Central Bank Event Risk In Focus

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.

• R2 1.4306 – 22Feb high – Strong
• R1 1.4284 – 7Mar high – Medium
• S1 1.4134 – 7Mar low  – Medium
• S2 1.4108 – 4Mar low – Strong

GBPUSD – fundamental overview

Mark Carney was out talking risk associated with Brexit and a potential response, while BOE Weale sounded rather dovish, talking lower rates and an increase in QE. This in conjunction with some risk off trade and a pullback in the price of OIL, helped to deflate the latest recovery rally in the Pound, with the UK currency back under some pressure into Wednesday. For today, the key focus on the economic calendar comes in the form of UK industrial and manufacturing production.

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 114.56 – 2Mar high – Strong
• R1 113.52 – 8Mar high – Medium
• S1 112.16 – 1Mar low – Medium
• S2 110.98 – 11Feb/2016 low – Strong

USDJPY – fundamental overview

The major pair has come back under pressure in recent trade. It seems the combination of hints from the BOJ of holding off on additional stimulus next week, better than expected Japan GDP and a downturn in risk sentiment from horrid China trade data, have all factored into price action. The market will continue to focus on broader risk sentiment Wednesday, with very little on the economic calendar. Dealers report sell stops below 112.00.

EURCHF – technical overview

The latest round of setbacks from fresh multi-month highs at 1.1200 have been well supported, with the broader outlook still highly constructive. Look for any additional weakness in the sessions ahead to continue to be supported above 1.0715, 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 1.1000 – Psychological – Strong
• R1 1.0975 – 7Mar high – Medium
• S1 1.0900 – Figure – Medium
• S2 1.0810 – 29Feb/2016 low – Strong

EURCHF – fundamental overview

From a currency perspective, Tuesday’s solid Swiss employment data and hotter than expected CPI print, won’t do anything to make the SNB feel better about its job of weakening the Franc. Overall, the SNB has been finding welcome relief from a rally in the equity market and sell off in the the Buck. However, the latter half of the week will be tougher now that this stock market is running out of steam and the focus shifts to Thursday’s 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.

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 0.7529 to confirm the structural shift, while inability to do so could open the door for a broader bearish resumption.

• R2 0.7529 – 6Jul high – Strong
• R1 0.7484 – 7Mar/2016 high – Medium
• S1 0.7392 – 7Mar low – Strong
• S2 0.7340 – 4Mar low – Strong

AUDUSD – fundamental overview

Last week’s run of solid domestic data served as a major prop to the Australian Dollar, which still stands out as an outperformer, despite recent setbacks against the Buck. In fact, the solid run of data has resulted in a pricing out of a full rate cut in 2016, while the Australian Dollar has mostly shrugged off this latest wave of China concern. But we are seeing offers emerge over the past 24 hours, with Wednesday’s softer Westpac consumer confidence and Aussie housing finance data contributing to recent weakness. Looking ahead, lack of first tier data on the calendar, will leave the market focused on broader macro flow.

USDCAD – technical overview

The market has entered an intense period of corrective declines since topping out at a near 13 year high in January. From here there is still room for another 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 1.3400 – Figure – Medium
• S2 1.3261 – 7Mar/2016 low– Strong

USDCAD – fundamental overview

The Canadian Dollar has come under pressure following an impressive corrective rally off the near 13 year low from January. OIL’s pullback and disturbing China trade data were seen as the primary catalysts behind the renewed Loonie weakness, while pre-event risk positioning into today’s Bank of Canada policy decision is also factoring into the price action. No change is expected on rates, and the key focus will be on the tone of the central bank’s outlook. The near 10% recovery in the Loonie since January should result in a rather neutral to slightly dovish monetary policy statement, with the Bank of Canada also likely to sound a little more reserved as it waits to assess the impact of government fiscal measures on growth.

NZDUSD – technical overview

The market remains confined to a broader downtrend with any rallies seen very well capped. Look for this latest correction to hold below 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.

• R2 0.6835 – 4Jan/2016 high– Strong
• R1 0.6800 – Figure– Medium
• S1 0.6700 – Figure – Medium
• S2 0.6655 – 3Mar low – Strong

NZDUSD – fundamental overview

Weaker domestic data, a softening inflation outlook, deterioration abroad and a stronger than desired exchange rate, will all be factored into the RBNZ policy decision due early Thursday. The market is expecting the RBNZ to come out on the dovish side, though no change is expected on rates just yet. It is however worth noting the market is pricing a 28% chance for a cut, which means we shouldn’t be completely shocked if the RBNZ does go ahead with an easing. Moreover, a full rate cut is now priced in at the June meeting. So even if the RBNZ does nothing today, the central bank’s tone will likely put more pressure on the Kiwi rate and continue to force it lower. Surely the RBNZ won’t be too happy about this latest recovery in the currency.

US SPX 500 – technical overview

The latest 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 2025 will delay the bearish outlook.

• 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

This week’s run of ugly China trade data and renewed downside pressure in the price of OIL are unquestionably contributing to the latest pullback in equities, with investors reminded of the fragility of global markets and exhausted monetary policy. Stocks had been largely bid up in recent days on expectations for a scaled back Fed. But with the global economy still suffering, this could once again weigh.

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 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 a recent rally in stocks has done very little to weigh on the metal, reflective of the fact that any rallies in risk are less than convincing. Also supporting the metal has been broad based selling in the Buck on scaled back Fed expectations.

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 supported 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.

• 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

Politics are making headlines in Turkey this week. The EU is in negotiations with Turkey on the refugee crisis. The EU is looking for Turkey to take in asylum seekers that would otherwise be diverted through to the west. In return, Turkey would like to receive promised aid and an accelerated process to Turkey’s EU bid. The Turkish Lira hasn’t responded much to these developments and is more sensitive to broader risk sentiment which has taken a hit following the release of some horrid China trade data this week. This puts more pressure on risk correlated emerging market currencies. It is worth noting that above forecast Turkish industrial production could be helping to slow this latest sell off in the Lira just a bit.