Fed Given Another Excuse to Scale Back Timeline

Next 24 hours: OIL and Iron Ore Drive Loonie and Aussie

Today’s report: Fed Given Another Excuse to Scale Back Timeline

Expectations for the Fed to scale back haven't been let down, with Friday's soft US hourly earnings more than offsetting any hawkishness that might have come from the solid NFP print. Key standouts on Monday’s calendar include German factory orders, Eurozone Sentix investor confidence and Fed speak.

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Wake-up call

Chart talk: Major markets technical overview video

Chart talk: Technical & fundamental highlights

EURUSD – technical overview

A nice little bounce in recent trade, though overall, the pressure still remains on the downside following a break below 1.1000 the other week. There is room for this correction to extend, but any additional upside should ideally be well capped below 1.1100 on a daily close basis in favour of a lower top and fresh downside extension through 1.0826 and towards the 2016 low at 1.0711 further down. Only a daily close back above 1.1100 will take the immediate pressure off the downside.

Screen Shot 2016-03-07 at 6.11.14 AM

  • R2 1.1069 – 26Feb high – Strong
  • R1 1.1044 – 4Mar high – Medium
  • S1 1.0903 – 4Mar low – Medium
  • S2 1.0826 –2Mar low – Strong

EURUSD – fundamental overview

The Euro has done a good job rallying out from recent lows, with the single currency benefitting from Friday’s softer hourly earnings component in the US employment report. While the headline NFP print came in well above forecast, the fact that hourly earnings dropped off, coming in much softer, was enough of a reason for the market to expect the Fed would be holding off on additional rate hikes. The focus now shifts to this Thursday’s ECB meeting, where the central bank is expected to expand its easing program. This should keep the Euro well offered into additional rallies. For today, key standouts on the economic calendar come in the form of German factory orders and Eurozone Sentix investor confidence. US consumer credit and the labor market conditions index are the only notable releases in the US, though we do get Fed speak from Fed Fischer and Fed Brainard.

GBPUSD – technical overview

The market has entered a period of correction out from last 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 1.4300 in favour of the next lower top and next downside extension below 1.3836 and towards major support at 1.3500 further down. Ultimately, only a daily close back above 1.4400 will take the immediate pressure off the downside.

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  • R2 1.4306 – 22Feb high – Strong
  • R1 1.4249 – 4Mar high – Medium
  • S1 1.4108 – 4Mar low  – Medium
  • S2 1.4033 – 3Mar low – Strong

GBPUSD – fundamental overview

The Pound has done a good job recovering out from last week’s fresh 7 year low, with market fear over Brexit fading into the background a bit. Economic data out of the UK has still been soft overall, with last week’s PMIs disappointing. However, broad based currency declines on the back of Friday’s much softer hourly earnings component in the US employment report has been more than offsetting, with the Pound extending its recovery. Looking ahead, lack of first tier data on the UK calendar will leave the market focused on Brexit risk, broader macro flow and some Fed speak from Fed’s Fischer and Brainard.

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.

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  • R2 114.56 – 2Mar high – Strong
  • R1 114.00 – Figure – Medium
  • S1 113.13 – 4Mar low – Medium
  • S2 112.16 – 1Mar low – Strong

USDJPY – fundamental overview

The market is doing its best to make sense of conflicting comments from BOJ Kuroda over the past couple of days. On Friday, Kuroda seemed to rule out the possibility of lower negative interest rates, but earlier today, Kuroda has come out saying further monetary easing is possible. Not much of a reaction in the major pair thus far, with the market also shrugging off a Reuters headline of Fitch warning Japan of a potential credit rating downgrade if it continues to delay the sales tax hike without taking measures to boost revenue. Looking ahead, we get US consumer credit and the labor market conditions index, along with Fed speak from Fed’s Fischer and Brainard.

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.

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  • R2 1.1000 – Psychological – Medium
  • R1 1.0949 – 25Feb high – Strong
  • S1 1.0810 – 29Feb/2016 low – Medium
  • S2 1.0715 – 20Aug low – Strong

EURCHF – fundamental overview

The SNB has been finding welcome relief from this latest equity market rally and recovery in risk assets. However, the week ahead will be tougher now that this rally has run a good deal and the market starts to focus on the upcoming ECB meeting. The ECB is expected to expand its easing, which would unquestionably put more unwanted downside pressure on the EURCHF rate. This has fueled speculation the SNB will once again be forced to act when it meets next week, responding to any ECB easing with an easing move of its own. Brexit risk premium will also keep the SNB on it toes and there is chatter of a more active SNB on a EURCHF move into the 1.0750 area.

AUDUSD – technical overview

The recent break above medium-term resistance at 0.7385 could be warning of a more significant structural shift, pointing to additional upside in the days and weeks ahead. Still, the market would need to establish above 0.7440 to confirm the structural shift, while inability to do so could open the door for a broader bearish resumption.

