PBOC Liquidity Injection Offers Minor Relief

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 1.5000, while ultimately, only a break above 1.5250 would delay prospects for additional declines and compromise immediate downside pressure.

• R2 1.4849 – 30Dec high – Strong
• R1 1.4816 – 4Jan high – Medium
• S1 1.4663 – 4Jan low  – Medium
• S2 1.4566 – 13Apr/2015 low  – Strong

GBPUSD – fundamental overview

A round of softer than expected UK manufacturing PMIs did nothing to help the beleaguered Pound’s cause on Monday, with the currency already coming intense pressure on the back of broad based US Dollar demand. This opened a drop in the major pair to fresh multi-month lows, with the price closing on a retest of the 2015 low from April 2015 at 1.4566. Softer US economic data was shrugged off, with the primary driver of flow coming from safe haven Dollar demand and ongoing hawkish rhetoric from Fed officials. Perhaps one saving grace for the UK currency came from the latest Reuters poll showing an expectation for a BOE rate hike in the second quarter of this year, with rates seen rising 50bps to 1.00% by year end. Still, recent softness in the UK economy and risk of Brexit are headwinds that can not be ignored and could keep the BOE holding out longer than the Reuters poll expects. Looking ahead, UK construction PMIs are the key standout on Tuesday’s calendar.

USDJPY – technical overview

The market remains pressured to the downside, with the latest break below 120.00 exposing a deeper drop towards 118.00 in the sessions ahead. Look for any intraday rallies to be well capped below 122.00, with only a break back above 123.76 to force a structural shift and put the focus back on the topside. Below 118.00 opens a direct retest of the critical August base at 116.12.

• R2 120.65 – 3oDec high – Strong
• R1 120.00 – Psychological – Medium
• S1 119.00 – Figure – Medium
• S2 118.70 – 4Jan low – Strong

USDJPY – fundamental overview

Flows in the major pair have been dominated by risk sentiment this week, with Monday’s intense round of equity market liquidation on China growth concerns, geopolitical risk and ongoing hawkish Fed rhetoric, inviting an intense round of safe haven Yen demand. Risk assets have since found some support into early Tuesday trade, with the PBOC’s latest injection of liquidity bolstering sentiment and opening a minor recovery in USDJPY. Still, overall, broader flows are Yen supportive at the moment and any rallies in USDJPY are finding solid offers from medium-term players. Looking ahead, there is no first-tier data due out of the US, which should keep the market trading on external themes.

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 was able to find a little relief in December, following a less dovish ECB meeting, allowing the SNB to hold steady and avoid a deeper push into negative interest rate territory. Still, the SNB will need to be careful of risk off flow into 2016, with higher rates in the US and global growth concerns to potentially act as a disincentive to be long risk, which in turn, could weigh on EURCHF. This in conjunction with any Euro weakness could prove to be a double headed dragon the SNB will have a very difficult time battling. Dealers cite major sell-stops below 1.0700.

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 0.7301 – 4Jan high – Strong
• R1 0.7245 – 29Dec low – Medium
• S1 0.7156 – 4Jan low – Medium
• S2 0.7097 – 17Dec low – Strong

AUDUSD – fundamental overview

The Australian Dollar hasn’t been able to ignore a wave of risk liquidation in early 2016, with elevated concern over the China outlook fueling a good portion of the latest downturn. Meanwhile, ongoing hawkish rhetoric reminding investors of the potential for a more aggressive path to Fed policy normalisation in 2016 has been adding to the Aussie downside pressure on the monetary policy divergence theme. Setbacks have been mildly supported in early Tuesday trade on news of China liquidity injections, though rallies have been rather mild thus far and are expected to be well offered. Looking ahead, lack of first-tier economic data out of the US will leave the Australian Dollar trading on broader flows.

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 at 1.4001 thus far, just shy of the 2004 peak of 1.4007. Technical studies are however in the process of unwinding a bit from severe overbought territory, and there is risk for additional corrective weakness in the sessions ahead before the uptrend reasserts. Still, any setbacks should be very well supported ahead of 1.3400, while ultimately, only back below 1.3000 would compromise the constructive structure.

