Markets Square Up Into Fed Week

Today’s report: Markets Square Up Into Fed Week

Consolidation has taken over, following a healthy volatility surge earlier in the week. Much of the tamer price action is a function of a market that now wants to square up ahead of next week's highly anticipated FOMC event risk. US retail sales, PPI and Michigan confidence to close out the week.

Wake-up call

Chart talk: Major markets technical overview video

Chart talk: Technical & fundamental highlights

EURUSD – technical overview

An intense round of declines in the major pair finally bottomed out, with the market trading just shy of the critical March, multi year low at 1.0460, before reversing sharply in the previous week. However, despite the wild upswing, the broader downtrend remains firmly intact, and the market should now look to carve out the next lower top ahead of a bearish continuation back towards the March low. Still, this latest push through 1.10000 does leave open the possibility for a fresh upside extension towards the 1.1200 area before the market finally stalls and heads lower again. Back below 1.0796 will officially put the pressure back on the downside.

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  • R2 1.1043 – 9Dec high – Strong
  • R1 1.1000 – Psychological – Medium
  • S1 1.0879 – 9Dec low – Medium
  • S2 1.0796 – 7Dec low – Strong

EURUSD – fundamental overview

The Euro has settled down following a recent wave of volatility, with the market content on consolidation as it readies for next week’s major event risk in the form of the FOMC rate decision. The Euro had been well offered in the weeks leading up to the Fed, as expectations for a Fed rate hike built up. However, in recent days, we have seen a bout of profit taking on US Dollar longs, which has helped fuel a recovery in the Euro. The combination of a Fed likely to offset a raise rise with dovish commentary and an ECB that has recently underdelivered on the scope of accommodation that was expected, is keeping the Euro supported for now. Looking at today’s trade, we get some official speak from EU Dombrovski, and ECBs Coeure and Liikanen. On the data front, we get German inflation and a batch of US releases, including retail sales, PPI and Michigan confidence.

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.

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  • R2 1.5265 – 13Dec high – Strong
  • R1 1.5202 – 10Dec high – Medium
  • S1 1.5061 – 8Dec high  – Medium
  • S2 1.4957 – 8Dec low  – Strong

GBPUSD – fundamental overview

No big surprises from the Bank of England on Thursday, with the central bank leaving policy on hold, with an 8-1 vote. Overall, a fairly balanced statement from the BOE, with optimism over the outlook for the domestic economy offset by subdued inflation and wage growth concerns. However, an emphasis from the BOE that there was no “mechanical link” to Fed policy, suggested the BOE wouldn’t be in the same hurry to raise rates as the Fed and could be comfortable keeping rates on hold for a good while longer. This ultimately weighed on the UK currency in Thursday trade and has kept the Pound offered into rallies. Looking ahead, UK construction output and US releases featuring retail sales, PPI and Michigan confidence, will be the standouts on the Friday calendar. BOE Weale is also slated to speak.

USDJPY – technical overview

A period of multi-day consolidation between 123.75 and 122.20 has finally been broken, with the market dropping below range support at 122.20 to open an acceleration to the downside. Deeper setbacks are now projected towards 120.00 in the sessions ahead, with any rallies expected to be well capped on a daily close basis, below previous support turned resistance at 122.20. Ultimately, only back above 123.76 puts the focus back on the topside.

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  • R2 123.05 – 9Dec high – Medium
  • R1 122.50 – Mid-Figure – Strong
  • S1 121.55 – 11Dec low – Medium
  • S2 121.08 – 9Dec low – Strong

USDJPY – fundamental overview

The major pair has been content chopping around following this week’s breakdown below key range support. A fresh wave of risk off trade was the primary driver behind the weakness, though setbacks have since been supported on a better performance in the equity market on Thursday. For the most part, the pair could trade sideways over the coming sessions as participants settle in ahead of next week’s major event risk in the form of the FOMC rate decision. In the interim, the focus will be on today’s US data featuring retail sales, PPI and Michigan confidence.

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.

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  • 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. As such, we saw an SNB taking advantage of the opportunity to leave policy unchanged on Thursday and avoid having to venture deeper into negative interest rate policy. Still, there has been the emergence of a fresh 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.

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.

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  • R2 0.7385 – 4Dec high – Strong
  • R1 0.7334 – 10Dec high – Medium
  • S1 0.7221 – 10Dec low – Medium
  • S2 0.7172 – 9Dec low – Strong

AUDUSD – fundamental overview

Despite this week’s stellar Aussie employment report, the Australian Dollar has come back under pressure into the end of the week, with plenty of larger macro accounts still looking to sell the currency into rallies. While the Aussie jobs data was indeed healthy, and has reduced odds for additional RBA easing, at the same time, the currency remains super sensitive to other themes. The combination of risk off flow, ongoing weakness in commodities and a US Dollar poised to benefit from a Fed path to normalisation are all negative drivers that could open intensified downside pressure in the sessions ahead. For today, the focus will be on a batch of US data featuring retail sales, PPI and Michigan confidence.

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 days ahead. Any corrective setbacks should be well supported ahead of 1.3000, while ultimately, only back below 1.2800 would compromise the constructive structure.

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  • R2 1.3750 – Mid-Figure – Medium
  • R1 1.3700 – Figure – Strong
  • S1 1.3532 – 10Dec low – Medium
  • S2 1.3496 – 8Dec low – Strong

USDCAD – fundamental overview

The Canadian Dollar hasn’t been able to catch a break in recent trade and stands out as a major underperformer over the past week. The combination of disappointing Canada data, ongoing weakness in OIL prices and a Fed on the verge of liftoff, have all resulted in the Loonie’s latest decline to fresh 11-year lows against the Buck. Looking ahead, the market will continue to pay attention to price action in the OIL market, while also digesting a batch of US data featuring retail sales, PPI and Michigan confidence.

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 0.6893 will negate and potentially force a shift in the structure.

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  • R2 0.6893 – 16Oct high– Strong
  • R1 0.6788 – 4Dec high– Medium
  • S1 0.6700 – Figure – Medium
  • S2 0.6571 – 9Dec low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has held up rather well following the early Thursday RBNZ policy decision. While the RBNZ did go ahead and slash rates by 25bps, the central bank also managed to offset any dovishness from the cut with an upbeat outlook. Still, with risk sentiment shaky, commodities under pressure and the Fed on the verge of a liftoff, any rallies from current levels are expected to be met with formidable resistance. The key focus for this market in the days ahead will be the FOMC rate decision and Kiwi GDP, but in the interim, the market will look to react to today’s batch of US data which features retail sales, PPI and Michigan confidence.

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 2040 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 only back above 2117 negates and exposes a direct retest of the record high.

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  • R2 2117.00 – 3Nov high – Strong
  • R1 2097.00 – 3Dec high – Medium
  • S1 2035.00 – 9Dec low – Medium
  • S2 2003.00 – 16Nov low – Strong

US SPX 500 – fundamental overview

A 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. The US economic calendar will be watched closely today, with retail sales, PPI and Michigan confidence due.

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.

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  • 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 16.0000 in the sessions ahead, while any setbacks should be very well supported ahead of 13.8920. Ultimately however, only back below 13.0000 would negate the highly constructive outlook.

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  • R2 16.0000 – Psychological – Strong
  • R1 15.4815 –10Dec/Record – Strong
  • S1 13.8920 – 20Nov low – Medium
  • S2 13.8620 – 5Nov low – Strong

Feature – fundamental overview

When your currency is already making record lows, it’s never helpful to sack your finance minister, which is exactly what President Zuma did earlier this week. 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, rating agency downgrades 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.

Peformance chart: Five day performance v. US dollar

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