Traders Look for Clarity into Weekly Close

Today’s report: Traders Look for Clarity into Weekly Close

The market is still trying to figure out and digest this latest ECB decision riddled with ambiguity. On the one hand, the ECB went ahead and delivered a larger than expected stimulus package, but at the same time, Draghi’s message was more than offsetting. US import prices and Canada employment ahead.

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Wake-up call

Chart talk: Major markets technical overview video

Chart talk: Technical & fundamental highlights

EURUSD – technical overview

Thursday’s wild bullish outside day, which consumed the previous 17 daily ranges has put pressure back on the topside, though overall, the major pair is locked within a larger consolidation. At this point,  the focus is on a retest of the 1.1377, 2016 peak, with setbacks now expected to be well supported into the 1.1000 area. Ultimately however, there is no clear directional bias and it will take a push beyond 1.1377 or drop below 1.0820 for additional clarity.

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  • R2 1.1251 – 15Feb high – Strong
  • R1 1.1219 – 10Mar high – Medium
  • S1 1.1100 – Figure – Medium
  • S2 1.1058 –8Mar high – Strong

EURUSD – fundamental overview

The ECB made a surprise 5bp cut in the benchmark rate, an as expected 10bp reduction in the deposit rate, and added €20bln more a month in QE. The announcement of the new measures initially opened a sharp drop in the Euro before the market violently reversed course after ECB President Draghi said he didn't anticipate it would be necessary to cut rates further. The latest surge through 1.1200 has been capped into Friday on a round of profit taking from HFTs, leveraged names and momentum funds. There is also risk for pre-Fed position squaring on Friday as the market gets ready for next week’s anticipated decision. Plenty of offers now ahead of 1.1300 with bids down towards 1.1000. Looking at Friday’s calendar, no reaction to the relatively in line German CPI, with US import prices on tap.

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 a lower top and next downside extension below 1.3836, 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 1.4408 – 19Feb high – Strong
  • R1 1.4318 – 10Mar high – Medium
  • S1 1.4200 – Figure  – Medium
  • S2 1.4118 – 10Mar low – Strong

GBPUSD – fundamental overview

Brexit risk has faded into the background this week, with the Pound deferring to broader themes and flow. Thursday’s intense Euro rally post Draghi was enough to open a rally in the Pound as well, the the UK currency playing a game of follow the leader. There will certainly be more volatility that comes from the EU referendum in the days ahead, but for now, the market will be looking to the upcoming event risk in the form of next week’s FOMC rate decision. No real reaction to UK trade and construction output. US import prices are out later in the day.

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 112.75 – 11Mar low – Medium
  • S2 112.23 – 9Mar low  – Strong

USDJPY – fundamental overview

The Yen continues to chop around at the moment, unwilling to commit in either direction. HFTs and Japanese importers have been on the bid, while macro and leveraged names are reported on the offer. There is plenty of event risk next week that could keep the major pair in tight trade into the weekly close, with participants starting to think about what comes out of the BOJ and Fed. Recent comments from central bankers at both the BOJ and Fed would suggest that there won’t be any changes to policy when they meet next week. For today, US import prices are the only notable standout on the calendar. Look for the major pair to trade off broader risk flow on Friday.

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, in favour of a higher low and the next major upside extension through 1.1200, towards 1.1500 further up. Only a close below 1.0715 would delay the outlook.

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  • R2 1.1062 – 17Feb high – Strong
  • R1 1.1025 – 10Mar high – Medium
  • S1 1.0894 – 10Mar low – Medium
  • S2 1.0810 – 29Feb/2016 low – Strong

EURCHF – fundamental overview

There is no doubt the SNB has been delighted with the market’s reaction to the latest round of larger than forecast ECB stimulus. It would seem the SNB would have ECB Draghi to thank for that, after the central banker said he didn't anticipate it would be necessary to cut rates further. The SNB will have an important decision to make next week when it meets, and it will need to determine if additional easing is required to offset this latest ECB move. Clearly if this Euro recovery holds up, it will make it easier for the central bank to hold off on trekking deeper into negative interest rate policy.

