Sentiment Shifts, US Dollar Extends, BOJ Confuses

GBPUSD – technical overview

The latest break below 1.4895 has confirmed another lower top at 1.5240, within a very well defined downtrend off the 2015 high. This now opens the next major downside extension, exposing a retest of the 2015 low at 1.4566 in the days ahead. Any rallies should be very well capped ahead of 1.5240, with only a break above to delay prospects for additional declines and compromise immediate downside pressure.

• R2 1.5098 – 16Dec high – Strong
• R1 1.5008 – 17Dec high – Medium
• S1 1.4865 – 17Dec low  – Medium
• S2 1.4800 – Figure  – Strong

GBPUSD – fundamental overview

More downside pressure in the Pound post FOMC, with the UK currency extending declines to multi-month lows and closing on a retest of the 2015 low at 1.4566. The ongoing weakness in commodities and resurgence in US Dollar demand on widening yield differentials in the Buck’s favour, have been major drivers of the latest price action. The Pound has also been relatively underperforming over the past week with the BOE seemingly in no rush to raise rates, as evidenced by softer inflation and accompanying dovish comments from various BOE officials. Moreover, there has been added stress in the UK, with polls showing nearly half of Britons leaning towards an EU exit.

USDJPY – technical overview

A recovery out from recent low at 121.38 has opened a push back above solid previous range support at 122.30. Still, while the market holds below 123.76, risks are tilted to the downside, with a lower top sought out ahead of a bearish continuation back towards 121.38 and below. Only back above 123.76 would negate and force a shift in the short-term structure.

• R2 123.76 – 18Nov high – Strong
• R1 123.00 – Figure – Medium
• S1 122.00 – Figure – Medium
• S2 121.38 – 16Dec low – Strong

USDJPY – fundamental overview

Quite a shakeup in the Yen on Friday, with the market experiencing whipsaw price action in the aftermath of a confusing BOJ policy decision, in which the monetary base held steady. The Yen was initially hit hard on the announcement, with participants assuming BOJ adjustments were greater than they actually proved to be. While the BOJ announced an unexpected easing by way of an additional 300B in annual ETF purchases, this merely offset the removal of an older central bank program to buy shares. So on net, no real change, and no additional easing as confirmed by Governor Kuroda. The sharp spike in USDJPY was quickly erased, and this in conjunction with a 6-3 vote showing plenty of dissent to the BOJ changes, quickly had investors thinking the central bank wouldn’t be as committed to additional easing going forward. The market will take the remainder of the day to digest the decision, while also reacting to broader macro flow.

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 this month, in the aftermath of a less dovish European Central Bank decision. We saw the SNB take advantage of the opportunity to leave policy unchanged last week, avoiding the need to venture deeper into negative interest rate territory. Still, the SNB will need to be careful with the emergence of risk off flow post FOMC, with the higher rates in the US to potentially act as a disincentive to be long risk assets, which in turn, is weighing on the correlated EURCHF rate. This in conjunction with a Euro coming back under pressure could prove to be a double headed dragon the SNB will have a very difficult time battling in the days ahead, if it hopes to keep the Franc capped.

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 0.7247 – 17Dec high – Strong
• R1 0.7176 – 16Dec low – Medium
• S1 0.7097 – 17Dec low – Medium
• S2 0.7016 – 10Nov low – Strong

AUDUSD – fundamental overview

The Australian Dollar has been hit hard over the past 24 hours, dropping nearly 2%, with the currency knocked on declines in the CRB index to fresh 13 year lows, and a resurgence in US Dollar demand post FOMC. The combination of these two drivers are clearly not Aussie supportive, with the lower commodities negatively impacting the correlated Australian economy, while also escalating concern over subdued inflation. At the same time, market participants have been reshuffling expectations for Fed hikes next year, moving closer in line with the more hawkish calls in the Fed dot plot. Looking ahead, lack of economic data will leave the market focused on broader macro flows and a speech late in the day from Fed Lacker on the economic outlook for 2016.

