Dollar Pauses for Reflection As Conversation Shifts

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 1.5361 – 4Nov low – Strong
• R1 1.5336 – 19Nov high – Medium
• S1 1.5227 – 19Nov low  – Medium
• S2 1.5155 – 17Nov low – Strong

GBPUSD – fundamental overview

Thursday’s weaker than expected UK retail sales didn’t do much to weigh on the Pound, with the UK currency benefitting from a broad based round of profit taking on long US Dollar positions. The long Dollar market is perhaps a little tired despite all signs continuing to point to a December rate hike, and Dollar gains could now be limited with bulls perhaps deterred by offsetting commentary from the Fed warning the pace of Fed normalisation will be slow and gradual. Looking ahead, the economic calendar is rather light on Friday, with the only notable releases coming in the form of UK public finances and public sector net borrowing. Otherwise, we get more Fed speak late in the day, with Bullard, Dudley and Williams on the docket.

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 123.76 – 18Nov high – Strong
• S1 122.62 – 19Nov low – Medium
• S2 122.23 – 16Dec low – Strong

USDJPY – fundamental overview

The combination of a Bank of Japan leaving policy on hold and a bout of broad based profit taking on US Dollar longs, has opened the door for a minor pullback in USDJPY over the past couple of sessions. Perhaps adding somewhat to Thursday’s downside pressure was a retreat in equities off recent highs, though setbacks on this front were only marginal. Dollar bulls are perhaps ready to take a bit of a break, with some deterred by the conversation shift to a very slow and gradual Fed path to policy normalisation, despite any move the central bank may make in December. Looking ahead, lack of first tier economic data will leave this market focused on performance in stocks and another round of Fed speak featuring Bullard, Dudley and Williams.

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 1.1050 – 11Sep high – Strong
• R1 1.0919 – 30Oct high – Medium
• S1 1.0755 – 12Nov low – Medium
• S2 1.0714 – 19Aug low – Strong

EURCHF – fundamental overview

The SNB continues to advertise its strategy of weakening the Franc, with SNB Maechler out on Thursday saying “the Swiss National Bank has an eye on the actions of euro-area policy makers and will keep all options open in its bid to combat the strong franc.” SNB Jordan has also reminded the market this month that the central bank remains committed to a policy directed at weakening an overvalued local currency. Thus overall, despite ECB dovishness, 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 0.7297 – 23Oct high – Strong
• R1 0.7224 – 4Nov high – Medium
• S1 0.7102 – 19Nov low – Medium
• S2 0.7069 – 18Nov low – Strong

AUDUSD – fundamental overview

The Australian Dollar has mounted and impressive recovery over the past several sessions, with this latest wave of demand coming from a bout of broad based profit taking on US Dollar longs post FOMC Minutes. Also seen supporting the currency are risk on flows, with this week’s recovery in stocks propping the correlated market, and some demand for commodities off recent lows. Still, with the Fed well on course for a December liftoff, the current bout of US Dollar weakness is viewed as nothing more than a short-term correction, with plenty of Aussie offers reported into rallies, as market participants look to take advantage in a world that favours the Buck on yield differentials. Looking ahead, lack of first tier economic data will leave the market digesting a slew of Fed speak from Bullard, Dudley and Williams late in the day.

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 1.3247 – 19Nov low – Medium
• S2 1.3225 – 12Nov low – Strong

USDCAD – fundamental overview

Although the Canadian Dollar has managed to benefit from a round of broad based profit taking on long US Dollar positions, gains in the Loonie have been less than impressive, with the currency held back on another round of soft local data, after wholesale sales disappointed on Thursday. This in conjunction with solid US data has kept Loonie rallies limited, with the Canadian Dollar still under broad pressure and close to a retest of its September, 11 year low against the Buck. Plenty of volatility is expected later today, with Canada retail sales and CPI due. Also out later in the day is a batch of Fed speak featuring Dudley, Bullard and Williams.

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 0.6626 – 6Nov high– Strong
• R1 0.6593 – 19Nov high – Medium
• S1 0.6500 – Figure – Medium
• S2 0.6465 – 19Nov low – Strong

NZDUSD – fundamental overview

Although the New Zealand Dollar has managed to benefit this week from some broad based profit taking on long US Dollar positions, gains are not expected to last much longer, with the fundamentals favouring additional weakness in the commodity currency. While this week’s jump in New Zealand producer prices may also be factoring to the Kiwi rally, overall, given the downturn in New Zealand employment, more subdued CPI and another discouraging dairy auction, the prospect for additional RBNZ accommodation remains. Looking ahead, lack of first tier economic data will leave the market digesting a slew of Fed speak from Bullard, Dudley and Williams late in the day.

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 2093.00 – 19Nov high – Medium
• S1 2003.00 – 16Nov low – Medium
• S2 1990.00 – 14Oct low – Strong

US SPX 500 – fundamental overview

US equities have once again managed to mount an impressive recovery, with this market seemingly supported at every turn. Recent hawkish Fed commentary pointing to a December liftoff, along with a blowout monthly employment report, had opened a wave of liquidation in equities several days back, but a good chunk of these setbacks have already been recovered, despite ongoing signals from the Fed of a December liftoff and more healthy US economic data. The price action is somewhat perplexing given the negative risk implications of higher rates in the US, though it seems market participants are finding comfort in the fact that the Fed has made it abundantly clear its path to normalisation will be painfully slow and gradual. Looking ahead, lack of first tier economic data will leave the market digesting a slew of Fed speak from Bullard, Dudley and Williams late in the day.

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 1065.00 – 18Nov/2015 low – 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 14.4415 – 16Nov/Record – Strong
• R1 14.2150 –19Nov high – Strong
• S1 13.8620 – 5Nov low – Medium
• S2 13.7250 – 2Nov low – Strong

Feature – fundamental overview

In a surprise decision, the SARB moved ahead with a rate hike on Thursday. The market had been looking for the central bank to remain on hold given recent Governor Kganyago speak and some consensus inflation readings, but the central bank opted to move forward with a hike on a fear that failure to do so could boost CPI expectations. The central bank also added that it was faced with a decision to act ‘now or later’ and so it opted to go with now. Still, even with the hike, the Rand hasn’t managed to find any meaningful relative strength, with most of its gains over the past 24 hours coming from broad based profit taking on USD long positions than anything else. Overall, with the Fed on course to move on rates and begin its path to normalisation, while the SARB struggles with rising inflation, a falling currency, declining commodities prices and struggling local economy, the outlook for the Rand continues to favour additional weakness to fresh record lows.