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  • R2 0.7500 – Psychological – Medium
  • R1 0.7443 – 4Mar/2016 high – Strong
  • S1 0.7340 – 4Mar low – Strong
  • S2 0.7281 – 3Mar low – Strong

AUDUSD – fundamental overview

The Australian Dollar is coming off an impressive week that saw a less dovish RBA, solid GDP, narrowing in the deficit, commodity gains, equity rally and broad based US Dollar declines. However, with the currency trading into some critical resistance above 0.7400, there is risk we could soon see some form of a cooling off. Data since Friday hasn’t been all that great, with retail sales softer and this latest construction and job ads data disappointing, while it’s possible RBA Lowe will talk down the Australian Dollar when he takes to the wires later in the day. In the interim, broader macro flow and some Fed speak from Fischer and Brainard will be the key standouts on Monday’s calendar.

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 and dropping to a fresh 2016 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.

Screen Shot 2016-03-07 at 6.12.34 AM

  • R2 1.3499 – 2Mar high – Strong
  • R1 1.3400 – Figure – Medium
  • S1 1.3312 – 4Mar/2016 low – Medium
  • S2 1.3230 – 78.6% fib retrace – Strong

USDCAD – fundamental overview

A strong performance for the Canadian Dollar in the previous week, with the Loonie extending gains on Friday following the impressive Canada trade data and push higher in the price of OIL. Meanwhile, despite the solid headline US NFP print, the offsetting and discouraging pullback in hourly earnings was enough to fuel additional broad based US Dollar declines. Looking ahead, lack of first tier economic data out of Canada leaves the market focused on US consumer credit, the labor market conditions index and Fed speak from Fed’s Fischer and Brainard.

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 0.6900 ahead of the 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 compromises the bearish outlook.

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  • R2 0.6893 – 16Oct high– Very Strong
  • R1 0.6835 – 4Jan/2016 high– Strong
  • S1 0.6714 – 4Mar low – Medium
  • S2 0.6655 – 3Mar low – Strong

NZDUSD – fundamental overview

New Zealand Prime Minister Key was out on the wires over the weekend, expressing his view that China will need to devalue the Yuan. This comes at an interesting time for the Kiwi rate, which has been rather strong of late, trading back into territory that will also probably get the RBNZ talking down its own currency on Thursday. Improved risk sentiment, recovering commodities and broad based US Dollar weakness have all supported Kiwi back into medium-term resistance, though with New Zealand data on the softer side and with the RBNZ in a position to cut more in the months ahead, additional rallies should be very well offered. Looking at today’s calendar, broader macro flow and some Fed speak from Fischer and Brainard will get most of the attention.

US SPX 500 – technical overview

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 a measured move at 1600 further down. Ultimately, only a daily close back above 2050 will delay the bearish outlook.

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  • R2 2026.00 – 5Jan high – Strong
  • R1 2010.00 – 4Mar high – Strong
  • S1 1968.00 –2Mar low – Medium
  • S2 1923.00 – 1Mar low – Strong

US SPX 500 – fundamental overview

Stocks have enjoyed an impressive recovery rally over the past several days, helped along by expectations for a scaled back Fed and overall solid US economic data. Investors are trying to get one last Goldilocks fix where they are still able to benefit from ultra accommodative monetary policy, while the US economy improves and employment reaches maximum levels. But if economic data out of the US continues to impress, it will put the Fed in the more difficult position of needing to seriously consider the data and move ahead with its path to higher interest rates. For the time being, Friday’s impressive headline NFP print was more than offset by the downturn in hourly earnings, which is giving the market what it wants – a reasonable expectation the Fed will indeed have a good excuse to hold off for now.

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.

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  • R2 1306.80 – 2015 high – Strong
  • R1 1279.75 – 4Mar/2016 high – Medium
  • S1 1224.70 – 2Mar low – Medium
  • S2 1190.80 – 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

USDTRY has entered a period of multi-week consolidation since pulling back from the September 2015 record high at 3.0785. But overall, the structure remains constructive, with dips seen well supported. Look for any additional setbacks to continue to be well supportive above 2.8730 in favour of an eventual resumption of the uptrend and retest of 3.0785. Ultimately, only back below 2.8730 would delay the constructive outlook.

Screen Shot 2016-03-07 at 6.40.46 AM

  • R2 3.0040 – 26Feb high – Strong
  • R1 2.9510 –2Mar high – Medium
  • S1 2.8930 – 4Feb low – Strong
  • S2 2.8730 – 3Dec low – Strong

Feature – fundamental overview

The Turkish Lira is coming off an impressive week of trade, which saw the currency move higher throughout the week. The new found bid tone in the Lira has come from broader macro developments, with the rebound in global equities and expectation the Fed will scale back on its rate hike timeline driving a recovery in the emerging market currencies. Also helping the Lira a bit, perhaps somewhat counterintuitively, has been the welcome pullback in inflation which is taking pressure off the central bank to raise rates in an economy that requires easier policy. Though on the surface, the softer inflation is bearish Lira on a yield differential basis, the fact that this is a positive development for the local economy is an offsetting positive for the currency.

Peformance chart: Five day performance v. US dollar

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