Brace for Impact – Countdown to ECB and NFPs

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 has set 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 1.5082 – 2Dec high – Strong
• R1 1.4994 – 30Nov low – Medium
• S1 1.4895 – 2Dec low  – Medium
• S2 1.4857 – 21Apr low  – Strong

GBPUSD – fundamental overview

Softer UK manufacturing and construction PMIs have not done anything to help a beleaguered Pound, with the UK currency already under intensified pressure on the back of dovish BOE comments and ongoing demand for the Buck, as the Fed continues to signal a December liftoff. On Wednesday, the Fed Chair highlighted the risks associated with not moving forward on rates, while Fed Lockhart said a rate hike was compelling. This in conjunction with a solid US ADP employment showing, opened an acceleration of declines in the major pair, with the focus now shifting to today’s UK services PMIs and another round of US data which includes, initial jobless claims, ISM non-manufacturing and factory orders. Of course, much of this will take a back seat to today’s ECB decision and tomorrow’s NFP release.

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 123.76 to strengthen the case for a more meaningful bullish resumption and full retracement back to the 125.85 peak. Inability to establish above 123.76 could open the door for the formation of a lower top and renewed downside pressure. A daily close below 122.23 will strengthen this prospect.

• R2 124.63 – 13Aug high – Medium
• R1 123.76 – 18Nov high – Strong
• S1 122.64 – 1Dec low – Medium
• S2 122.23 – 16Nov low – Strong

USDJPY – fundamental overview

The major pair continues to get pulled in both directions, with the broad based US Dollar demand on solid US data and hawkish Fed comments, offset by concurrent safe haven and risk liquidation flow. While the prospect for a December Fed rate hike is strong and supportive of the Buck on yield differentials, at the same time, market fear of the negative risk implication of higher rates, has also encouraged safe haven bids, inviting Yen demand on the traditional correlation. This has left the major pair confined to some choppy sideways trade, with dealers citing stops above 123.80 and below 122.20. Looking ahead, the fallout from the ECB decision should have an impact on broader sentiment which could very well factor into direction today. Otherwise, the focus will be on another batch of US data which includes, initial jobless claims, ISM non-manufacturing and factory orders. Of course, the market will also start to position ahead of Friday’s highly anticipated NFP report.

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’s commitment to weaken the Franc could be put to the test today, with the ECB decision upon us and the central bank expected to move further into QE, while cutting the deposit rate. SNB Maechler was 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, given this SNB commentary, it would be reasonable to expect any Euro weakness on the back of a dovish ECB policy decision, to be quickly offset by the SNB. 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, putting tough pressure on the SNB.

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 0.7382 would threaten the bearish outlook.

• R2 0.7382 – 12Oct high – Strong
• R1 0.7343 – 2Dec high – Medium
• S1 0.7250 – 30Nov high – Medium
• S2 0.7170 – 30Nov low – Strong

AUDUSD – fundamental overview

The Australian Dollar is still the standout outperformer amongst the major currencies over the past week, with the currency benefitting from a less dovish RBA decision, solid GDP and upbeat comments from RBA Stevens. However, with the market having run so far already, and with the Fed still expected to move on rates this month, this could start to weigh on the commodity currency going forward. Certainly the early Thursday release of a weaker than expected Aussie trade report has not helped Aussie’s cause, after Wednesday’s healthy US ADP and hawkish Yellen comments already put a cap on the Aussie’s recovery. Looking ahead, the market will be paying attention to the fallout from the ECB decision, while also taking in US initial jobless claims, ISM non-manufacturing and factory orders. Attention will then shift to Friday NFPs.

USDCAD – technical overview

The market is focused 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 11-year peak from September at 1.3457 and towards 1.4000 further up. In the interim, any setbacks 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 highly constructive outlook.

• R2 1.3457 – 29Sep/2015 high – Strong
• R1 1.3408 – 2Dec high – Medium
• S1 1.3300 – Figure – Medium
• S2 1.3247 – 19Nov low – Strong

USDCAD – fundamental overview

The Canadian Dollar tried its best to mount a bit of a recovery on Wednesday, following the perceived less dovish Bank of Canada rate decision. Indeed, the BoC left rates on hold at 0.50% as was widely expected, but the accompanying language that  “risks to the outlook for inflation remain roughly balanced,” “the current stance of monetary policy is appropriate,” and “growth in Canada and globally is running broadly in line with forecasts,” all caught participants off guard, after the market had been expecting a more concerned outlook from the BoC. Still, any gains in the Loonie were once again well absorbed, on offsetting solid US ADP employment, hawkish Fed comments, and another steep decline in the price of OIL. Looking ahead, the focus for the day will be on the fallout from the ECB rate decision, along with a batch of US data including, initial jobless claims, ISM non-manufacturing and factory orders. Attention will then shift to Friday’s double whammy of US and Canada employment.

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 0.6900 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

Although the New Zealand Dollar managed to find a decent amount of support on this week’s well received GDT auction result, the recent recovery could be at risk, with commodities under broad pressure, US economic data pointing back in the right direction, and Fed officials offering additional hints for a rate hike this month. Much of the direction in this market for the remainder of the week will be contingent on the fallout from the ECB decision, and Friday US NFP report. Not to be overlooked later today, is another round of US data, including initial jobless claims, ISM non-manufacruring and factory orders.

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 2080 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 2107.00 – 2Dec 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, with today’s ECB decision and tomorrow’s NFPs the primary focus.

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 1046.00 – 3Dec/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 1040 and buy stops above 1100. The market will now be paying close attention to the fallout from today’s ECB decision, with anything on the dovish side to likely open more downside pressure, while anything as expected or less dovish could trigger an overdue recovery.

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 the ECB decision and US employment report, this market will also be stressing about potential South Africa downgrades from rating agency reviews tomorrow.