Good Times for Risk Correlated FX

GBPUSD – technical overview

The market has entered a period of correction out from this week’s fresh 7 year low at 1.3836 to allow for some stretched studies to unwind. But overall, the downside pressure remains intact with the current push higher expected to stall out, ideally ahead of 1.4250 in favour of the next lower top and next downside extension below 1.3836 and towards major support at 1.3500 further down.

• R2 1.4235 – 17Feb low – Strong
• R1 1.4156 – 23Feb high – Medium
• S1 1.4000 – Psychological  – Medium
• S2 1.3904 – 1Mar low – Strong

GBPUSD – fundamental overview

A broader bid tone in risk markets, has inspired currency gains across the board and this is helping to distract local traders from the recent Brexit panic selling of the Pound. Certainly, UK data has not been supportive of the Pound over the past couple of sessions, with manufacturing and construction PMIs disappointing. In today’s trade, market participants will digest UK Nationwide house prices, UK Halifax house prices and UK services PMIs. In the US, the market will then react to a batch of data featuring initial jobless claims, ISM non-manufacturing and factory orders.

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 114.56 – 2Mar high – Medium
• S1 113.22 – 2Mar low – Medium
• S2 112.16 – 1Mar low – Strong

USDJPY – fundamental overview

The recovery in risk assets over the past several sessions has been supportive of the correlated USDJPY market, with the major pair rallying back to recent range highs. This in conjunction with pressure building for additional BOJ stimulus in the days ahead could open the door for more upside. Still, any signs of a reversal in sentiment and pullback in risk will once again weigh on the pair and open a healthy resurgence in Yen demand. Looking ahead, the key focus for the remainder of the day is on a batch of US data featuring initial jobless claims, ISM non-manufacturing and factory orders.

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 1.1500 further up. Only a close below 1.0715 would delay the outlook.

• R2 1.0949 – 25Feb high – Strong
• R1 1.0900 – Figure – Medium
• S1 1.0810 – 29Feb/2016 low – Medium
• S2 1.0715 – 20Aug low – Strong

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 on the verge of implementing additional accommodation and global risk sentiment is shaky. If yield differentials narrow back in the Franc’s favour and if the SNB is forced to consider intervening in a global backdrop that sees another downturn in 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. The SNB should also be worried about similar accommodative moves from the BOJ this month and unwelcome Franc inflows from this event. Wednesday’s solid headline Swiss GDP came in above forecast though a 0.9% fall in equipment investment was somewhat offsetting.

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 well capped below critical medium-term range resistance at 0.7385 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 a daily close back above 0.7385 would force a shift in the structure.

• R2 0.7385 – 4Dec high – Very Strong
• R1 0.7324 – 3Mar/2016 high – Medium
• S1 0.7259 – 23Feb high – Medium
• S2 0.7200 – Figure – Strong

AUDUSD – fundamental overview

The Australian Dollar has been having a nice week. On the local front, a less dovish RBA decision, impressive GDP and solid trade have all invited renewed bids, while the recovery in broader risk sentiment, stabilisation in commodities and sell-off in the Buck have further contributed to the commodity currency’s gains. The solid developments on the local front have resulted in a scaling back of RBA rate cut bets with 33bps of easing priced into the curve for the year ahead versus Tuesday’s pre RBA calls of 48bps of cuts over that time. Looking ahead, the key focus for the remainder of the day will be on a batch of US data featuring initial jobless claims, ISM non-manufacturing and factory orders.

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 towards the 78.6% fib retrace off the October-January move at 1.3230 before the market considers the possibility of a medium-term higher low and bullish resumption of the broader uptrend. Back above 1.3588 will be required to take the immediate pressure off the downside.

• R2 1.3588 – 29Feb high – Strong
• R1 1.3499 – 2Mar high – Medium
• S1 1.3386 – 1Mar/2016 low – Medium
• S2 1.3230 – 78.6% fib retrace – Strong

USDCAD – fundamental overview

Volatility in the Canadian Dollar has pulled back since Tuesday’s impressive run for the Loonie, following the above forecast Canada GDP showing. But the Canadian Dollar retains its bid tone into Thursday, despite the solid US ADP report, with higher OIL and a recovery in equities helping to offset the ADP flow. Looking ahead, lack of economic data on the Canada calendar will leave the market focused on a batch of US releases featuring initial jobless claims, ISM non-manufacturing and factory orders.

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 ahead of 0.6800, 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 0.6594 – 2Mar low – Medium
• S2 0.6546 – 16Feb low – Strong

NZDUSD – fundamental overview

Absence of first tier economic data out of New Zealand this week has left the currency trading on broader flow. Currencies have been well bid across the board with a recovery in global equities helping to prop, and this has benefited the New Zealand Dollar, despite the solid US ADP showing on Wednesday. Kiwi has however been underperforming against it peers, with cross related selling against the Australian Dollar following solid Aussie data leads driving the relative weakness. Overall, with New Zealand data coming out on the softer side of late, and with the risk environment still quite shaky, any additional 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. Looking ahead, the key focus for the remainder of the day will be on a batch of US data featuring initial jobless claims, ISM non-manufacturing and factory orders.

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. As such, the current rally is classified as corrective, with any additional upside expected to be well capped in the 2000-2025 area in favour of the next major downside extension below 1800 and towards 1700 further down. Ultimately, only a daily close back above 2050 will delay the bearish outlook.

• R2 2000.00 – Psychological – Strong
• R1 1993.00 – Previous Support – Strong
• S1 1968.00 –2Mar low – Medium
• S2 1923.00 – 1Mar low – Strong

US SPX 500 – fundamental overview

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 this latest rally should soon be well capped in favour of a resumption of declines 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. Looking ahead, Thursday’s calendar features initial jobless claims, ISM non-manufacturing and factory orders.

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 1202.00 – 22Feb low – Medium
• S2 1191.00 – 16Feb low – Strong

GOLD (SPOT) – fundamental overview

GOLD continues to show impressive demand on dips. 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. Even this latest rally in stocks has done very little to weigh on the metal, reflective of the fact that this rally in risk is less than convincing. Also supporting this week is some broad based selling in the Buck.

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 1.4118 – 21Feb high – Strong
• R1 1.4044 –2Mar high – Medium
• S1 1.3860 – 11Feb/2016 low – Strong
• S2 1.3800 – Figure – Medium

Feature – fundamental overview

Emerging market FX has been bolstered this week by a broader recovery in risk sentiment and global equities. This has triggered US Dollar outflows despite solid US economic data, with the market more focused on the Fed scaling back its rate hike timeline and holding off from raising rates in mid-March. A stable Yuan rate and additional China stimulus measures have also been helping to support the Singapore Dollar back to recent range highs against the Buck. Dealers do however cite plenty of USDSGD demand below 1.3900 and there is risk for some Singapore Dollar selling as participants start to position for Friday’s NFPs. Looking at the remainder of today’s calendar, US data in the form of initial jobless claims, ISM non-manufacturing and factory orders are the key standouts.