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 1.3900s thus far. The bullish break is a significant medium-term development and could result in a retest of the 2004 high, just over the 1.4000 psychological barrier in the sessions ahead. Technical studies are however tracking in severe overbought territory across the board, and there is risk for some form of a healthy corrective retreat. Still, any setbacks should be well supported ahead of 1.3400, while ultimately, only back below 1.3000 would delay the constructive structure.

• R2 1.4007 – 2004 high – Very Strong
• R1 1.3987 – 17Dec/2015 high – Strong
• S1 1.3848 – 16Dec high – Medium
• S2 1.3778 – 17Dec low – Strong

USDCAD – fundamental overview

The Canadian Dollar came to within a stone’s throw of its 2004 low against the US Dollar on Thursday, with the Loonie further extending declines to fresh 11-year lows on the back of ongoing weakness in commodities markets and a further widening in US Dollar yield differentials post FOMC. OIL prices have dropped back towards this week’s 6-year low, all while the market is contending with a broader liquidation in risk assets, yet another weight on the Canadian Dollar. While the lower exchange rate will unquestionably help Canadian exports, at the same time, the lure of cheaper exports is lost if global demand slows down. Looking ahead, Canada CPI and wholesale sales highlight Friday’s calendar.

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 0.6835 – 16Dec high– Strong
• R1 0.6750 – Mid-Figure– Medium
• S1 0.6681 – 19Dec low – Medium
• S2 0.6571 – 9Dec low – Strong

NZDUSD – fundamental overview

A New Zealand Dollar that has managed to hold up relatively well over the past several days, has finally succumb to the pressures of sinking commodities prices, faltering equities and favourable US Dollar yield differentials post FOMC. While developments on the local front may have been supporting Kiwi in recent trade, any positives from the recent hawkish rate cut and better round of economic data, have now been washed away on the broader macro drivers. The Fed’s expectation for 100 basis points of rate hikes next year has become a bigger concern for risk markets over the past couple of sessions, with the Fed’s path to policy normalisation potentially coming at the expense of a still struggling global economy.

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 2082.00 – 17Dec high – Medium
• S1 1993.00 – 14Dec low – Strong
• S2 1970.00 – 7Oct low – Medium

US SPX 500 – fundamental overview

It seems reality is setting in for stock market participants post Fed, with any bullishness from Fed confidence in finally setting out on a path to policy normalisation offset by harsher realities. The fact that the Fed will be looking to raise rates four times next year should be somewhat concerning to a market that has been supported to record highs over the past several years on near zero interest rate policy. This in conjunction with declining commodities prices, stress in the high yield market and a still struggling global economy make for a policy divergence that could ultimately be a most unwelcome development for risk assets. Looking ahead, the economic calendar for Friday is thin and the market is expected to trade off broader macro flows.

GOLD (SPOT) – technical overview

The market hovers just over the recent multi-year at 1046, with a break below to end a period of bearish consolidation, opening the door for the next major downside extension to critical psychological barriers at 1000. At this point, a push back above 1100 would be required to force a shift in the structure and alleviate immediate downside pressure.

• 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 finally initiates liftoff, GOLD is finding formidable support into this latest dip, given the struggling global economy and uncertainty in the air, particularly now that Fed is reversing course and other central banks are fully extended with accommodative measures. 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, in the face of broader weakness in the commodity sector. Dealers cite stops major stops below $1040 and above $1100.

Feature – technical overview

USDZAR has recently 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 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

While Moody's affirmed South Africa's BAA2 government issuer ratings on Wednesday, it also revised its rating outlook from stable to negative. This in conjunction with the wave of US Dollar demand post FOMC rate hike and ongoing commodity weakness, has opened the door for renewed downside pressure in the emerging market currency. The Rand had enjoyed a minor recovery off last Friday’s record lows on the Gordhan FinMin appointment, though it seemed like it was only a matter of time before the euphoria from this decision faded away. 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 a path to policy normalisation, is not a pretty combination for the Rand, and this should continue to challenge the emerging market currency going forward.