ECB Decision Ahead – Brace for Impact

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 1.4400 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

A mixed round of data on Wednesday, with UK industrial production missing and manufacturing production beating. This led the Pound trading mostly sideways and consolidating its recent recovery gains. The market also traded with a tentative bias ahead of the anticipated ECB decision, given the projected volatility from the event risk. Once this gets out of the way later today, the focus will likely shift back to ongoing Brexit risk, which could once again put downside pressure on the Pound. Earlier today, the UK RICS house price balance came in as expected and failed to factor into price action. US initial jobless claims is the only other notable economic data release on Thursday.

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 113.15 – 10Mar low – Medium
• S2 112.16 – 1Mar low  – Strong

USDJPY – fundamental overview

Not much going on in USDJPY at the moment, with the major fading into the background as equity markets consolidate and FX markets focus on this latest round of central bank policy decisions. HFTs and Japanese banks have been reported on the bid, while leveraged names are looking to sell rallies. Direction for the remainder of the day will be influenced by the outcome of the ECB decision and if the market takes it in as a risk positive or negative event. There will also be implications for the BOJ, with the Japanese central bank looking on closely to see if the ECB move will inspire the BOJ to make any changes to its own negative rate policy next week. Indications heading into next week’s BOJ are that the BOJ will be holding off for now, but this sentiment could easily shift in the lead up.

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

Although Swiss CPI came out hotter than expected earlier this week, any unwanted Franc demand from this result was offset on Wednesday after the Swiss statistics office materially downgraded its 2016 forecast to -0.6% from -0.1%. Attention now shifts to the marquee event of the week in the form of the European Central Bank policy decision. The ECB is expected to expand its easing, which will most likely add to 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 0.7500 – Psychological – Medium
• S1 0.7412 – 9Mar low – Strong
• S2 0.7340 – 4Mar low – Strong

AUDUSD – fundamental overview

This latest surprise rate cut move from the RBNZ has sent ripples into Australian waters, with the market now pricing in a full rate cut from the RBA over the next 12 months. This expectation could grow later today if the ECB comes out with its own surprise on the easing side. Interestingly, the Australian Dollar has been holding up rather well in the face of this market repricing but could be on the verge of breaking down as all of this global dovishness is digested some more. The fact that the AUDUSD rate is trading right around the RBA’s supposed line in the sand level at 0.7500 is yet another reason to expect this market to retreat at any moment. Not much of a reaction from the earlier release of slightly softer Aussie consumer inflation expectations. The ECB decision is front and centre on Thursday, though it’s worth noting, US initial jobless claims are also due.

USDCAD – technical overview

Setbacks have finally extended to test the key 78.6% fib retrace off the October 2015 to January 2016 move, with the market now poised for the formation of a higher low and bullish resumption. Look for a push higher in the sessions ahead, with a break back above 1.3447 to strengthen the constructive outlook and accelerate gains. Ultimately, only a close below 1.3200 delays.

• R2 1.3447 – 9Mar high – Strong
• R1 1.3378 – 7Mar high – Medium
• S1 1.3229 – 78.6% fib and 9Mar/2016 low– Strong
• S2 1.3200 – Figure– Strong

USDCAD – fundamental overview

A standout day for the Canadian Dollar on Wednesday after the Bank of Canada surprised markets with a less dovish policy decision. Indeed, there was no change on rates as expected, but the central bank failed to strike a more cautious tone, also ignoring the recent recovery in the Canadian Dollar. This opened the door for a fresh wave of Loonie demand, with the currency also helped along by the ongoing bid in OIL prices. Perhaps the Bank of Canada has also been comforted by the governments fiscal policy reform which has taken pressure off the central bank to accommodate. Looking ahead, the ECB decision is the main event of the day, but on the economic data front, we get Canada capacity utilization, the Canada new housing price index and US initial jobless claims.

NZDUSD – technical overview

The market remains confined to a broader downtrend with rallies continuing to be very well capped ahead of medium-term resistance at 0.6900. 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 0.6714 – 8Mar low – Strong
• R1 0.6658 – 10Mar high– Medium
• S1 0.6594 – 2Mar low – Medium
• S2 0.6546 – 16Feb low – Strong

NZDUSD – fundamental overview

Many had thought it would be the ECB rate decision that would be the big story on Thursday, and yet, the RBNZ has taken the spotlight thus far following the surprise 25bp rate cut to a record low of 2.25%. New Zealand still holds the highest rate amongst the developed currencies, but the decision has opened the door for a massive liquidation in the commodity currency. The OIS market is now pricing a 40% chance for back to back rate cuts and a full rate cut by the November 2016 meeting. Overall, 40bps of cuts are now priced over the next 12 months. It will be interesting to see what the ECB delivers, with anything on the more dovish side to potential offset some of this latest round of Kiwi declines. US initial jobless claims are also out on Thursday but will not be getting much attention.

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

Stocks have been locked in a holding pattern this week, mostly consolidating recent recovery gains. Economic data has taken a backseat and the focus is more on macro themes and central bank policy. The big question on everyone’s mind in 2016 is if accommodative gestures from exhausted central bank policy will still have the same stimulatory effect as has been seen in recent years. While it would appear the market has responded well to hints from the Fed that it will be scaling back its rate hike timeline, it remains to be seen what the Fed will do and if this will make a lasting impression. But investors will get more clarity on this issue today, with the European Central Bank decision on tap. If the ECB comes out more dovish and stocks don’t respond with enthusiasm, this could be an additional warning sign of what already feels like a shifting landscape in 2016.

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 into 2016. GOLD has become increasingly attractive in the current market environment. Uncertainty has catapulted the metal on its status as a compelling hedge against 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 compelling these days. 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 2.8880 – 9Mar/2016 low – Medium
• S2 2.8730 – 3Dec low – Strong

Feature – fundamental overview

The Turkish Lira has been an impressive gainer this week, with the more supportive risk backdrop, better round of domestic data and improving inflation outlook contributing to the currency’s recovery. Much of the focus for today will be on the fallout from the ECB decision. If risk markets respond favourably, additional Lira upside is likely, while any sell-off in risk assets, will open the door for renewed downside pressure on the risk correlated emerging market currency.