Commodity Declines Rattle Correlated Markets

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 1.5336, while only back above would compromise the immediate bearish structure.

• R2 1.5159 – 3Dec high – Strong
• R1 1.5115 – 7Dec high – Medium
• S1 1.4994 – 30Nov low  – Medium
• S2 1.4895 – 2Dec low  – Strong

GBPUSD – fundamental overview

The latest rally in the Pound was attributed to last week’s post ECB Euro rally, and with this event risk now behind us, it is clear, the market is once again looking at UK fundamentals, which have not been supportive of the UK currency. Overall, economic data out of the UK has come in on the softer side of late, while BOE officials have been talking down any expectations for near term rate hikes. This has resulted in a scaling back of the market’s projected timing of a BOE move, while also weighing on the Pound. For today, the primary focus will be on the UK industrial and manufacturing production numbers. Later on, we get US JOLTS data.

USDJPY – technical overview

Rallies continue to stall out 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 back below 122.23 will strengthen this prospect.

• R2 124.63 – 13Aug high – Medium
• R1 123.76 – 18Nov high – Strong
• S1 122.23 – 16Nov low – Strong
• S2 122.00 – Figure – Medium

USDJPY – fundamental overview

Misses in Japan’s current account and trade balance data were shrugged off in early Tuesday trade, with the market paying closer attention to Japan’s final Q3 GDP reading, which came in better than expected, while also confirming the economy had averted a technical recession. Overall however, this market remains confined to a tight multi-day range, with monetary policy divergence mostly supporting dips, while risk off flow and some of these Japanese fundamentals keep the market capped into rallies. Dealers cite 123.75 and 122.20 as the key levels to watch above and below. Looking ahead, the only notable standout on the calendar for the remainder of the day comes in the form of US JOLTS job openings.

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 – 13Oct high – Medium
• S1 1.0755 – 12Nov low – Medium
• S2 1.0714 – 19Aug low – Strong

EURCHF – fundamental overview

The SNB has been able to breathe out a bit in the aftermath of last week’s ECB let down, after the central bank underdelivered with its latest round of easing measures. This opened a massive surge in the Euro, alleviating some of the pressure on the SNB to defend against unwanted Franc appreciation from Euro weakness. Still, the consequence of this latest move has been the initiation of a bout of risk off flow in the market, which in turn has also acted as a weight on the risk correlated EURCHF rate. This is something that could be a concern to the SNB going forward, particularly if the Euro rally fades and risk off price action intensifies. Attention now turns to Thursday’s SNB policy decision, where the central bank is unlikely to make any major changes to policy, in light of the ECB decision.

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 0.7385 high. Any rallies are therefore classified as corrective and should continue to be well capped ahead of 0.7385, 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 0.7385 would undermine the bearish structure.

• R2 0.7385 – 4Dec high – Strong
• R1 0.7300 – Figure – Medium
• S1 0.7222 – 1Dec low – Medium
• S2 0.7170 – 30Nov low – Strong

AUDUSD – fundamental overview

Clearly, the focus for the Australian Dollar has not been on economic data in Tuesday trade, after NAB business confidence readings came in above forecast and China trade data beat expectations. Instead, the currency has been weighed down on what appears to be concern over depressed commodities prices. Iron ore has dropped below $40 to a fresh +10 year low, while OIL has extended its slide to a 6 year low. The weakness in these markets puts more downside pressure on inflation and in turn, could be putting added pressure on the RBA to err on the side of accommodation. Setbacks in equity markets are also factoring into price action, with the risk correlated currency finding additional offers on this development. Looking ahead, US JOLT job openings is the only notable release for the remainder of the day.

USDCAD – technical overview

The strong uptrend remains well intact, with the market taking out the previous 11-year peak from September, and surging to fresh multi-year highs through the major psychological barrier at 1.3500. The bullish break is a significant medium-term development and could now open the door for the next upside extension exposing 1.4000 in the weeks ahead. Any corrective setbacks should be well supported ahead of 1.3000, while ultimately, only back below 1.2800 would compromise the constructive structure.

