH has been a specific catalyst for Singapore Dollar upside into the end of the week. Looking ahead, the performance in US equities will likely dictate direction in the Singapore Dollar into the close, with higher stocks to support the EM and lower stocks to weigh.