Macro Themes Dictate Flow in Data Light Trade

GBPUSD – technical overview

The market continues to show signs of topping off the 2015 peak at 1.5930, putting in a series of lower tops. The latest topside failure has stalled just over 1.5500 with a fresh lower top confirmed at 1.5509 ahead of the next major downside extension below critical psychological barriers at 1.5000 and towards medium-term support in the form of the 2015 low at 1.4566. At this point, look for intraday rallies to be well capped ahead of 1.5300.

• R2 1.5219 – 6Nov high – Strong
• R1 1.5200 – 13Oct low – Medium
• S1 1.5027 – 6Nov low  – Medium
• S2 1.5000 – Psychological – Strong

GBPUSD – fundamental overview

Mild profit taking on long US Dollar positions in Monday trade, with the Pound recovering off recent lows after getting beaten down in the previous week. The combination of a less hawkish than expected Bank of England and increased probability the Fed will move in December, have opened a more pronounced divergence in the monetary policy outlooks and this has pushed yield differentials further in the Buck’s favour. There is no meaningful data of note today, with broader flows to dictate trade. The market will also start to position ahead of tomorrow’s UK employment report.

USDJPY – technical overview

A period of multi-week consolidation has finally been broken, with the market clearing key resistance at 121.74 and surging into the mid-123.00s thus far. However, gains have stalled out for now around the 78.6% fib retrace off of the yearly high to August low move, and the market will need to establish a daily close above 123.60 to strengthen the case for a more meaningful bullish resumption and full retracement back to the 125.85 peak. Inability to establish above 123.60 could open the door for the formation of a lower top and renewed downside pressure.

• R2 124.15 – 20Aug high – Medium
• R1 123.60 – 9Nov high – Strong
• S1 122.50 – Mid-Figure – Medium
• S2 122.00 – 5Nov high – Strong

USDJPY – fundamental overview

Clearly the risk for additional BOJ easing along with the ramped odds for a December Fed liftoff post US employment, have catapulted the major pair well back above 123.00 in recent trade. However, the market is running into resistance ahead of 124.00 with the other major driver of risk sentiment weighing. While the monetary policy and yield differential theme is a net positive for the major pair, any signs of risk liquidation could be more than offsetting, with the Yen still benefitting from safe haven flow. Given the lack of economic data in the early week, risk sentiment will be important to watch, with equity market performance being used as the central barometer.

EURCHF – technical overview

The market has entered a period of multi-week consolidation following an impressive recovery earlier in the year. At this point, the recovery structure remains intact, with only a break back below 1.0714 to compromise. As such, look for setbacks to continue to be well supported ahead of 1.0714 in favour of the next major upside extension through 1.1050 and towards 1.1200 further up.

• R2 1.0919 – 30Oct high – Strong
• R1 1.0869 – 4Nov high – Medium
• S1 1.0738 – 6Nov low – Medium
• S2 1.0714 – 19Aug low – Strong

EURCHF – fundamental overview

SNB Jordan was out last week reminding the market that the central bank remains committed to a policy directed at weakening an overvalued local currency. Overall, despite ECB dovishness and some safe haven Franc demand on this latest round of equity selling, setbacks in the EURCHF rate have been well supported, with the market choosing to prioritize the SNB’s policy commitment. Dealers do however cite decent sell-stops below 1.0700 and if this level is taken out, it could open the door for an acceleration of declines.

AUDUSD – technical overview

The market continues to show signs of topping out in favour of a resumption of the broader underlying downtrend, with a fresh lower top sought out at the recent 0.7382 high. Intraday rallies should continue to be well capped, with deeper setbacks projected in the sessions ahead back towards the recent multi-year base just shy of 0.6900. At this point, only a daily close back above 0.7400 would threaten the bearish outlook.

• R2 0.7170 – 5Nov high – Strong
• R1 0.7100 – Figure – Medium
• S1 0.7023 – 6Nov low – Medium
• S2 0.7000 – Psychological – Strong

AUDUSD – fundamental overview

A drop in Aussie business confidence was offset by stable business conditions, while a pullback in investment lending was offset by improving home loans. Overall, relatively balanced and stable data out of Australia on Tuesday that hasn’t really factored into trade. Though we have seen setbacks against the US Dollar in the aftermath of the US employment report and yield differential implications, Aussie has managed to outperform many of its peers, with the RBA considered to be less dovish than other central banks. The OIS market is pricing less than a 20% chance for a December RBA rate cut, and this should continue to support the currency, particularly away from the US Dollar. However, it is worth noting softer China CPI data, which suggests the emerging economy could be slowing more than analysts had expected. If these fears are intensified, it could be a drag on the correlated Australian Dollar.

USDCAD – technical overview

The market is focused back on the topside after recently being well supported in the 1.2800 area, with the latest recovery strengthening the case for a bullish continuation to fresh multi-year highs beyond the recent 11-year peak from September at 1.3457. Any setbacks from here should ideally be propped above 1.3000 on a daily close basis, though ultimately, only a break below 1.2800 would force a shift in the constructive outlook.

