Market Turmoil and the Bank of England

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 1.4560 – 12Jan high – Strong
• R1 1.4476 – 13Jan high – Medium
• S1 1.4380 – 13Jan low  – Medium
• S2 1.4352 – 12Jan low  – Strong

GBPUSD – fundamental overview

More volatility expected for a beaten down Pound, trading at its lowest levels since 2010. The UK currency has taken a big hit in recent weeks on a dovish repricing of the BOE rate hike timeline, Brexit risk and ongoing worry over the collapse in the price of OIL. This week’s unfortunate batch of UK industrial and manufacturing production reads have only intensified the slide and the market will now be faced with today’s major event risk in the form of the Bank of England policy decision and accompanying Minutes. While no policy change is expected, there is risk of a more dovish tone from the BOE given the setbacks cited above. The key focus for participants will be on whether lone dissenter and noted hawk Ian McCafferty decided to defect back over to the rest of the camp, resulting in a 9-0 decision to leave rates on hold. This would open more downside pressure exposing the May 2010 base at 1.4230. Other standouts on today’s calendar include US initial jobless claims, US import prices and a Fed Bullard speech.

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 consolidating, 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 118.84 – 8Jan high – Strong
• R1 118.38 – 13Jan high – Strong
• S1 117.00 – Figure – Medium
• S2 116.69 – 11Jan low – Strong

USDJPY – fundamental overview

It shouldn’t come as much of a surprise to see this major pair lower into Thursday despite horrid Japan machine orders and subdued producer prices. Clearly the focus for this market is on risk liquidation flows, with the intensification on this front fueling additional demand for the safe haven correlated Yen. Another ugly day on Wall Street has cast its shadow on Asia into Thursday, with USDJPY under pressure and now contemplating a retest of the August 2015 base just ahead of 116.00. Divergent Fed policy is ironically keeping this pair offered as the negative risk implication from higher rates in the US is offsetting US Dollar yield differential advantage. Looking ahead, US initial jobless claims, import prices and a Fed Bullard speech are the key standouts on the calendar for the remainder of the day.

EURCHF – technical overview

The market has entered a period of multi-week consolidation. At this point, the recovery structure remains intact, with only a break back below 1.0715 to compromise. As such, look for setbacks to continue to be well supported ahead of 1.0715 in favour of the next major upside extension through 1.1050 and towards 1.1500 further up. The recent break above 1.0950 suggests the market could be poised for a bullish move over the coming days following a period of contracted volatility.

• R2 1.1050 – 11Sep high – Strong
• R1 1.1000 – Psychological – Medium
• S1 1.0870 – 13Jan low – Medium
• S2 1.0828 – 6Jan low – Strong

EURCHF – fundamental overview

SNB’s Zurbruegg has taken the opportunity to use his latest appearance as another opportunity to talk down the Franc. The Swiss central banker said that despite weakness in the Franc over the past year, the currency is still overvalued. Zurbruegg added that the combination of negative interest rates and the SNB’s willingness to intervene in the market have proven to be effective tools in making the Franc less attractive. Certainly recent price action would agree, with the EURCHF rate mounting an impressive rally on Wednesday, despite an intensification in risk liquidation flows. Zurbruegg echoes remarks from SNB Jordan this past weekend. All of this comes on the one year anniversary of the SNB’s historic move to remove the cap on the Franc.

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, with deeper setbacks projected in the sessions ahead below the recent multi-year base just shy of 0.6900. At this point, only a daily close back above 0.7085 would take the immediate pressure off the downside.

• R2 0.7048 – 13Jan high – Strong
• R1 0.7000 – Psychological – Medium
• S1 0.6908 – 4Sep/2015 low – Strong
• S2 0.6853 – April 2009 low – Strong

