Fed Day Finally Arrives, Brace for Impact

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. A fresh lower top has been 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 the next potential lower top at 1.5240 to be confirmed on a break below 1.4895, while only back above 1.5336 would ultimately compromise the immediate bearish structure.

• R2 1.5240 – 11Dec high – Strong
• R1 1.5107 – 14Dec low – Medium
• S1 1.4957 – 8Dec low  – Medium
• S2 1.4895 – 2Dec low  – Strong

GBPUSD – fundamental overview

While UK CPI managed to match expectations on Tuesday, the much softer PPI data could not go unnoticed, with the overall result backing up the subdued UK inflation outlook and recent dovish comments from various BOE officials. This resulted in some early underperformance in the Pound, with the UK currency holding on to losses in the US session following a wave of US Dollar demand on rising US inflation and position squaring ahead of the FOMC rate decision. Also weighing on the Pound in Tuesday trade were renewed Brexit fears, with the latest polls suggesting the result was too close to call. Finally, comments from Carney and Cunliffe did nothing to help the Pound’s cause. Governor Carney said the BOE was committed to its inflation target and would not be pressured to raise rates if it were incorrect to do so, while BOE Cunliffe highlighted the fact that disinflationary pressure had lasted a lot longer than expected. UK employment comes into focus today, ahead of the FOMC decision.

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 122.00 – Figure – Medium
• S1 121.59 – 16Dec low – Medium
• S2 120.34 – 14Dec low – Strong

USDJPY – fundamental overview

A nice rebound for the major pair into Fed day, with the market driving higher on a combination of influences. Certainly, the impressive recovery in global equities and risk sentiment played a major role in the Yen weakness, while the rising inflation outlook in the US, following a pickup in CPI, also factored into trade, with the data further justifying a Fed hike later today and widening yield differentials back in favour of the Buck. Otherwise, weaker Tankan inflation expectations in Japan have also helped to fuel expectations for additional easing from the BOJ going forward, which is yet another potential driver of the higher USDJPY rate. Looking ahead, the market will take in a batch of US data featuring building approvals, housing starts and industrial production, though all of this will unquestionably take a back seat to the FOMC event risk later in the day.

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 the need to venture deeper into negative interest rate territory. Still, the emergence of a fresh bout of risk off flow will also act 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. Much of the fate of market sentiment going forward, will hinge on today’s FOMC policy decision outcome.

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 0.7283 – 15Dec high – Medium
• S1 0.7159 – 23Nov low – Medium
• S2 0.7102 – 19Nov low – Strong

AUDUSD – fundamental overview

Some mixed data out of Australia in early Wednesday trade, with skilled vacancies improving, while Westpac consumer confidence disappointed. The second tier data hasn’t factored into price action, with the Australian Dollar more focused on broader flows and mostly weighed down off recent highs, following broad based US Dollar buying pre-FOMC, on the back of rising US inflation data. Also weighing on Aussie is news Blackrock sees the RBA cutting in 2016, with Aussie risks tilted to the downside. Setbacks have been supported somewhat on a recovery in equities and commodities, and the market will now turn its attention to the FOMC decision, where the Fed is expected to raise rates for the first time in nearly a decade. It is worth noting that we get a batch of US data ahead of the FOMC, which features housing starts, building permits and industrial production. RBA Debelle was on the wires earlier in the day, but offered no comments on the monetary policy outlook.

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

The Bank of Canada highlighted concerns with household indebtedness and imbalances in the housing sector in its financial system review, while also citing risks to a slowing China and prolonged weakness in commodities prices. It hasn’t been a good run for the Canadian Dollar of late, with the currency just off this week’s 11-year low against the Buck, and Tuesdays softer Canada manufacturing data hasn’t helped matters. Broad based US Dollar demand ahead of today’s anticipated FOMC decision, where the Fed is finally expected to raise rates, has also kept the Loonie tracking near recent lows, though the Canadian Dollar has found one saving grace, with a modest recovery in OIL prices preventing the currency from extending its decline. Ahead of today’s Fed decision, we get a batch of data which includes Canada international securities transactions, US housing starts and building permits, and US industrial production.

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 0.6826 – 15Dec high– Medium
• S1 0.6691 – 14Dec low – Medium
• S2 0.6571 – 9Dec low – Strong

NZDUSD – fundamental overview

Though dairy prices continued to show signs of stabilisation on Tuesday, the results of the GDT auction came in below forecast, which weighed on Kiwi off recent highs. Also factoring into price action was improving US inflation and broad based US Dollar demand ahead of today’s FOMC policy decision. The currency has since consolidated recent weakness following early Wednesday comments from New Zealand FinMin English, who says exporters would prefer an exchange rate in the mid to low 60s. English also added that if the economy faced a drought going forward, there would be a case for lower rates. The release of a slightly better New Zealand current account could be supporting a bit, though the market will now turn its attention to a batch of US data featuring housing starts, building permits and industrial production, before taking in the FOMC decision and early Thursday New Zealand GDP.

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 2003 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 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

The stock market will be paying very close attention to the outcome of today’s highly anticipated FOMC policy decision. Stocks have been weighed off record highs from earlier this year, as investors begin to price in the removal of ultra accommodative central bank policy incentivizing investment in stocks. The direction in the market today and into the end of the year will likely hinge on just how dovish or hawkish the Fed decides to be later today. While it is widely expected the Fed will raise rates for the first time in nearly a decade, it is also expected the Fed will offset any hawkishness from the hike, with a warning that the path to normalisation will be very slow and drawn out. If the market perceives the decision to be more hawkish or less dovish than it wants, this could fuel a more intensified liquidation. However, if the Fed manages to successfully offset the hike with satisfactory dovish language, this could inspire a resurgence in demand.

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 later today, 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 major capitulation. This has helped GOLD stay somewhat supported, despite broader weakness in the commodity sector.

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 and consolidation 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 last Friday. The Gordhan appointment has restored temporary order, while a renewed bid tone in equities and recovery in commodities is also helping the struggling Rand. 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 later today, is not a pretty combination for the Rand, and this should continue to challenge the emerging market currency going forward.