Yellen Signals Fed Rate Hike in 2015

GBPUSD – technical overview

Deeper setbacks are 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 1.5367 – 23Sep high – Strong
• R1 1.5340 – 22Sep low – Medium
• S1 1.5200 – 24Sep low  – Medium
• S2 1.5165 – 4Sep low  – Strong

GBPUSD – fundamental overview

The Pound has been a steady decliner this week, with the UK currency initially weighed down on cross related demand for EURGBP and then coming under additional pressure in the aftermath of a decidedly less dovish Thursday speech from the Fed Chair. A Thursday round of overall solid US economic data failed to materially influence price action, with the market chopping around and positioning for the late day Fed Chair speech. Yellen’s comments that she along with most of the FOMC members expected a rate hike in 2015 barring any surprises, was enough to knock Sterling off intraday recovery highs and weigh on the market into Friday trade. Looking ahead, we get US GDP readings, Michigan confidence and some more Fed speak, with Bullard and George scheduled at 13:15 GMT and 17:25 GMT respectively.

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 119.23 – 24Sep low – Medium
• S2 119.05 – 18Sep low – Strong

USDJPY – fundamental overview

A combination of a recovery in US equities post Thursday’s Yellen speech and some broad based US Dollar demand on more favourable Dollar yield differentials have been helping to prop the major pair into Friday trade. Yellen’s more optimistic outlook than the one offered in the previous week at the FOMC rate decision was somewhat well received by the market, while the expectation for a rate hike in 2015 opened additional US Dollar buying off the lows with differentials moving back in the Buck’s favour. Still overall, this market is very sensitive to risk sentiment and the direction going forward will likely be heavily influenced by the direction in stocks. Equity markets are looking vulnerable at current levels and another slide will invite a fresh wave of safe haven Yen demand. Early Friday Japan CPI data hasn’t factored into price action. Looking ahead, we get US GDP readings, Michigan confidence and some more Fed speak, with Bullard and George scheduled at 13:15 GMT and 17:25 GMT respectively.

EURCHF – technical overview

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 1.1000 – Psychological – Medium
• S1 1.0824 – 22Sep low – Medium
• S2 1.0714 – 19Aug low – Strong

EURCHF – fundamental overview

Setbacks in this cross rate have been very well supported this week, with the market shrugging off a wave of risk off flow, instead choosing to focus on the latest comments out of Switzerland relating to the Franc. On Wednesday, Swiss economy minister Schneider-Ammann said the strong Franc endangered price stability and offered his view that purchasing power parity in EURCHF was well above 1.20. Finally, he reminded the market the SNB was on the same page, working towards a weaker local currency.

AUDUSD – technical overview

The correction out from recent multi-year lows sub-0.7000 has finally stalled 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 0.7197 – 21Sep high – Strong
• R1 0.7090 – 23Sep high – Medium
• S1 0.6938 – 24Sep low – Medium
• S2 0.6908 – 4Sep/2015 low – Strong

AUDUSD – fundamental overview

The Australian Dollar managed to put in a decent recovery rally after stalling shy of recent multi-year lows on Thursday. The rebound was driven off a wave of broad based profit taking on US Dollar longs ahead of the anticipated late Thursday Yellen speech. But with the Fed Chair coming out decidedly less dovish and signaling a rate hike in 2015, barring any surprises, Aussie was quick to come back under pressure on the yield differential implications. Looking ahead, risk sentiment flows will likely influence direction for the remainder of the day, with higher equities to support the commodity currency and lower equities to open more downside pressure towards the lows. On the economic calendar, we get US GDP readings, Michigan confidence and some more Fed speak, with Bullard and George scheduled at 13:15 GMT and 17:25 GMT respectively.

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. Ultimately, any corrective declines should be well supported with a higher low sought out ideally above 1.2860 in favour of bullish continuation.