• R2 1.3600 – Figure – Medium
• R1 1.3524 – 7Dec/2015 high – Medium
• S1 1.3457 – Previous Peak – Medium
• S2 1.3364 – 7Dec low – Strong

USDCAD – fundamental overview

Not a lot going right for the Canadian Dollar at the moment, with the currency getting hit on many fronts, dropping to a fresh 11 year low. Last Friday’s contrasting employment reports, with Canada employment much softer and US employment on the stronger side, had already kept the Loonie weighed down, while this week’s further slide in commodities prices has opened the door for this latest break to fresh lows (USDCAD highs). OIL has broken down to a 6 year low and with the highly correlated commodity under such pressure, this is likely to put an equal amount of pressure on the Bank of Canada to perhaps reconsider what had been a less dovish than expected stance at last week’s meeting. All of this in conjunction with a Fed on the verge of it’s first rate liftoff in nearly a decade, should keep the Canadian Dollar under pressure going forward. Looking ahead, Canada building permits and housing starts are due, followed by a speech from Governor Poloz later in the day.

NZDUSD – technical overview

Any rallies continue to be very well capped, with the market confined to a broader downtrend. From here, look for the formation of a meaningful lower top at 0.6893, in favour of an acceleration to the downside and bearish resumption to fresh multi-year lows. Ultimately, only a daily close above 0.68930 will negate and potentially force a shift in the structure.

• R2 0.6788 – 4Dec high– Strong
• R1 0.6700 – Figure – Medium
• S1 0.6608 – 3Dec low – Medium
• S2 0.6514 – 30Nov low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has come back under pressure in recent trade, with macro players taking advantage of last week’s rally to sell a currency that is still considered to be overvalued on a TWI basis. The ongoing slide in commodities has been a primary driver, as it puts more downside pressure on already subdued inflation. The market hasn’t been able to pay much attention to Tuesday’s improved NZ data and solid China trade, with commodity weakness and downside pressure in risk assets more than offsetting the positive flow. Attention now turns to this week’s RBNZ rate decision, where the central bank is expected to consider additional easing measures in the face of these latest developments. Friday’s solid US employment report is also factoring into this latest round of selling, with the readings further solidifying prospects for a Fed rate hike next week.

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 2068 strengthening the case for some form of a lower top and additional setbacks ahead. Look for a daily close below 2003 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 2097.00 – 3Dec high – Medium
• S1 2041.00 – 3Dec low – Medium
• S2 2003.00 – 16Nov low – Strong

US SPX 500 – fundamental overview

Last week’s round of across the board less dovish than expected central bank policy decisions could perhaps be sending a message to stock market participants that an era of ultra loose monetary policy accommodation is coming to an end. To this point, stocks haven’t been too worried about the prospect of higher rates in the US, which should be an equity bearish development, in light of the removal of policy that incentivizes investment in risk assets. But, market participants could now finally be waking up to the fact that central banks are no longer willing or able to support policies fueling dangerous bubbles, undermining recovery prospects.

GOLD (SPOT) – technical overview

Signs of a potential base off fresh multi-year lows in the previous week, with a stretched market finally deferring to an overdue, healthy recovery. While the broader downtrend remains intact for the moment, a break and daily close back above 1100 will do a good job of alleiviating immediate downside pressure, opening the door for a more meaningful recovery. However, inability to establish above 1100 could open a fresh drop below 1046 and towards the major psychological barrier 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

Despite the US Dollar in strong demand as the Fed prepares for liftoff, GOLD is finding formidable 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. This has helped GOLD stay somewhat supported, despite broader weakness in the commodity sector. Dealers now cite sell-stops below 1040 and buy stops above 1100.

Feature – technical overview

USDZAR has broken to yet another fresh record high, with the market taking out the previous 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 days ahead, while any setbacks should be very well supported ahead of 13.8920. Ultimately however, only back below 13.0120 would negate the highly constructive outlook.

• R2 15.0000 – Psychological – Strong
• R1 14.5695 –7Dec/Record – Strong
• S1 13.8920 – 20Nov low – Medium
• S2 13.8620 – 5Nov low – Strong

Feature – fundamental overview

Clearly, it’s going to take a lot more from the SARB and local economy if the currency wants to truly avoid further record low 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. More knocks to the Rand this past Friday, after US payrolls came in better than expected, while Fitch was out with a downgrade of South Africa, and S&P cut its outlook for the country. Already this week, we have seen yet another record low for the EM currency on further declines in commodities prices. Looking ahead, the market will digest the latest South Africa current account readings.