US Dollar Back in the Driver’s Seat

GBPUSD – technical overview

Setbacks have extended to fresh multi-year lows, with the latest break and daily close below previous support at 1.4080 setting the stage for the next major downside extension towards a measured move objective at 1.3500. The 1.3500 barrier also coincides with the critical multi-year base from 2009. Intraday rallies should be well capped below 1.4300, while only back above 1.4408 would take the immediate pressure off the downside.

• R2 1.4043 – 26Feb high – Strong
• R1 1.4000 – Psychological – Medium
• S1 1.3841 – 29Feb/2016 low  – Medium
• S2 1.3800 – Figure – Strong

GBPUSD – fundamental overview

Brexit risk has kept the Pound under intense pressure over the past several days, with Cable sinking to fresh 7 year low, approaching a retest of the critical 2009 base at 1.3500. Friday’s round of solid US data, highlighted by an impressive GDP showing has put added downside pressure on the UK currency as it brings the policy divergence between the BOE and Fed back into the spotlight. Looking ahead, UK consumer credit, mortgage approvals, and money supply are due, followed by US pending home sales. However, the second tier data out of the UK and US is unlikely to factor too much into Monday trade, with participants focused on broader themes.

USDJPY – technical overview

The market is contemplating the formation of a lower top at 114.88 ahead of the next major downside extension below 110.98 and towards the 107.00 area further down. However, a break below 110.98 would be required to confirm the lower top and strengthen the bearish outlook. Still, while the market holds below 116.00 the immediate pressure remains on the downside.

• R2 114.88 – 16Feb high – Strong
• R1 113.99 – 26Feb high – Medium
• S1 112.56 – 26Feb low – Medium
• S2 110.98 – 11Feb/2016 low – Strong

USDJPY – fundamental overview

Nothing much out from the G20 of any market moving influence. While the Group did express concern over the possibility Japan could spark a round of competitive currency devaluation, this extended no further than concern. Risks have increased for some form of additional accommodation from the BOJ in March, given the Yen’s rally over the past several weeks despite the move to negative interest rates and given the fact that the inflation target still a ways away. This latest round of discouraging Japanese retail sales data has done nothing to weaken the Yen, with the currency rallying into the new week on broader risk liquidation flow. Looking ahead, US pending home sales is the only notable release for the remainder of the day and broader macro flow will continue to dictate.

EURCHF – technical overview

The latest round of setbacks from fresh multi-month highs at 1.1200 are viewed as corrective, with the broader outlook still highly constructive. Look for any additional weakness in the sessions ahead to be well supported above 1.0715 on a daily close basis, in favour of a higher low and the next major upside extension through 1.1200 and towards 1.1400 further up. Only a close below 1.0715 would delay the outlook.

• R2 1.1029 – 23Feb high – Strong
• R1 1.0949 – 25Feb high – Medium
• S1 1.0865 – 24Feb low – Strong
• S2 1.0800 – Figure – Medium

EURCHF – fundamental overview

There has been a lot of talk in recent weeks of the threat to the SNB strategy of weakening the Franc in a world where other central banks are considering additional accommodation and global risk sentiment is deteriorating. If yield differentials narrow back in the Franc’s favour, even with the negative rates, and if the SNB is forced to consider intervening in a global backdrop that is seeing a mass exodus from risk, it will be very difficult for the SNB to prevent appreciation in the Franc. Perhaps SNB Jordan further contributed to Franc gains last week after highlighting the limitations of monetary policy, while also pointing out that ECB rate cuts would likely invite an appreciation in the Franc. Of course, Jordan continued to talk of an overvalued Franc, but this familiar message was lost in the face of his other comments.

AUDUSD – technical overview

The market has entered a period of correction out from the recent multi-year low at 0.6827. However, any additional upside should be limited to the 0.7265 area (78.6% fib retrace), with a lower top sought out ahead of a fresh downside extension and bearish continuation below 0.6827 and towards the next key barrier at 0.6500 further down. Ultimately, only back above 0.7385 would force a shift in the bearish structure.

• R2 0.7259 – 23Feb high – Strong
• R1 0.7200 – Figure – Medium
• S1 0.7108 – 29Feb low – Medium
• S2 0.7069 – 19Feb low – Strong

AUDUSD – fundamental overview

The Australian Dollar has pulled back a good deal in recent trade, with stronger US data and renewed weakness in global equities weighing on the risk correlated commodity currency. Local data has been less encouraging of late as well, with unemployment ticking up, the CAPEX outlook deteriorating, wage growth subdued and China under pressure. All of this should keep the RBA leaning the dovish side when it meets tomorrow.  Still, no change on rates is expected at tomorrow’s meeting, though the market is now pricing in additional cuts this year. Looking ahead, US pending home sales is the only notable release on Monday’s calendar and the market will likely trade off broader flows.

USDCAD – technical overview

Setbacks have intensified in recent sessions, with the market breaking back below critical rising trend-line support off the May 2015 low. This opens the door for a deeper drop into previous resistance turned support at 1.3457 before the market considers the possibility of a medium-term higher low and bullish resumption back towards the recent near 13 year peak at 1.4690. Back above 1.3860 will be required to take the immediate pressure off the downside.

