German ZEW, UK and US CPI Highlight Busy Tuesday

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 1.5336 – 19Nov high – Strong
• R1 1.5240 – 11Dec high – Medium
• S1 1.5108 – 14Dec low  – Medium
• S2 1.5061 – 8Dec high  – Strong

GBPUSD – fundamental overview

The Pound is a relative underperformer into Tuesday trade, after the UK currency was hit hard Monday, on the back of major downside pressure in the FTSE. UK stocks not only sunk to fresh 2015 lows, down 10.5% on the year, but also managed to post their lowest level in 3 years. This opened some heavy cross related interest in EURGBP, which acted as an additional strain on Cable. Also seen weighing on the Pound were dovish comments from BOE Shafik, who said the BOE should take lessons from the Fed and look for sustained wage growth before hiking rates. Much of the attention will shift to tomorrow’s FOMC rate decision, with a good portion of the market positioning ahead of the major risk. Still, there is plenty that will need to be digested on Tuesday, with UK and US inflation readings due. Clearly, the outcome on this front will play an added role in today’s volatility.

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 119.00 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.

• R2 122.23 – 11Dec high – Strong
• R1 121.35 – 14Dec high – Medium
• S1 120.34 – 14Dec low – Medium
• S2 120.00 – Psychological – Strong

USDJPY – fundamental overview

Flows in the major pair have been all about risk sentiment, with the market coming under intensified pressure as equity markets falter. Lack of any meaningful Japanese data on Tuesday will leave the market watching ongoing developments on the risk front, while also digesting US inflation readings and preparing for tomorrow’s FOMC decision. While the market has been pricing a 25bp rate hike from the Fed, there is an expectation the central bank will more than cool any impact from a hike with super dovish language, stressing the very slow and gradual path to policy normalisation. Interestingly enough, anything on the more dovish from the Fed could produce a wash result for USDJPY, with the potential Yen gains on the more dovish FOMC getting offset by a likely favourable reaction in risk markets. Dealers cite decent stops below 120.00.

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 this month, in the aftermath of a less dovish European Central Bank decision. We saw an SNB taking advantage of the opportunity to leave policy unchanged this past Thursday, avoiding having to venture deeper into negative interest rate territory. 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. On Monday, the Franc managed to sell off against the Euro despite risk liquidation, which had many speculating the SNB was stepping in on the bid.

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 0.7334 – 10Dec high – Strong
• R1 0.7281 – 11Dec high – Medium
• S1 0.7159 – 23Nov low – Medium
• S2 0.7102 – 19Nov low – Strong

AUDUSD – fundamental overview

Nothing of surprise out from the RBA Minutes, which produced a fairly balanced report. While the central bank was happy to leave the door open for the possibility of additional easing on subdued inflation concerns, it was also content with the progress in the local economy, which should keep it from doing anything at the moment. Otherwise, a secondary Aussie consumer confidence reading came in slightly below previous, while the Aussie house price index exceeded expectations. Elsewhere, the Aussie budget showed a projected swelling in the deficit, though this didn’t factor much into trade, with the market already pricing this in given ongoing weakness in commodities. Overall, the Australian Dollar has been supported in recent trade, mostly on the back of gains in the Euro and some pre-FOMC profit taking on US Dollar longs. Looking ahead, US inflation readings will be the key standout 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 into the 1.3700s thus far. The bullish break is a significant medium-term development and could result in a test of the major psychological barrier at 1.4000 in the days ahead. Daily studies are however tracking in overbought territory, and there is risk for some form of a healthy corrective retreat in the sessions ahead. Still, any setbacks should be well supported ahead of 1.3400, while ultimately, only back below 1.3000 would delay the constructive structure.

• R2 1.3800 – Figure – Medium
• R1 1.3781 – 14Dec/2015 high – Strong
• S1 1.3677 – 14Dec low – Medium
• S2 1.3623 – 11Dec low – Strong

USDCAD – fundamental overview

Lack of first-tier data out of Canada on Monday, left the beaten down Loonie trading on broader flows and price action in the OIL market. The Canadian Dollar initially was pressured to fresh 11-year lows against the Buck on a wave of risk off price action and fresh lows in OIL, but managed to put in a mild recovery into the end of Monday trade on a rebound in OIL. Looking ahead, Tuesday is a busier day for the commodity currency, with the market taking in Canada data in the form of manufacturing shipments and existing home sales, while also digesting US CPI. The Bank of Canada will release its Financial System Review report as well later today, which will be followed up by a conference with Governor Poloz. Clearly, given the recent hammering in the Loonie, it will be interesting to see what, if anything new the Governor has to offer by way of insight on the outlook for monetary policy.

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.

• R2 0.6893 – 16Oct high– Strong
• R1 0.6790 – 14Dec high– Medium
• S1 0.6691 – 14Dec low – Medium
• S2 0.6571 – 9Dec low – Strong

NZDUSD – fundamental overview

Kiwi bulls have been feeling better about the currency’s prospects in recent days, following a hawkish RBNZ cut and decent recovery in local data. The currency has also benefitted from a fresh wave of Euro demand and profit taking on long USD exposure ahead of tomorrow’s highly anticipated FOMC decision. Early Tuesday, the New Zealand Treasury was out with its economic and fiscal forecasts, and while nothing came as a surprise, upbeat comments from FinMin English may have helped to contribute to some of the latest bid. English announced he would be giving a jolt to the economy by adding more to spending in 2016. Looking ahead, the market will be focused on the latest GDT auction results and inflation data out of the US. Participants will also continue to positions ahead of Wednesday’s FOMC.

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 2000 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 towards next medium-term support in the 1870 area, while only back above 2117 negates and exposes a direct retest of the record high.

• R2 2117.00 – 3Nov high – Strong
• R1 2057.00 – 11Dec high – Medium
• S1 1993.00 – 14Dec low – Strong
• S2 1970.00 – 7Oct low – Medium

US SPX 500 – fundamental overview

A round of across the board less dovish than expected central bank policy decisions over the past several days 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. All of this will come to a head this tomorrow, when the market finally gets a glimpse at the highly anticipated FOMC policy decision, where the Fed is expected to raise rates for the first time in nearly a decade. Also seen weighing on stocks has been the ongoing weakness in OIL prices to fresh multi-year lows.

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, and surging through major psychological barriers at 15.0000 to just over 16.000 thus far. Daily studies are however now in the process of unwinding from severely overbought territory, and there is risk for additional healthy, corrective declines in the sessions ahead before any meaningful bullish resumption. Still, setbacks should be very well supported ahead of previous resistance in the 14.4500 area, while only back below 13.8920 would compromise the highly constructive outlook.

• R2 16.5000 – Psychological – Medium
• R1 16.0330 –11Dec/Record – Strong
• S1 14.4415 – 16Nov high – Strong
• S2 13.8920 – 20Nov low – Medium

Feature – fundamental overview

The Rand is enjoying a very welcome recovery off fresh record lows, with the currency benefitting from news of President Zuma’s appointment of seasoned Pravin Gordhan as finance minister. Initially, after sacking Nene, Zuma announced the appointment of unknown lawmaker David van Rooyen. The uncertainty of van Rooyen was not taken well by an already struggling Rand, which then accelerated to fresh record lows against the Buck. The Gordhan appointment has restored temporary order, while some broad profit taking on US Dollar longs ahead of this tomorrow’s FOMC is also helping the Rand a bit. But 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 challenge the emerging market currency going forward.