USD Recovers On Hawkish Rhetoric Post FOMC

GBPUSD – technical overview

Despite the latest impressive recovery rally, the price action is still classified as corrective with a lower top sought out ahead of 1.5700. Deeper setbacks are now favoured over the coming sessions, with the major pair seen gravitating back towards recent key support at 1.5089, which guards against the 1.5000 psychological barrier further down. Ultimately, only a close back above 1.5700 (78.6% of recent high-low move) would negate the bearish outlook.

• R2 1.5659 – 18Sep high – Strong
• R1 1.5568 – 21Sep high – Medium
• S1 1.5450 – Mid-Figure  – Medium
• S2 1.5330 – 15Sep low  – Strong

GBPUSD – fundamental overview

Lack of any meaningful economic data releases has kept the Pound trading on broader flows, with a fresh wave of demand for the US Dollar influencing direction. Cable has pulled back over the past couple of sessions with most of the price action attributed to hawkish comments from Fed Bullard and Lockhart, both expecting rate hikes in 2015. Otherwise, all has been quiet and the focus will shift to a batch of secondary data today in the form of UK public finances and public sector net borrowing, UK CBI trends, US house prices, and Richmond Fed manufacturing.

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. The market has been showing range contraction over the past several days, which warns of a near-term pickup in volatility. 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 121.00 – 17Sep high – Strong
• R1 120.66 – 21Sep high – Medium
• S1 119.73 – 21Sep low – Medium
• S2 119.05 – 18Sep low – Strong

USDJPY – fundamental overview

Japan is still out for holidays and this has been reflected in Yen volume, with the market trading in tight ranges and showing a contraction in volatility. Overall, it seems any dovishness from last week’s Fed decision has been mostly forgotten, with hawkish comments from Fed Bullard and Lockhart, both expecting a move in 2015, offsetting the Fed’s hold last Thursday. Also supporting the major pair has been a mild bid tone in equities, with the Monday up-day fueling additional demand. Looking ahead, there is very little on the calendar for Tuesday, with US house prices and Richmond Fed manufacturing the only standouts. Mostly, the market is expected to trade off sentiment and direction in equities.

EURCHF – technical overview

Despite minor setbacks, the recovery outlook remains intact, with the price recently piercing through key resistance at 1.0962, confirming a medium-term 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 the constructive outlook.

• R2 1.1050 – 11Sep high – Strong
• R1 1.0958 – 21Sep high – Medium
• S1 1.0800 – 4Sep low – Medium
• S2 1.0714 – 19Aug low – Strong

EURCHF – fundamental overview

Despite a slightly higher close in US equities on Monday, global growth concerns are now starting to weigh a bit on this market, with the rate ultra sensitive to developments on this front. Also knocking the rate down on Monday was a softer German inflation reading, with PPI coming in at its lowest levels since March. Last Thursday, the SNB left policy on hold as was widely expected, with Jordan throwing out the regular lines of the Franc remaining overvalued and negative interest rate policy likely to remain in place “for the foreseeable future.” Looking ahead, the market will digest the latest round of trade data out of Switzerland.

AUDUSD – technical overview

The correction out from recent multi-year lows sub-0.7000 is showing signs of stalling out, with the market now looking for the next lower top ahead of a bearish continuation and fresh downside extension. Ultimately, only back above 0.7440 would compromise the bearish outlook.

• R2 0.7280 – 18Sep high – Strong
• R1 0.7197 – 21Sep high – Medium
• S1 0.7100 – Figure – Medium
• S2 0.7085 – 15Sep low – Strong

AUDUSD – fundamental overview

The Monday recovery in equity prices and some solid early Tuesday Aussie house price data have done very little to support the Australian Dollar, with the currency rolling over on hawkish Fed rhetoric post last week’s dovish FOMC rate decision. The Fed’s Bullard and Lockhart were out on Monday talking Fed liftoff in 2015 and this seems to have been enough for the market to buy back into the US Dollar across the board. Otherwise, commodity market price action wasn’t too exciting and this didn’t leave room for any movement. Looking ahead, US house prices and Richmond Fed manufacturing are the only notable releases.

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 consolidation 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 1.3310 – 11Sep high – Medium
• S1 1.3160 – 16Sep low – Medium
• S2 1.3074 – 17Sep low– Strong

USDCAD – fundamental overview

On Monday, Bank of Canada Governor Poloz was quite clear about his views on the decline in the Canadian Dollar. The central banker said Loonie weakness has played an important role in helping the Canadian economy adjust to lower oil and the Bank of Canada should not stand in the way of these FX forces. These comments in conjunction with hawkish Fed comments out from Bullard and Lockhart, both expecting rate liftoff in 2015, more than offset any favourable Cad flows on higher OIL and a mildly bid equity market. Looking ahead, the Canadian economic calendar is empty, with US house prices and Richmond Fed manufacturing standing out.