• R2 1.3400 – Figure – Medium
• R1 1.3417 – 24Sep/2015 high – Strong
• S1 1.3233 – 23Sep low – Medium
• S2 1.3160 – 16Sep low– Strong

USDCAD – fundamental overview

The Canadian Dollar had already been beaten down to another fresh 11-year low earlier in the week on the back of softer Canada retail sales data and some downside pressure in OIL, and although OIL prices stabilized on Thursday, this didn’t stop the Loonie from posting yet another low against the Buck on another wave of risk liquidation. Attempts to recover off the lows were decent, though a less dovish late Thursday speech from the Fed Chair contained the Loonie’s recovery rally and opened renewed downside pressure. Yellen’s signaling of a 2015 rate hike was the primary catalyst for the CAD selling into Friday and from here, direction will likely be predicated off US equities and OIL. Otherwise, we get some economic data in the form of US GDP readings and Michigan confidence, and some Fed speak, with Bullard and George scheduled at 13:15 GMT and 17:25 GMT respectively.

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 0.6400 – 21Sep high– Strong
• R1 0.6367 – 24Sep high– Medium
• S1 0.6236 – 23Sep low – Medium
• S2 0.6130 – 24Aug/2015 low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has done a good job shaking off downside pressure from broader risk liquidation flow and US Dollar demand. The outperformance relative to its peers has come from some solid components within this week’s New Zealand trade data and a Fonterra upgrade of its 2015-16 milk payout forecasts. Still overall, the direction in this market will be predicated off global sentiment and Fed rate hike expectations, and with the Fed Chair sounding decidedly more hawkish late Thursday, signaling for a rate hike in 2015, any additional Kiwi upside is expected to be very well capped. Looking ahead, risk sentiment flows will likely influence direction for the remainder of the day, with higher equities to support the commodity currency and lower equities to open more downside pressure towards the lows. On the economic calendar, we get US GDP readings, Michigan confidence and some more Fed speak, with Bullard and George scheduled at 13:15 GMT and 17:25 GMT respectively.

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 1980.00 – 21Sep high – Strong
• R1 1953.00 – 23Sep high – Medium
• S1 1902.00 – 1Sep low – Medium
• S2 1855.00 – 26Aug low – Strong

US SPX 500 – fundamental overview

It will be interesting to see how stocks react to Thursday’s more hawkish Yellen speech after the Fed Chair signaled a rate hike in 2015. While the Fed Chair’s speech carried some optimism over the outlook for the US economy and downplayed risk abroad, the expectation for higher rates could be offsetting for risk markets, with the official end of ultra accommodative policy to disincentive further investment in an artificially supported market that has been catapulted to record highs on the back of a multi-year emergency central bank policy. Looking ahead, we get US GDP readings, Michigan confidence and some more Fed speak, with Bullard and George scheduled at 13:15 GMT and 17:25 GMT respectively.

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 1200.00 – Psychological – Medium
• R1 1170.00 – 24Aug high – Strong
• S1 1121.00 – 22Sep low – Medium
• S2 1099.00 – 11Sep low – Strong

GOLD (SPOT) – fundamental overview

The GOLD market has been very well supported in recent trade, with gains holding up even as the US Dollar recovers this week. Broad based risk liquidation and downside pressure in equity markets have 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. A mild wave of post Yellen optimism and US Dollar demand has invited some profit taking on the latest rally, though with uncertainty still running high, there is risk this rally could still extend some more.

Feature – technical overview

USDZAR uptrend remains firmly intact with the market pushing to yet another record high. A higher low is now sought out above 13.0000 ahead of the next major upside extension and bullish continuation towards 15.0000. Ultimately, only a daily close below 13.0000 would delay the highly constructive outlook.

• R2 14.2000 – Figure – Medium
• R1 14.0830 –24Sep/Record – Strong
• S1 13.6350 – 23Sep low – Medium
• S2 13.1650 – 17Sep low – Strong

Feature – fundamental overview

A softer than expected South Africa inflation reading was somewhat of a relief to the SARB on Wednesday, as it helped to back up the central bank’s decision to leave policy on hold, despite calls for another 25bp hike to 6.25%. The SARB also came out downgrading its growth forecasts with all of this opening a fresh wave of downside pressure in the Rand to another record low. Currency weakness is a big concern for the central bank, but for the interim, these risks are being offset by the greater risk to the local economy if the central bank further tightens policy. Perhaps in an effort to keep the Rand from sliding too much, the central bank has maintained its restrictive policy outlook. Looking ahead, the Rand’s fate will be tied to the fate of broader global sentiment in the aftermath of Thursday’s more hawkish Fed Yellen speech after the Fed Chair signaled a rate hike in 2015.