Nervous Market Hit with North Korea Nuclear Test

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 1.4725 – 5Jan high – Medium
• S1 1.4638 – 5Jan low  – Medium
• S2 1.4566 – 13Apr/2015 low  – Strong

GBPUSD – fundamental overview

Weakness in the Pound in late 2015 has carried over into the new year, with Cable extending declines to 8 month lows. The UK currency is tracking just over the 1.4565 area 2015 low from April and looks poised to test the level in the sessions ahead. Tuesday’s better than expected UK construction PMIs did little to support the ailing currency, with the market still struggling with a more dovish BOE and fear of Brexit. Clearly, another round of soft China data and more geopolitical unrest following this latest North Korea nuclear test, has not helped matters, with safe haven flows further supporting the US Dollar. Looking ahead, UK services PMIs will be digested, followed by a healthy batch of US data featuring ADP employment, the trade balance, and ISM non manufacturing, all ahead of the late Wednesday release of the anticipated FOMC Minutes from the December meeting.

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 119.70 – 5Jan high – Medium
• S1 118.35 – 6Jan low – Medium
• S2 118.06 – 15Oct low – Strong

USDJPY – fundamental overview

It’s all been about negative sentiment for this major pair, with an already pressured global equity market coming under even more pressure early Wednesday on the back of another round of downbeat news. Further weakening in the Yuan and more soft China data fueled initial setbacks in USDJPY, while the drop was intensified after what initially appeared to be an earthquake in the region, was later confirmed to be a North Korea nuclear test. PM Abe has since come out with a statement that the test is a threat to Japan security, while Japan is also warning sanctions against North Korea could be increased. Looking ahead, markets will continue to react to the fallout from the Asia news, while also focusing on a healthy wave of US data which features ADP employment, trade, ISM non-manufacturing and the FOMC Minutes from the December meeting.

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 in 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. Certainly, the intensification of fear in the China outlook, further weakness in the Yuan, and this latest North Korea nuclear test, will invite some unwanted CHF appreciation. 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 0.7214 – 5Jan high – Medium
• S1 0.7097 – 17Dec low – Medium
• S2 0.7068 – 18Nov 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 and rising geopolitical risk fueling a good portion of the latest downturn. The risk correlated commodity currency has already extended declines into Wednesday on the back of another round of soft China data, disappointing Aussie performance of services and a North Korea nuclear test. 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. Looking ahead, markets will continue to react to the fallout from the risk off Asia news, while also focusing on a healthy wave of US data which features ADP employment, trade, ISM non-manufacturing and the FOMC Minutes from the December meeting.

USDCAD – technical overview

The strong uptrend remains well intact, with the market taking out the previous 11-year peak from December, and surging to a fresh +12 year high beyond the 1.4007, 2004 peak. While technical studies are looking stretched, this latest break opens the door for a measured move upside extension towards 1.4200 in the sessions ahead, which coincides with next major resistance in the form of the July 2003 high at 1.4196. Setbacks should continue to be very well supported, with only a break back below 1.3800 to take the immediate pressure off the topside.

• R2 1.4196 – July 2012 high – Very Strong
• R1 1.4100 – Figure – Medium
• S1 1.3898 – 5Jan low – Medium
• S2 1.3814 – 4Jan low – Strong

USDCAD – fundamental overview

A weak OIL market, softer Canada economic data, monetary policy divergence with the Fed, global uncertainty and rising geopolitical risk, have all been contributing to the dramatic decline in the Canadian Dollar, with weakness intensifying into Wednesday as USDCAD breaks easily through the 2004 peak of 1.4007 and sets its sights on the July 2003 high just shy of 1.4200. The Canadian Dollar will be looking for some kind of relief from OIL prices or Canada trade data on Wednesday, but will also have to digest a healthy round of US releases featuring ADP employment, trade, ISM non-manufacturing and the FOMC Minutes.

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 0.6758 – 5Jan high– Strong
• R1 0.6708 – 6Jan high– Medium
• S1 0.6600 – Figure – Medium
• S2 0.6571 – 9Dec low – Strong

NZDUSD – fundamental overview

A rally in the New Zealand Dollar in the final days of December has been 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, rising geopolitical tensions and expectations for a more aggressive rate hike cycle from the Fed, have all been fueling this latest round of intensified Kiwi’s selling. But it hasn’t all been about external flows, with weakness coming on the local front following the release of Tuesday’s disappointing GDT auction result. Looking ahead, markets will continue to react to the fallout from the risk off Asia news, while also focusing on a healthy wave of US data which features ADP employment, trade, ISM non-manufacturing and the FOMC Minutes from the December meeting.

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 serious worry over the China outlook and rising geopolitical tensions should continue to weigh on stocks going forward. Certainly another round of soft China data on Wednesday and this latest North Korea nuclear test, will do nothing to help . Looking ahead, markets will continue to react to the fallout from the risk off Asia news, while also focusing on a healthy wave of US data which features ADP employment, trade, ISM non-manufacturing and the FOMC Minutes from the December meeting.

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 deteriorating global sentiment and uncertainty in the air, most recently brought on by a worrisome China outlook and rising geopolitical tensions. 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 as the Fed slowly removes incentive to be long risk assets. 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 1.4400 – Figure – Medium
• R1 1.4365 –2Oct/2015 high – Strong
• S1 1.4150 – 4Jan low – Medium
• S2 1.3923 – 4Dec low – Strong

Feature – fundamental overview

A PBOC liquidity injection and better than expected Singapore GDP data earlier this week have long been forgotten, with the Singapore Dollar under intense pressure on another round of soft China data, worry over more weakness in the Yuan and a nuclear test out of North Korea. Throw in the already influential and bearish Singapore Dollar theme of MAS policy divergence with the Fed and the outlook for the emerging market currency continues to be quite bleak. Moreover, when breaking down this week’s 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.