Profit Taking on USD Longs Ahead of Event Risk

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 ahead of 1.5400 with a fresh lower top now confirmed at 1.5336, following the break to fresh multi-day lows below 1.5027. This sets up the next major downside extension 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 1.5156 – 24Nov high – Strong
• R1 1.5110 – 27Nov high – Medium
• S1 1.4994 – 30Nov low  – Strong
• S2 1.4960 – 23Apr low – Medium

GBPUSD – fundamental overview

Monday comments from BOE Viieeghe, warning of the impact of a strong Cable rate on growth, initially weighed on the major pair, with the price dropping to a +7 month low below 1.5000. However, an overall round of softer second-tier US data and stretched technical readings, seemed to provide enough of an excuse for short covering into the latter half of the day, with the momentum carrying over into early Tuesday trade. Looking ahead, today’s focus will be on UK manufacturing data, the UK financial stability report and US ISM manufacturing.

USDJPY – technical overview

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 123.76 – 18Nov high – Medium
• R1 122.96 – 24Nov high – Strong
• S1 122.23 – 16Nov low – Strong
• S2 121.63 – 6Nov low – Medium

USDJPY – fundamental overview

It has been a bit of a choppy mess for this major pair, with the market getting pulled in both directions and unable to decide which way it wants to commit. Monday’s less dovish Kuroda comments, suggesting the BOJ won’t be making any additional accommodative moves, weighed on USDJPY, with the market trading well below 123.00. However, despite the comments, yield differentials could not be shaken off completely, with participants still buying the Dollar into dips on the expectation for a Fed rate hike in a couple of weeks. Into Tuesday, the Dollar has been sold back down, with Monday’s softer second tier US readings inspiring broad based profit taking on Dollar longs that has once again weighed on the pair back below 123.00. Overall, a tight range between 122.20 and 123.75. Looking ahead, US ISM manufacturing will be the key release for 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 1.1050 – 11Sep high – Strong
• R1 1.0950 – Mid-Figure – 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 the other week 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. The major focus for the week will unquestionably be the Thursday ECB decision. And with the central bank expect to ease policy further, the SNB will need to be on it toes. Today’s data should not be overlooked, with Swiss GDP and retail sales due.

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 medium-term 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 0.7382 – 12Oct high – Strong
• R1 0.7284 – 30Nov high – Medium
• S1 0.7159 – 23Nov low – Medium
• S2 0.7102 – 19Nov low – Strong

AUDUSD – fundamental overview

As was widely expected, the RBA was out early Tuesday, leaving rates on hold at 2.00%. Still, the Australian Dollar has managed to find a fresh round of bids in the aftermath, with the tone of the statement coming out less dovish than anticipated, after the RBA highlighted prospects for an improvement in economic conditions had firmed. Otherwise, data out pre-RBA was mixed, with solid Aussie building approvals offsetting the weaker Aussie current account, while the softer official China PMI reading was offset by a better Caixin PMI. Looking ahead, US ISM manufacturing is the remaining standout on today’s calendar.

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 1.3393 – 30Nov high – Medium
• S1 1.3300 – Figure – Medium
• S2 1.3247 – 19Nov low – Strong

USDCAD – fundamental overview

Not much going on for the Canadian Dollar into Tuesday trade, though overall, the currency remains weighed down near its recent 11-year low, on the back of monetary policy divergence and ongoing weakness in commodities prices. Things are expected to heat up from today into the remainder of the week, with Canada GDP due later on, followed by tomorrow’s Bank of Canada rate decision. Of course, more volatility will then be expected Thursday, Friday, with the ECB and NFPs due. Not to be overlooked in today’s session is US ISM manufacturing.

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 0.6700 – Figure– Strong
• R1 0.6647 – 1Dec high – Medium
• S1 0.6583 – 1Dec low – Medium
• S2 0.6515 – 30Nov low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has managed to shrug off a round of softer terms of trade early Tuesday, with the market instead choosing to focus on the weaker Monday US data and broad based profit taking on long US Dollar exposure. Also supporting the commodity currency into Tuesday are positive Aussie flows following a less dovish than expected RBA decision, which is propping the correlated New Zealand Dollar. Looking ahead, the major focus for Kiwi on Tuesday will be the results of the GDT auction, though US ISM manufacturing could also play a role.

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 2104.00 – 9Nov high – Medium
• S1 2068.00 – 24Nov low – Medium
• S2 2003.00 – 16Nov 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. Solid US economic data and hawkish Fed commentary solidifying prospects for a December rate hike have failed to have any meaningful impact on the market. The price action is somewhat perplexing given the negative risk implication 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, there is plenty of risk stacked as the week progresses, with central bank meetings and Friday NFPs the primary focus. In the interim, the market will focus on today’s US ISM manufacturing release.

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 1052.00 – 27Nov/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. Dealers cite sell-stops below 1050 and buy stops above 1100.

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 15.0000 in the weeks 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 15.0000 – Psychological – Strong
• R1 14.4930 –30Nov/Record – Strong
• S1 13.8920 – 20Nov low – Medium
• S2 13.8620 – 5Nov low – Strong

Feature – fundamental overview

An already beaten down Rand suffered another blow in Monday trade, after the release of a much wider than expected South Africa trade deficit. This has opened another fresh record low in the Rand against the Buck, with the currency continuing its downward trajectory, despite efforts from the central bank to offset weakness with rate hikes in recent days. Clearly, it’s going to take a lot more from the SARB and local economy if the currency wants to truly avoid further declines. The combination of rising South African inflation, a struggling economy, declining commodities prices and Federal Reserve on the verge of raising rates, is not a pretty combination for the Rand, and this should continue to pressure the emerging market currency. Looking ahead, beyond risk associated with Thursday’s ECB and Friday’s US employment report, this market will be stressing about potential South Africa downgrades from the rating agency reviews late in the week.