• R2 1.3654 – 18Feb low – Strong
• R1 1.3600 – Figure – Medium
• S1 1.3500 – Psychological – Medium
• S2 1.3457 – Previous Resistance – Strong

USDCAD – fundamental overview

Not much in the way of movement for the Canadian Dollar this past Friday, despite the very healthy reading of US GDP. It seems the Canadian Dollar was able to benefit from the US print in many ways, given the positive impact of the US growth data on the Canadian economy. Meanwhile, OIL prices have managed to hold up rather well, also supportive of the Canadian Dollar. Bank of Canada rate cut bets have been scaled back as well, with the Canadian government committed to fiscal policy reform which will take the pressure of the Bank of Canada to need to accommodate further. Looking ahead, we get Canada raw materials and industrial product prices, along with the current account. In the US, pending home sales are due.

NZDUSD – technical overview

The market remains confined to a broader downtrend with any rallies seen very well capped. Look for this latest correction to stall out in the 0.6800 area, in favour of a medium-term lower top and next major downside extension. A break below 0.6546 will strengthen the outlook and expose fresh declines towards next key support at 0.6347 further down. Ultimately, only back above 0.6900 negates the bearish outlook.

• R2 0.6775 – 26Feb high– Strong
• R1 0.6700 – Figure – Medium
• S1 0.6566 – 29Feb low – Medium
• S2 0.6546 – 16Feb low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has been underperforming in the early week, on the back of a fresh batch of horrid data in the form of ANZ business confidence and building permits. Overall, with New Zealand data coming out on the softer side, and with the risk environment quite shaky, any rallies should prove hard to come by. Moreover, the RBNZ has expressed its discomfort on many occasions with a higher Kiwi rate, and the central bank will likely look to ease further in the months ahead. Certainly, calls for further easing have ramped up in recent weeks given the deterioration in local data. Looking ahead to the remainder of the day, US pending home sales is the only notable standout and as such, the market will likely defer to trading off broader macro flows.

US SPX 500 – technical overview

Signs of a critical structural shift following an impressive multi-year rally to a fresh record high in 2015. The recent break back below the critical August base at 1834 strengths the newly adopted bearish outlook and from here, any rallies are expected to be well capped below previous support at 1993 in favour of the next major downside extension towards 1700. Ultimately, only a daily close back above 1993 will take the immediate pressure off the downside.

• R2 1993.00 – Previous Support – Strong
• R1 1972.00 – 26Feb high – Medium
• S1 1890.00 –24Feb low – Medium
• S2 1808.00 – 11Feb/2016 low – Strong

US SPX 500 – fundamental overview

Plenty of talk from central bankers in recent days about the limitations of accommodative monetary policy. This isn’t something that welcomes investment in stocks and could ultimately weigh more heavily going forward. Overall, with the OIL outlook still highly suspect, with central bank monetary policy exhausted and with fears escalating over a deterioration in China, it feels as though any rallies should continue to be well capped in favour of additional downside in the days and weeks ahead. Throw in solid US economic data and evidence of rising inflation in the US, which only increases prospects the Fed will need to tighten in the months ahead, and there is very little to get too excited about right now. It’s also becoming increasingly apparent in 2016 that even if the Fed opts to scale back its rate hike timeline, this might not be as supportive as many had thought.

GOLD (SPOT) – technical overview

The market continues to show signs of a major structural shift, with the impressive recovery from the multi-year low in late 2015 at 1046, extending above the critical October 2015 peak at 1192. From here, any setbacks should be well supported ahead of 1200, in favour of a higher low and the next major upside extension to medium-term resistance at 1307. Ultimately, only a weekly close back below 1191 would delay the newly adopted constructive outlook.

• R2 1263.00 – 11Feb/2016 high – Strong
• R1 1253.00 – 24Feb high – Medium
• S1 1191.00 – 16Feb low – Medium
• S2 1164.00 – 8Feb low – Strong

GOLD (SPOT) – fundamental overview

GOLD continues to show impressive demand on dips. Massive outflows across equities, high yield and emerging markets have left investors looking for an alternative investment. GOLD has become increasingly attractive in the current market environment. The wave of risk liquidation in 2016 has catapulted the metal on its status as a compelling hedge against uncertainty and exhausted monetary policy.

Feature – technical overview

USDSGD has entered a period of consolidation after pulling back from the recent multi-year high from early January at 1.4445. But overall, the structure remains highly constructive, with dips well supported for now into the 1.3800s. Look for any additional setbacks to continue to be well supportive above 1.3800 in favour of an eventual resumption of the uptrend and retest of 1.4445. Ultimately, only back below 1.3730 would negate the highly constructive outlook.

• R2 1.4200 – 29Jan low – Strong
• R1 1.4167 –4Feb high – Medium
• S1 1.3965 – 16Feb low – Medium
• S2 1.3860 – 11Feb/2016 low – Strong

Feature – fundamental overview

Another round of solid US economic data, this time in the form of GDP and hawkish comments from Fed Mester, have been helping to inspire a renewed round of Singapore Dollar offers. Fed Mester was out on Friday reaffirming her view that gradual rate hikes was still the way to go in 2016. Throw in this latest downturn in risk sentiment and weakness in global equities and the outlook continues to point to additional emerging market FX weakness. Investors have been losing confidence in exhausted monetary policy and unless central bankers and governments come up with an alternative solution involving fiscal policy reform, risk assets are likely to see additional downside pressure in 2016.