• R2 1.3457 – 29Sep/2015 high – Strong
• R1 1.3318 – 6Nov high – Medium
• S1 1.3200 – Figure – Medium
• S2 1.3141 – 5Nov low – Strong

USDCAD – fundamental overview

Ramped up expectations for a December Fed liftoff and renewed downside pressure in the price of OIL, have been driving this market higher, with the pair closing in on a retest of the September 11-year high. Still, there is a sense the US Dollar run could be a little extended on a short-term basis, which could open the door for some more profit taking on US Dollar longs in the sessions ahead. Lack of any meaningful data on the calendar in the early week has already inspired some profit taking, and with OIL dropping back into a support zone, the prospect for a bounce could trigger additional CAD demand on Tuesday.

NZDUSD – technical overview

The impressive rally out from recent multi-year lows has finally stalled out after being well capped ahead of 0.6900. From here, look for the formation of a meaningful lower top, in favour of an acceleration to the downside and bearish resumption. Ultimately, only a daily close above 0.7000 will negate and potentially force a shift in the structure.

• R2 0.6668 – 4Nov high– Strong
• R1 0.6625 – 6Nov high – Medium
• S1 0.6499 – 6Nov low – Medium
• S2 0.6437 – 5Oct low – Strong

NZDUSD – fundamental overview

Market participants are already starting to look ahead to Wednesday’s RBNZ financial stability report and Governor Wheeler speech, especially considering the very light calendar in the early week. Softer New Zealand credit card spending has however weighed a bit on Tuesday, while an OECD report concluding global trade is at recession like levels, has also not been helping the recently beleaguered Kiwi. Traders will likely be focused on broader sentiment flows for the remainder of the day, with any additional downside pressure in stocks to open more Kiwi selling.

US SPX 500 – technical overview

Signs of potential exhaustion following an impressive recovery rally off the August lows. The market has stalled out above 2100, shy of the 2137 record peak from earlier this year, with the latest break back below 2070 strengthening the case for some form of a lower top and additional setbacks ahead. Look for a daily close below 2058 to confirm and accelerate, while back above 2117 negates and exposes a direct retest of the record high.

• R2 2137.00 – 19May Record – Very Strong
• R1 2117.00 – 3Nov high – Medium
• S1 2058.00 – 27Oct low – Medium
• S2 2015.00 – 21Oct low – Strong

US SPX 500 – fundamental overview

Stocks have come under mild pressure in recent trade after trading up to within 1% of the May record high. The latest wave of Fed hawkishness has been followed up by a stellar employment report out of the US, and this is starting to weigh on investor sentiment. The prospect of higher rates is a negative for stocks, as it takes away from the free money incentive to be long risk assets. Perhaps even more concerning for equity bulls right now is the wage growth component in this latest employment report, which is starting show signs of a real pickup. This could be something that forces the Fed into a more aggressive path to policy normalization that it might want.

GOLD (SPOT) – technical overview

The market has come back under intensified pressure over the past several days, with the recent break below 1100 threatening recovery prospects and exposing a retest of the recent multi-year low from September. A break below 1073 would expose fresh downside towards psychological barriers at 1000 further down. At this point, the market will need to establish back above 1112 to take the immediate pressure off the downside.

• R2 1123.00 – 4Nov high – Strong
• R1 1112.00 – 5Nov high – Medium
• S1 1085.00 – 6Nov low – Medium
• S2 1077.00 – 24Jul/2015 low – Strong

GOLD (SPOT) – fundamental overview

GOLD has come back under intense pressure in recent days as the market ramps up expectations for a December Fed liftoff and more aggressively buys US Dollars. Still, despite the US Dollar demand, GOLD is expected to find solid support into this latest dip, given the struggling global economy and uncertainty in the air, particularly now that accommodative central bank policies are so extended and additional stimulatory options are limited. Longer term macro players have also been accumulating the metal as a hedge against an overinflated equity market that could be on the verge of a major capitulation. Dealers cite plenty of demand ahead of $1075.

Feature – technical overview

USDZAR has broken to yet another fresh record high, with the market taking out the previous September peak, opening the door for the next major upside extension. From here, look for the rally to extend towards psychological barriers at 14.5000 in the sessions ahead, while any setbacks should be very well supported ahead of 13.5000. Ultimately however, only back below 13.0120 would negate the highly constructive outlook.

• R2 14.5000 – Psychological – Medium
• R1 14.3315 –9Nov/Record – Strong
• S1 13.8620 – 5Nov low – Medium
• S2 13.7245 – 2Nov low – Strong

Feature – fundamental overview

It hasn’t been the greatest of times for emerging market FX, and the Rand is by no means any exception, with the currency sinking to yet another record low in the aftermath of the stellar US employment report. The US data has significantly bolstered odds for a December rate hike from the Fed, and this has been having a major impact on yield differentials. SARB Governor Kgayango hasn’t done anything to help the beleaguered Rand’s cause after saying the central bank still expects a large current account deficit and that the timing of prospective Fed rate hikes was not optimal. Kgayango went on to welcome Rand weakness given its rebalancing impact on economic growth. Adding insult to injury has been the recent round of weakness in GOLD prices.