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 0.6457 – 18Sep high– Strong
• R1 0.6401 – 21Sep high– Medium
• S1 0.6244 – 7Sep low – Medium
• S2 0.6130 – 24Aug/2015 low – Strong

NZDUSD – fundamental overview

All has been very quiet in New Zealand this week, with the local calendar taking a breather and volumes a little thinner on account of the absence of Japanese players. Mostly, Kiwi direction has been influenced by broader flows, with a wave of US Dollar demand opening the latest pullback post last week’s dovish Fed. Hawkish comments from Fed’s Bullard and Lockhart, both expecting a 2015 liftoff have fueled the fresh bout of US Dollar demand and this has managed to offset and positive Kiwi flow from a mild recovery in equities. Tuesday’s economic calendar features secondary US data in the form of house prices and Richmond Fed manufacturing.

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 around last Thursday’s 2020 area spike high, ahead of the next major downside extension and bearish continuation below 1800. Only a daily close back above 2022 would delay the newly adopted bearish outlook.

• R2 2070.00 – 19Aug low – Medium
• R1 2022.00 – 17Sep high – Strong
• S1 1947.00 – 15Sep low – Medium
• S2 1930.00 – 10Sep low – Strong

US SPX 500 – fundamental overview

Price action in US equities post FOMC rate decision has been unsettling to say the least, with the market unable to hold onto to the dovish decision gains and extending declines into the new week. The Fed has relied heavily on its ultra accommodative central bank policy to keep asset prices well supported and if stocks come under additional downside pressure in the sessions ahead, this could spell trouble for financial markets. The combination of monetary policy that isn’t likely to get more accommodative and a faltering stock market is a recipe for disaster the Fed does not want on its hands but not be able to avoid.

GOLD (SPOT) – technical overview

The latest impressive recovery out from the 1100 area suggests the market is in the process of carving a meaningful higher low ahead of the next major upside extension through 1170. Look for a break above 1170 to confirm and open an acceleration back towards medium-term resistance at 1233. Only a close below 1100 negates. 

• R2 1170.00 – 24Aug high – Strong
• R1 1148.00 – 1Sep high – Medium
• S1 1099.00 – 11Sep low – Medium
• S2 1073.00 – 20Jul/2015 low – Strong

GOLD (SPOT) – fundamental overview

The GOLD market initially benefitted from last Thursday’s dovish FOMC policy decision on the back of some broad based US Dollar selling post event risk. However, it seems the metal has since found a different source of support with gains holding up even as the US Dollar recovers on hawkish Fed rhetoric this week. Broad based risk liquidation and downside pressure in equity markets has inspired safe haven buying, with the yellow metal standing out as a primary candidate for these flows. The elevated concern over the outlook for the global economy is inviting renewed demand for GOLD, with the metal recovering impressively over the past few sessions. Dealers cite decent buy stops above $1170.

Feature – technical overview

USDZAR has entered a corrective phase after recently breaking to fresh record highs above 14.0000. While there still could be room for additional corrective action ahead, the uptrend remains firmly intact and a higher low is now sought out above 13.0000 ahead of the next major upside extension and bullish continuation. Ultimately, only a daily close below 13.0000 would delay the highly constructive outlook. Look for Monday’s strong bullish reversal day to trigger the uptrend resumption.

• R2 14.0150 – 7Sep/Record – Strong
• R1 13.5490 –15Sep high – Medium
• S1 13.1650 – 17Sep low – Medium
• S2 12.9650 – 24Aug low – Strong

Feature – fundamental overview

An overdue Rand recovery off record lows against the Buck has stalled out, with the market shrugging off last week’s dovish FOMC decision and focusing on hawkish comments from Fed’s Bullard and Lockhart, both expecting liftoff in 2015. The Rand could also be at risk for downtrend resumption if global sentiment continues to slide. Looking ahead, market participants will start positioning for tomorrow’s anticipated SARB rate decision, where the central bank will need to balance the pressure for higher rates to offset a declining currency with the need for lower rates to accommodate a struggling domestic economy. Last week’s dovish Fed may have helped take some of the pressure off the need for a rate increase, and this in conjunction with the strain of the higher rate on the local economy, could very well keep the SARB from tightening to 6.25%, even at the risk of another Rand slide to fresh record lows against the Buck. Also out tomorrow ahead of the SARB is South Africa inflation data.