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.

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  • 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

A bit of a pullback in the latest iron ore recovery is weighing on the Australian Dollar a bit, while offers from medium-term players around the RBA’s supposed line in the sand 0.7500 level are also weighing. But dips have been well supported for now, with the Australian Dollar continuing to benefit from a solid run of domestic leads, higher equities and broad based selling in the US Dollar. Looking ahead, US import prices is the only notable standout on Friday’s calendar, with the market likely to trade off broader risk flow and position ahead of next week’s key Fed event risk.

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.

Screen Shot 2016-03-11 at 6.07.59 AM

  • R2 1.3447 – 9Mar high – Strong
  • R1 1.3398 – 10Mar high – Medium
  • S1 1.3229 – 78.6% fib and 9Mar/2016 low– Strong
  • S2 1.3200 – Figure– Strong

USDCAD – fundamental overview

The Canadian Dollar continues to benefit from a most impressive recovery in the price of OIL, with the currency trading just off fresh 2016 highs against the Buck. This week’s less dovish Bank of Canada rate decision has also factored into price action, keeping the Loonie bid on dips. The market will now face another wave of volatility today, with the release of Canada’s monthly employment report. US import prices are also out but aren’t likely to factor into trade. Keep an eye on the results of the employment data and direction in OIL for directional insight.

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.

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  • R2 0.6734 – 8Mar low – Strong
  • R1 0.6710 – 10Mar high– Medium
  • S1 0.6619 – 10Mar low – Medium
  • S2 0.6546 – 16Feb low – Strong

NZDUSD – fundamental overview

The initial shock of the early Thursday RBNZ rate cut has worn off, with the market settling in and attempting to recover from the intense post-event risk wave of setbacks. While the RBNZ rate cut wasn’t expected this week, the market had already been pricing a cut at upcoming meetings. Perhaps this has softened the blow a bit and with the US Dollar under broad pressure, equities holding up, commodities well bid and currencies following the Euro’s lead, it isn’t all that surprising to see Kiwi trading off the weekly low. Nevertheless, the New Zealand Dollar does standout as the clear underperformer and is expected to find sizable sell interest into any meaningful rallies. Looking ahead, US import prices is the only notable standout on Friday’s calendar, with the market likely to trade off broader risk flow and position ahead of next week’s key Fed event risk.

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.

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  • R2 2026.00 – 5Jan high – Strong
  • R1 2011.00 – 10Mar high – Strong
  • S1 1968.00 –10Mar low – Medium
  • S2 1923.00 – 1Mar low – Strong

US SPX 500 – fundamental overview

Stocks have done a good job recovering off Thursday’s low post ECB, with the market initially jittery and trying to figure it all out, before deciding that it was more comfortable pushing back to the topside. Investors are doing whatever they can to continue to try and find comfort in central bank stimulus measures and with the ECB now bringing out the big bazooka and the Fed expected to scale back, this is helping to bolster sentiment. However, there have been signs of the market starting to grow a little immune to the impact of monetary policy stimulus, and with not much left in central bankers’ tanks, there is a feeling that this rally could stall out at any moment. Look for the market to start positioning for next week’s FOMC decision. Plenty of good offers reported up towards the 2025 area.

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.

Screen Shot 2016-03-11 at 6.08.38 AM

  • R2 1306.80 – 2015 high – Strong
  • R1 1283.50 – 10Mar/2016 high – Medium
  • S1 1237.00 – 10Mar 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.

Screen Shot 2016-03-11 at 6.08.52 AM

  • R2 3.0040 – 26Feb high – Strong
  • R1 2.9330 –7Mar high – Medium
  • S1 2.8780 – 10Mar/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. Still, there is a sense that with global monetary policy tools exhausted, risk assets could come back under pressure at any moment, which would invite renewed downside pressure in the correlated emerging market currency. For now, the market will settle in and start to position ahead of next week’s central bank event risk, highlighted by the Fed and BOJ decisions.

Peformance chart: Five day performance v. US dollar

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