Market More Jittery About December Hike

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 1.5126 – 1Dec high – Medium
• S1 1.5030 – 27Nov low  – Medium
• S2 1.4994 – 30Nov low  – Strong

GBPUSD – fundamental overview

Tuesday’s softer than expected UK manufacturing PMIs gave market participants enough of a reason to sell Cable rallies, with the data reaffirming recent dovish comments from Governor Carney and other BOE officials that the central bank will be in no rush to move on rates. However, setbacks did manage to find support on the back of a discouraging US ISM manufacturing reading, with the broad based selling in the US Dollar helping to keep the Pound somewhat supported. Looking ahead, UK construction PMIs and US ADP employment will be the key data standouts today, while Fed speak from Yellen, Lockhart and Williams, should not be overlooked.

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

Lack of any first tier data out of Japan has kept the Yen focused on broader macro developments, with the currency getting pulled in both directions on diverging flow. On the one side, the Yen has benefitted from some US Dollar profit taking on another disappointing round of data, as reflected by Tuesday’s US ISM manufacturing, while on the other side, ongoing demand for global equities is supporting risk assets and in turn, putting downside pressure on the correlated Yen. This has left the currency confined to choppy consolidation, with more chop to be expected ahead of the Thursday, Friday, ECB, NFP event risk. For today, the market will take in US ADP employment and Fed speak from Yellen, Lockhart 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 1.0935 – 1Dec 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 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 tomorrow’s ECB decision. And with the central bank expect to ease policy further, the SNB will need to be on it toes.

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 ahead of 0.7382, 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 0.7343 – 2Dec high – Medium
• S1 0.7222 – 1Dec low – Medium
• S2 0.7170 – 30Nov low – Strong

AUDUSD – fundamental overview

A nice run for the Australian Dollar this week, with the currency benefiting from a less dovish RBA rate decision, upbeat RBA Stevens comments and some follow up solid Aussie GDP early Wednesday. Also supporting the commodity currency this week has been broad based profit taking on US Dollar longs after another disappointing round of US data, highlighted by Tuesday’s US ISM manufacturing. But the market is starting to find offers into this impressive run, with plenty of event risk ahead, kicking off with today’s US ADP employment report and a round of Fed speak from Yellen, Lockhart and Williams. A solid ADP report or continued hints at a December hike, should do enough to invite additional Aussie offers off recent highs.

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

The Canadian Dollar hasn’t been able to muster any recovery off recent lows, despite a round of broad based US Dollar weakness on the back of Tuesday’s disappointing US ISM manufacturing print. The relative weakness in the Loonie has been a function of offsetting Canadian data, with the latest Canada GDP report throwing more cold water on the outlook for the Canadian economy. All of this comes ahead of today’s Bank of Canada rate decision, in which the central bank is expected to leave rates on hold, but at the same time, maintain and accommodative stance on monetary policy, given softness in economic leads and ongoing weakness in the OIL market. Also out on Wednesday are US ADP employment and a round of Fed speak from Yellen, Lockhart 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 0.6792 – 30Oct high– Strong
• R1 0.6688 – 1Dec high – Medium
• S1 0.6606 – 20Nov high – Medium
• S2 0.6515 – 30Nov low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has certainly benefitted from a round of softer US economic data and broad based profit taking on US Dollar longs ahead of the Thursday, Friday, ECB, NFP event risk. At the same time, the currency is finding relative strength of its own, outperforming all other major currencies over the past week. Tuesday’s well received GDT auction has been a source of recent Kiwi strength, though with the market having run quite a bit in recent days, offers are expected to emerge given the ongoing expectation for Fed liftoff in December and the divergence in monetary policy. Looking ahead to today’s calendar, US ADP employment and Fed speak will be in focus, with Yellen, Lockhart and Williams on the wires.

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 Thursday’s ECB decision and Friday NFPs the primary focus. In the interim, the market will focus on today’s ADP employment and a round of Fed speak, featuring Yellen, Lockhart and Williams.

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 14.4950 –1Dec/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 this week, 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 rating agency reviews on Friday.