Market Positions Ahead of Fed Minutes

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 1.5350.

• R2 1.5300 – Figure – Strong
• R1 1.5265 – 13Nov high – Medium
• S1 1.5155 – 17Nov low  – Medium
• S2 1.5092 – 10Nov low – Strong

GBPUSD – fundamental overview

The combination of more subdued inflation readings in the UK and signs of rising inflation in the US, has been weighing on the major pair in recent trade, on the implication the Fed is on the verge of raising rates, while the BOE will continue to hold off. Lack of first tier data out of the UK on Wednesday will leave the market focused on the US session, with Fed Lockhart, Mester and Dudley speeches due, along with the release of the Fed Minutes later in the day.

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 123.61 to strengthen the case for a more meaningful bullish resumption and full retracement back to the 125.85 peak. Inability to establish above 123.61 could open the door for the formation of a lower top and renewed downside pressure. A daily close below 122.00 will strengthen this prospect.

• R2 124.16 – 20Aug high – Medium
• R1 123.61 – 9Nov high – Strong
• S1 123.00 – Figure – Medium
• S2 122.23 – 16Dec low – Strong

USDJPY – fundamental overview

Even though Japan has slipped back into technical recession following the recent GDP data, this is unlikely to have any influence on the BOJ this week, with the central bank kicking off its two day policy meeting. Market consensus is that the BOJ will leave policy unchanged for the time being, not willing to rock the board, preferring to take on more of a wait and see approach. The Yen has come under some pressure this week, though most of this price action has been associated with the recovery in equities markets post the fallout from the weekend Paris attacks. Looking ahead to the remainder of the day, the key focus will be Fed Lockhart, Mester and Dudley speeches, along with the release of the Fed Minutes later in the day.

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 earlier this month reminding the market the central bank remains committed to a policy directed at weakening an overvalued local currency. Overall, despite ECB dovishness and 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 intense 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 0.7224 – 4Nov high – Strong
• R1 0.7159 – 13Nov high – Medium
• S1 0.7057 – 12Nov low – Medium
• S2 0.7016 – 10Nov low – Strong

AUDUSD – fundamental overview

The Australian Dollar has been comfortable trading within a quiet consolidation these past few sessions, The release of in line Q3 Aussie wage price index hasn’t done anything to factor into price action, and the market isn’t expected to do much until the release of the Fed Minutes later in the day. The recovery in stocks has helped to support somewhat, though much of these flows have also been offset by ongoing declines in commodities prices. Overall, Aussie has been a standout performer over the past week, with the currency finding relative strength on the back of solid local data and a more upbeat RBA. Also out later today are speeches from Fed Lockhart, Mester and Dudley.

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 1.3371 – 16Nov high – Medium
• S1 1.3290 – 16Nov low – Medium
• S2 1.3225 – 12Nov l0w – Strong

USDCAD – fundamental overview

The Canadian Dollar has stabilised into the mid-week, though overall, the currency remains under intense pressure, just off recent multi-year lows against the Buck. Lack of any meaningful data out of Canada has left the market more focused on the US side of the equation this week, and Tuesday’s rise in US CPI should keep the door wide open for a December rate hike from the Fed. This in conjunction with ongoing downside pressure in OIL prices, point to a fresh set of declines in the Loonie. For today, the key focus will be on the release of the Fed Minutes, though speeches from Fed Lockhart, Mester and Dudley should not be overlooked.

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 to fresh multi-year lows. Ultimately, only a daily close above 0.7000 will negate and potentially force a shift in the structure.

• R2 0.6588 – 11Nov high– Strong
• R1 0.6496 – 17Nov high – Medium
• S1 0.6437 – 5Oct low – Medium
• S2 0.6384 – 2Oct low – Strong

NZDUSD – fundamental overview

Another disappointing dairy auction has left the New Zealand Dollar vulnerable to continued underperformance, with the result strengthening the prospect for another RBNZ rate cut at its upcoming meeting. Overall, data out of New Zealand has been less than impressive in recent weeks, and this in conjunction with declining commodities prices and a less certain risk environment should keep Kiwi under pressure. Looking ahead, the key focus for the remainder of the day will be the Fed Minutes, though speeches from Fed Lockhart, Mester and Dudley should not be overlooked.

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 2000 to confirm and accelerate, while back above 2117 negates and exposes a direct retest of the record high.

• R2 2117.00 – 3Nov high – Strong
• R1 2083.00 – 12Nov high – Medium
• S1 2003.00 – 16Nov low – Medium
• S2 1990.00 – 14Oct low – Strong

US SPX 500 – fundamental overview

Stocks have come under intensified pressure in recent days after trading up to within 1% of the May record high earlier this month. 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 rising wage growth component in this month’s employment report and threat of a pickup in inflation. This could be something that forces the Fed into a more aggressive path to policy normalization than it might want. Looking ahead, the key focus for the day will be on the Fed Minutes, though speeches from Fed Lockhart, Mester and Dudley should not be overlooked.

GOLD (SPOT) – technical overview

The market has come back under intensified pressure over the past several days, with the recent break below 1100 opening an acceleration to fresh yearly and multi-year lows. However, daily studies are looking stretched and the market could be poised for a corrective bounce in the sessions ahead. Still, the market will need to establish back above 1100 to take the immediate pressure off the downside. A daily close below 1050 would expose deeper setbacks towards major psychological barriers at 1000.

• R2 1112.00 – 5Nov high – Strong
• R1 1098.00 – 16Nov high – Medium
• S1 1050.00 – Mid-Figure – Medium
• S2 1000.00 – Psychological – Very Strong

GOLD (SPOT) – fundamental overview

GOLD has come back under intense pressure in recent days, dropping to fresh multi-year lows, 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.

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 14.4415 –16Nov/Record – Strong
• S1 14.0725 – 12Nov low – Medium
• S2 13.8620 – 5Nov low – Strong

Feature – fundamental overview

The SARB wil have a difficult decision on its hands when it meets tomorrow, with the central bank having to contend with a currency at record lows and a struggling local economy. The market is split on whether the central bank will raise rates to offset the rapid depreciation in the Rand, though recent comments from the SARB Governor suggest the central bank will hold off on a tightening. Ahead of tomorrow’s rate decision, we get South Africa CPI and retail sales today, with inflation the more heavily watched release, given its direct impact on policy. Inflation is expected to tick up, adding pressure to the SARB, but ultimately, it is unlikely the central bank will move ahead of the Fed. Interestingly enough, the Rand has held up rather well in the early week, despite ongoing, broad based US Dollar demand. Perhaps pre-event risk positioning is factoring.