Comfort in China Trade Data

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. Next key support comes in the form of the May 2010 low at 1.4230. 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, potentially towards 1.5000. Ultimately, only back above 1.5240 would negate the bearish structure.

• R2 1.4645 – 8Jan high – Strong
• R1 1.4560 – 12Jan high – Medium
• S1 1.4400 – Figure  – Medium
• S2 1.4352 – 12Jan low  – Strong

GBPUSD – fundamental overview

A dovish repricing of BOE expectations, Brexit risk and ongoing declines in the price of OIL, have all been weighing heavily on the UK currency in 2016, with the Pound dropping to it’s lowest levels against the Buck since June 2010. Tuesday’s decline to fresh multi-year lows was accentuated on the much weaker than expected UK industrial and manufacturing production prints. But the market is looking quite stretched at this point, and there is risk for profit taking and position squaring on GBP shorts ahead of tomorrow’s BOE event risk. For today, the economic calendar is exceptionally thin, with the only standout coming in the form of the Fed Beige Book later in the day. On the official circuit, Fed Rosengren and Fed Evans are scheduled to speak.

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, the market is in the process of recovering a bit, to allow for some oversold studies to unwind. 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 – 7Jan high – Strong
• R1 118.84 – 8Jan high – Strong
• S1 117.64 – 13Jan low – Medium
• S2 116.69 – 11Jan low – Strong

USDJPY – fundamental overview

Price action in this major pair has been all about broader risk sentiment, with the Yen benefitting greatly from the early 2016 liquidation in risk corrected assets. However, into Wednesday, we are starting to see the emergence of decent Yen offers, as sentiment shifts the other way. Market participants have welcomed the surprisingly solid China trade numbers, which some are even calling suspicious, and this in conjunction with another steady fixing in the Yuan have helped to bolster USDJPY. Looking ahead, broader flows will continue to dictate direction, particularly with such a light economic calendar that only features the Fed Beige Book later in the day. On the official circuit, Fed Rosengren and Fed Evans are scheduled to speak.

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 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. Looking ahead, SNB’s Zurbruegg is slated to speak.

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 – Medium
• R1 0.7086 – 7Jan high – Strong
• S1 0.6974 – 13Jan low – Medium
• S2 0.6908 – 4Sep/2015 low – Strong

AUDUSD – fundamental overview

A well received batch China trade data has restored confidence in the Australian Dollar into Wednesday, with market participants using the data and another steady Yuan fixing as an opportunity to pick up a beaten down Aussie. Looking ahead, the economic calendar is exceptionally thin, with the only standout coming in the form of the Fed Beige Book late in the day. On the official circuit, Fed Rosengren and Fed Evans are scheduled to speak. In the interim, broader flows and sentiment will dictate trade, while participants will also start to look ahead to Thursday’s highly anticipated Aussie employment report.

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 1.4300s thus far. However, with daily, weekly and monthly studies looking stretched, the risk for any meaningful upside beyond 1.4300 is limited, with a more significant and healthy correction favoured before bullish trend continuation. There is room for a correction back into the 1.3800 area, from where the market will look to carve the next meaningful higher low.

• R2 1.4400 – Figure – Medium
• R1 1.4316 -12Jan high – Strong
• S1 1.4176 – 12Jan low – Strong
• S2 1.4100 – Figure – Medium

USDCAD – fundamental overview

The positive correlation between this pair and OIL has intensified in early 2016, with the Canadian Dollar a victim to the ongoing decline in the price of the commodity to fresh 12 year lows. On Tuesday, OIL broke below the $30 mark and this resulted in a push to +12 year highs in USDCAD beyond 1.4300. The Canadian Dollar is one of the most technically stretched currencies at the moment and looks to be in desperate need for some form of a correction. But it is going to take a recovery in the price of OIL to inspire renewed demand for the Loonie. Looking ahead, lack of first tier data out of Canada will leave the market trading on OIL direction and broader sentiment flows. The only notable release for the day comes in the form of the Fed Beige Book. On the official circuit, Fed Rosengren and Fed Evans are scheduled to speak.

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

Much like its Australian cousin, the New Zealand Dollar has welcomed renewed demand into Wednesday on the back of well received China data 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, broader flows will continue to dictate direction, particularly with such a light economic calendar that only features the Fed Beige Book later in the day. On the official circuit, Fed Rosengren and Fed Evans are scheduled to speak.

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 1993.00 – 14Dec low – Strong
• R1 1973.00 – 8Jan 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 should continue to weigh on stocks going forward. Certainly, solid US employment data has done nothing to help matters, with the very healthy readings only making investors that much more uncomfortable, as it strengthens the possibility the Fed will stick to its more hawkishly perceived rate hike timeline. Stocks have however found some support into Wednesday, with well received China trade data offering mild relief. Looking ahead, the focus on the calendar will be on the Fed Beige Book and some official speak from Fed’s Rosengren and Evans.

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. Dealers cite solid demand in the $1170-1180 area.

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

Although the beaten down Singapore Dollar has managed to mount of mild recovery against the US Dollar on the back of some well received China trade data, the recovery has been somewhat mitigated. Upon closer glance, China’s imports from Singapore plunged 23.8% y/y, marking the sixth consecutive monthly decline. This follows a 10.6% decline of China imports from Singapore in 2015, with Singapore taking the largest hit amongst Asia dependent exporters. Overall, with China slowing down, 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.