• R2 1.4001 – 18Dec/2015 high – Strong
• R1 1.3983 – 4Jan high – Medium
• S1 1.3814 – 4Jan low – Medium
• S2 1.3778 – 17Dec low – Strong

USDCAD – fundamental overview

The Canadian Dollar is back to trading just off recent 11-year lows against the Buck, with the currency initially taking hits on Monday from softer China data, global growth concerns and ongoing hawkish Fed rhetoric. Setbacks were then accelerated in North American trade following the release of the lowest Canada manufacturing PMI on record and a sharp reversal in the price of OIL. The Loonie has however managed to avert a break to fresh lows (USDCAD highs), with news of a China liquidity injection early Tuesday, offering some support to the risk correlated commodity currency. Looking ahead, lack of first-tier economic data out of the US will leave the market focused on price action in OIL and Canada data featuring industrial product and raw materials prices.

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 in the 0.6900 area, in favour of an acceleration to the downside and bearish resumption to fresh multi-year lows. Ultimately, only a daily close above 0.6900 will negate and potentially force a shift in the structure.

• R2 0.6835 – 4Jan high– Strong
• R1 0.6800 – Figure– Medium
• S1 0.6719 – 4Jan low – Medium
• S2 0.6681 – 18Dec low – Strong

NZDUSD – fundamental overview

A rally in the New Zealand Dollar in the final days of December is getting exposed into the new year, with medium-term players taking advantage of the push towards 0.6900 to aggressively sell on bearish macro themes. A combination of a worrying China outlook, liquidation in risk assets, expectations for a more aggressive rate hike cycle from the Fed, have all been fueling this latest round of intensified Kiwi’s selling. Interestingly enough, even this latest China liquidity injection has failed to inspire any meaningful recovery on Tuesday. On the domestic front, inflation is still subdued, while the dairy sector continues to face headwinds, despite a modest recovery in recent months. Looking ahead, the key focus for Tuesday will be the latest GDT auction results, with any disappointment to likely fuel additional downside pressure.

US SPX 500 – technical overview

Signs of exhaustion following an impressive multi-year rally to a fresh record high in 2015. The market has finally stalled out at 2137, with the recent break back below 2000 strengthening the case for the formation of a major top. Look for this bearish price action to pave the way for the next downside extension towards medium-term support in the 1870 area. Any rallies should be well capped below 2100, while ultimately, only back above 2117 negates.

• R2 2083.00 – 29Dec high – Strong
• R1 2051.00 – 4Jan high – Medium
• S1 1988.00 – 4Jan low – Medium
• S2 1970.00 – 7Oct low – Strong

US SPX 500 – fundamental overview

It seems reality is finally setting in for stock market participants into 2016, with any bullishness from the Fed’s confidence in initiating liftoff, offset by harsher realities. The fact that the Fed will be looking to raise rates four times this 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 broader weakness in commodities, 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 in 2016. The latest disappointing China PMI results only add to downside pressure in the early week. The market has since found some support back above 2000 on some overdone short-term technicals and news of a China liquidity injection, though fresh offers are expected.

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. However, there are signs of a potential bottom carving out, though a push back above 1100 would be required to strengthen this outlook and force a shift in the structure.

• 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 favourable US Dollar fundamentals 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 been accumulating the metal as a hedge against an overinflated equity market that could be on the verge of major capitulation, while increased risk to the China outlook is also factoring. Dealers cite major buy stops above $1100.

Feature – technical overview

USDSGD has been confined to some choppy range trade over the past several months, though the consolidation is classified as a bullish consolidation within a broader uptrend. As such, look for setbacks to continue to be very well supported into the 1.4000 area, with an eventual push seen back above the recent multi-year high at 1.4365. A break above 1.4365 would then open the door for the next major upside extension towards the 1.5000 area. At this point, only a break back below 1.3923 would compromise the highly constructive outlook.

• R2 1.4365 – 2Oct/2015 high – Strong
• R1 1.4280 –4Jan high – Medium
• S1 1.4150 – 4Jan low – Medium
• S2 1.3923 – 4Dec low – Strong

Feature – fundamental overview

Despite stronger than expected GDP data out of Singapore this week, the local currency has been unable to muster any form of a rally, with the positive news from the better than forecast result getting offset by broader macro flows. Concerns over global growth, a potential slowdown in China, geopolitical risk and Fed policy divergence, have dominated direction in this market, keeping the US Dollar well supported and looking to build on recent gains back towards the multi-year peak from October. Moreover, when looking at the latest Singapore GDP data, things aren’t as pretty as they seem, with the economy producing the weakest annual growth since 2009, despite the stronger Q4 showing.