AUDUSD – fundamental overview

While the Australian Dollar may very well be underperforming against the major currencies, and threatening fresh multi-year lows against the Buck, there is certainly room for outperformance against it peers on Thursday, following the release of the much better than expected Aussie employment data. The market had been looking for an uglier -15.5k jobs print and got a not so bad -1.K instead. Meanwhile, unemployment was expected to tick up to 5.9% and managed to hold steady at 5.8%. Of course, ongoing fear over China slowdown, Fed monetary policy divergence and commodity price weakness, are all larger themes that can not be ignored and are continuing to weigh on the risk sensitive Australian Dollar. Looking ahead, US initial jobless claims, import prices and a Fed Bullard speech are the key standouts on the calendar for the remainder of 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 into the 1.4300s thus far. However, with daily, weekly and monthly studies looking stretched, the risk for any meaningful upside beyond the 1.4400-1.4500 area is limited, with a more significant and healthy correction favoured before bullish trend continuation. A daily close below 1.4187 will be required to trigger a bearish reversal and take the immediate pressure off the topside.

• R2 1.4500 – Psychological – Strong
• R1 1.4400 -Figure – Medium
• S1 1.4300 – Figure – Medium
• S2 1.4187 – 13Jan low – Strong

USDCAD – fundamental overview

Last week’s better than expected Canada employment was already forgotten on release, after getting offset by a more impressive US employment report. That was the best news for the Loonie in 2016. The Loonie remains on the slide into the new year and is the weakest performing of the developed currencies over the past week, trading at +12 year lows against the Buck. The major driver of CAD weakness has come from the collapse in the price of OIL, recently breaking below the critical $30 mark. Adding insult to injury has been the sell-off in global equities and fear over the outlook in China. All of this could force the Bank of Canada to consider rate cuts at the upcoming meeting, a move that would invite additional weakness over the medium-term. The Canadian Dollar is however highly oversold across multiple timeframes, something that should be considered at current levels. Looking ahead, Canada housing, US initial jobless claims and US import prices are due, along with a speech from Fed Bullard.

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 0.6590 – 13Jan high– Strong
• R1 0.6515 – 14Jan high– Medium
• S1 0.6429 – 18Nov low – Strong
• S2 0.6400 – Figure – Medium

NZDUSD – fundamental overview

A data light week on the New Zealand economic calendar has left this currency trading on broader macro flows. Clearly the risk corrected currency has been underperforming as a result, amidst China slowdown fears, OIL weakness and Fed policy divergence. Last week’s disappointing GDT auction also hangs over this currency and adds to the downside pressure. 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. For today, we are seeing additional cross related Kiwi selling against the Australian Dollar, following the better than expected Aussie employment report. Looking ahead, US initial jobless claims, import prices and a Fed Bullard speech are the key standouts on the calendar for the remainder of 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 a retest of medium-term support in the 1830 area over the coming sessions. Any rallies should now be well capped below 2000.

• R2 1993.00 – 14Dec low – Strong
• R1 1955.00 – 13Jan high – Medium
• S1 1870.00 –29Sep low – Medium
• S2 1834.00 – 24Aug low – Strong

US SPX 500 – fundamental overview

The market isn’t too focused on earnings season in the US at present, as it contends with larger, more worrying macro risk. The combination of a Fed on a path to policy normalisation in a global economy that is still struggling has not been a welcome mix for investors into 2016. Stocks are fast approaching the August 2015 flash crash lows, with setbacks intensifying as OIL continues to collapse to multi-year lows. The shakeup in China markets has also been a major factor on massive capital outflows from China. Looking ahead, the key standouts on the economic calendar come in the form of US initial jobless claims, import prices and a Fed Bullard speech.

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, rising geopolitical tensions and a collapse in the price of OIL. 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 and talk of buy-stops above $1115.

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. 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 1.4273 – 8Jan low – Strong
• S2 1.4150 – 4Jan low – Medium

Feature – fundamental overview

The Singapore Dollar has come back under pressure into Thursday following another wave of risk liquidation flows. Setbacks in global equities and a collapse in the price of OIL are making market participants very nervous in early 2016, with massive capital outflows from China only exacerbating the situation. Still, the Singapore Dollar has managed to avoid extending declines below Monday’s multi-year low against the Buck, perhaps aided by downbeat Fed comments from Fed’s Rosengren and Evans. Rosengren said policy makers should take downside risks seriously, while Evans stressed the need for a ‘very gradual’ rate normalization. We have also been hearing talk of potential MAS intervention which could be helping to support the Singapore Dollar a bit.