China Fear Consumes Global Markets

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 1.4601 – 6Jan low  – Medium
• S2 1.4566 – 13Apr/2015 low  – Strong

GBPUSD – fundamental overview

The combination of a weaker than expected UK services PMI and a very solid US ADP report have contributed to the most recent slide in the Pound, at 9 month lows against the Buck. Cable also trades just off its 2015 low in the 1.4565 area, which also happens to be the lowest level since 2009. Intense cross related selling in GBPJPY has also proven to be a strong weight on the major pair, with the risk liquidation flow keeping the UK currency under pressure. While the Euro has managed to benefit from the slide in emerging market and commodity currencies on this latest China scare, the Pound still suffers from a more downbeat outlook in the UK, given a dovish repricing of BOE policy expectations and threat of Brexit. Looking ahead, Halifax house prices aren’t likely to command much attention, with the market likely to be focused on macro flows and US data that features Challenger jobs and initial jobless claims. On the official circuit, we get Fed Evans and Lacker later in the day.

USDJPY – technical overview

The market remains pressured to the downside, with the latest break below 118.00 exposing a deeper drop towards the critical August base just ahead of 116.00. However, at this point, it is worth highlighting oversold daily studies that could be warning of the need for some form of a corrective reversal higher. Still, rallies should be well capped towards previous support in the 120.00 area, with only a break back above 120.65 to take the immediate pressure off the downside.

• R2 119.17 – 8Jan high – Strong
• R1 118.75 – 7Jan high – Medium
• S1 117.66 – 7Jan low – Strong
• S2 117.00 – Figure – Medium

USDJPY – fundamental overview

Further Yuan weakness and a circuit breaker on Chinese stocks has fueled this latest round of declines in the major pair through stops at 118.00, with the Yen continuing to benefit from risk liquidation flow. A solid US ADP result on Wednesday didn’t do much to influence price action, with the Yen finding more bids in the aftermath of a dovish reading of the FOMC Minutes. Still, US fundamentals have taken a backseat for the moment, though these developments could prove to factor back in if yield differentials come back into focus. In the interim, the rapid deterioration in market sentiment is the primary driver, and as sentiment goes, so will the direction in USDJPY. Looking to the economic calendar, we get US data that features Challenger jobs and initial jobless claims. On the official circuit, Fed Evans and Lacker are due 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 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. But at this point, negative interest policy and commitment to weaken the Franc is proving to be an effective strategy that is offsetting any Franc demand on safe haven flow. Looking ahead, Swiss currency reserves are out Thursday and will be worth keeping an eye on.

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 0.7132 – 5Jan low – Strong
• R1 0.7100 – Figure – Medium
• S1 0.7016 – 10Nov low – Strong
• S2 0.6908 – 4Sep/2015 low – Very Strong

AUDUSD – fundamental overview

Solid Aussie trade data has been more than offset by horrid Aussie building approvals on Thursday, though the slide in the Australian Dollar is more about external themes at the moment. With Australia so correlated to China, it has been impossible for the Australian Dollar to avoid this latest slide as fears intensify over the outlook for the emerging market economy. Further weakness in the Yuan and a circuit breaker on Chinese stocks have opened more downside pressure today, with the pair considering a drop back below psychological barriers at 0.7000. Even a more dovish read of the FOMC Minutes, which would normally be supportive of Aussie on yield differentials, has not been able to prop the commodity currency at the moment. Looking to the economic calendar, we get US data that features Challenger jobs and initial jobless claims. On the official circuit, Fed Evans and Lacker are due later in the day.

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 1.4117 – 7Jan high – Medium
• S1 1.3898 – 5Jan low – Medium
• S2 1.3814 – 4Jan low – Strong

USDCAD – fundamental overview

Any hopes for a Loonie recovery on the more dovish read of the FOMC Minutes have been lost, with the market clearly more focused on the slide in OIL and liquidation in stocks. The Canadian Dollar sits at 12 year lows against the Buck and could be poised to extend declines further as sentiment deteriorates into Thursday, on more fear out of China, following another weakening in the Yuan and circuit breaker on China stocks. Looking ahead, Canada Ivey PMIs are due, though locals will probably be paying more attention to a BoC Poloz speech. Otherwise, the US calendar features Challenger jobs, initial jobless claims and some Fed speak from Evans and Lacker.

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 0.6613 – 7Jan low – Medium
• S2 0.6571 – 9Dec low – Strong

NZDUSD – fundamental overview

Though the New Zealand Dollar has not been immune to the downturn in risk and deterioration in the China outlook, it seems the currency is benefitting from a case of not being as exposed as Australia. Cross related Kiwi demand against the Australian Dollar has been propping Kiwi off recent lows, with the China news and discouraging Aussie building approvals helping to support Kiwi dips. Otherwise, the more dovish read of the FOMC Minutes could also be helping to support a bit. Still overall, the current macro backdrop of risk liquidation, combined with a subdued New Zealand inflation outlook and ongoing weakness in the dairy sector, should keep Kiwi well offered into any rallies. Looking to the economic calendar, we get US data that features Challenger jobs and initial jobless claims. On the official circuit, Fed Evans and Lacker are due later in the day.

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 2026.00 – 5Jan high – Medium
• S1 1947.00 – 5Oct low – Medium
• S2 1870.00 – 29Sep 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 Yuan weakness and a circuit breaker on China stocks are not helping matters into Thursday, with this news easily offsetting any demand from what had been a more dovish read of the FOMC Minutes. Looking to the economic calendar, we get US data that features Challenger jobs and initial jobless claims. On the official circuit, Fed Evans and Lacker are due later in the day.

GOLD (SPOT) – technical overview

Starting to see signs of a potential structural shift in this market, following the latest break back above 1100. The upside breaks suggests the market is putting in a meaningful base at the recent multi-year low of 1046, opening the door for an acceleration of gains towards 1200 in the days ahead. Still, a daily close above 1100 would be required to confirm the bullish shift and officially take the immediate pressure off the downside.

• R2 1123.00 – 4Nov high – Strong
• R1 1112.00 – 5Nov high – Medium
• S1 1075.00 – 6Jan low – Medium
• S2 1046.00 – 3Dec/2015 low – 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 been accumulating the metal as a hedge against an overinflated equity market that could be on the verge of major capitulation. A more dovish read of the FOMC Minutes on Wednesday could also be helping to prop. A large round of buy stops have been cleared on the break of $1100.

Feature – technical overview

USDSGD looks to be wanting to end a period of multi-week consolidation, following this latest break of the range to a fresh multi-year high. Look for a weekly close above 1.4400 to confirm the bullish shift and open the next major upside extension towards 1.5000 over the coming weeks. However, inability to hold above 1.4400 could warn of exhaustion and the potential for a bearish reversal back towards the range low.

• R2 1.4500 – Psychological – Strong
• R1 1.4428 –7Jan high – Medium
• S1 1.4150 – 4Jan low – Medium
• S2 1.3923 – 4Dec low – Strong

Feature – fundamental overview

Price action in emerging market Asia FX has been all about China, with this latest slide in the Yuan and circuit break on China stocks fueling another round of Singapore Dollar weakness to fresh multi-year lows. The Singapore Dollar has since recovered from its Thursday low, with comments from the China Foreign Exchange Trade System attempting to downplay the Yuan weakness. Still, with sentiment deteriorating and a very real risk for additional Yuan depreciation, any recoveries in the emerging market currency are expected to be short-lived. China’s attempts earlier in the week to stabilise markets with a liquidity injection did nothing to bolster sentiment and there is a worry that intervention may no longer be as effective as it once was.