Calm Before the Next Storm?

GBPUSD – technical overview

The latest downside acceleration has resulted in a break of the critical 2015 low from March at 1.4566, with setbacks extending to the lowest levels since June 2010. However, at this point, daily studies are looking stretched and there is risk for some form of a decent corrective bounce in the sessions ahead. Look for the correction to potentially extend back towards the 1.5000 area before the market looks for the next lower top and resumption of the downtrend. Ultimately, only back above 1.5240 would negate the bearish structure.

• R2 1.4725 – 5Jan high – Strong
• R1 1.4645 – 8Jan high – Medium
• S1 1.44494 – 11Jan low  – Strong
• S2 1.4400 – Figure  – Medium

GBPUSD – fundamental overview

An oversold Cable market will be looking for some relief off five and a half year lows. The UK currency continues to struggle with the prospect of a lower for longer BOE and fear of Brexit, while at the same time, the Fed remains focused on pushing rates higher. While other major currencies have been benefitting from the wave of risk liquidation in early 2016, this has been lost on the struggling Pound. Looking ahead, UK industrial and manufacturing production data will be watched closely, along with NIESR GDP estimates and an appearance from BOE Governor Carney. In the US, only second tier economic data is due, featuring NFIB small business index, JOLTS job openings and IBD/TIPP economic optimism. Other official speak on the day includes Fed Vice Chair Fischer and Fed Lacker.

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 118.84 – 8Jan high – Strong
• R1 118.03 – 12Jan high – Medium
• S1 116.69 – 11Jan low – Medium
• S2 116.12 – 24Aug low – Strong

USDJPY – fundamental overview

Some stability in risk markets has helped support the major pair ahead of the critical August base in the 116.00 area, with yet another steady Yuan fixing offering additional relief to risk assets. Still, with sentiment quite shaky overall, the major pair continues to find solid offers into rallies. Dealers cite sell interest from algo, macro and leveraged funds, with no real buy-stops reported until the 119.00 area. Looking ahead, lack of first tier economic data will leave the market trading on broader flows. In the US session, we get NFIB small business index, JOLTS job openings and IBD/TIPP economic optimism. Official speak on the day includes Fed Vice Chair Fischer and Fed Lacker.

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. SNB Jordan was out over the weekend reiterating the central bank’s commitment to weaken the Franc. Jordan added that he expected the Franc to stagnate or weaken in 2016.

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 0.7086 – 7Jan high – Strong
• R1 0.7035 – 11Jan high – Medium
• S1 0.6927 – 11Jan low – Medium
• S2 0.6908 – 4Sep/2015 low – Strong

AUDUSD – fundamental overview

Some stability in risk markets on Monday, another steady Yuan fixing and support from real money and intraday spec accounts, have all helped prop a beaten down Australian Dollar ahead of the multi-year low from 2015. Still, with sentiment quite shaky overall, the Fed on track for additional rate hikes in 2016, and China showing signs of deterioration, the outlook continues to suggest there are deeper setbacks on the cards for the Australian Dollar. Looking ahead, lack of first tier economic data will leave the market trading on broader flows. In the US session, we get NFIB small business index, JOLTS job openings and IBD/TIPP economic optimism. Official speak on the day includes Fed Vice Chair Fischer and Fed Lacker.

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 into the 1.4200s thus far. However, with daily, weekly and monthly studies looking stretched, the risk for any meaningful upside beyond 1.4189 is limited, with a more significant and healthy correction favoured before bullish trend continuation. There is room for a correction back into the 1.3600-1.3800 area, from where the market will look to carve the next meaningful higher low.

• R2 1.4300 – Figure – Strong
• R1 1.4249 -12Jan high – Medium
• S1 1.4200 – Figure – Medium
• S2 1.4051 – 7Jan low – Strong

USDCAD – fundamental overview

Still no breaks for a Canadian Dollar trading at +12 year lows against the Buck. Even last Friday’s solid Canada employment data failed to muster any demand, with the data overshadowed by a more impressive jobs reading out of the US. The Canadian Dollar continues to suffer from ongoing declines in the price of OIL, and will likely remain on the back foot until we see signs of recovery in the commodity or a recovery in broader risk sentiment. Looking ahead, Canada manufacturing shipments will be taken in, along with second tier data out of the US featuring NFIB small business index, JOLTS job openings and IBD/TIPP economic optimism. Official speak on the day includes Fed Vice Chair Fischer and Fed 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 0.6678 – 8Jan high– Strong
• R1 0.6591 – 7Jan low– Medium
• S1 0.6509 – 11Jan low – Medium
• S2 0.6429 – 18Nov low – Strong

NZDUSD – fundamental overview

An early 2016 slide in the New Zealand Dollar has found minor support into Tuesday following some stability in risk assets and another steady Yuan fixing. Still, overall, China’s deterioration and Fed monetary policy divergence have weighed more heavily on the correlated Kiwi, while another disappointing GDT auction in the previous week has also not helped matters. All of this could force the RBNZ to consider more accommodation or at minimum, err on the dovish side when it meets next on January 28th. Looking ahead, lack of first tier economic data will leave the market trading on broader flows. In the US session, we get NFIB small business index, JOLTS job openings and IBD/TIPP economic optimism. Official speak on the day includes Fed Vice Chair Fischer and Fed Lacker.

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 2000, while ultimately, only back above 2117 negates.

• R2 1973.00 – 8Jan high – Strong
• R1 1937.00 – 11Jan high – Medium
• S1 1901.00 –11Jan low – Medium
• S2 1870.00 – 29Sep low – Strong

US SPX 500 – fundamental overview

It seems gravity is finally taking hold, 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, last Friday’s blowout US NFP report has done nothing to help matters, with the very healthy reading only making investors that much more uncomfortable, as it strengthens the possibility the Fed will stick to its more hawkishly perceived rate hike timeline. Looking ahead, broader risk sentiment will continue to dictate direction, while US earnings season will also factor.

GOLD (SPOT) – technical overview

The recent close back above 1100 is a significant development and suggests the market is in the process of a bullish structural shift. Look for a meaningful base to now be in place down at 1046, with fresh upside projected back towards the 1200 area over the coming days and weeks. Any setbacks should be well supported ahead of 1070, with only a close back below this level to compromise the newly adopted bullish outlook.

• R2 1123.00 – 4Nov high – Strong
• R1 1112.00 – 8Jan 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 sets out on its path to policy normalisation, GOLD is finding formidable support into 2016, 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 a more significant decline.

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 into the range.

• R2 1.4500 – Psychological – Strong
• R1 1.4444 –11Jan high – Medium
• S1 1.4150 – 4Jan low – Medium
• S2 1.3923 – 4Dec low – Strong

Feature – fundamental overview

Price action in emerging markets has been all about risk liquidation flows, with the latest slide in the Yuan, solid US NFP report and hawkish Fed comments, fueling another round of Singapore Dollar weakness to fresh multi-year lows. On Monday, Fed Lockhart said he did not see a connection between financial market volatility and the real US economy, while Fed Kaplan stressed the importance of setting out on a path to policy normalisation. The Singapore Dollar has since recovered a bit from its early Monday low on some steady Yuan fixings and chatter of MAS intervention, but is finding decent offers from macro accounts into rallies. Overall, with sentiment deteriorating, Fed monetary policy divergence weighing, and a very real risk for additional Yuan depreciation, recoveries in the emerging market currency are expected to be short-lived.