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Yellen Fades, Hawkish Voting Members Back in Focus

Next 24 hours: Whipsaw Trade Ahead of Fed Minutes

Today’s report: Yellen Fades, Hawkish Voting Members Back in Focus

Risk sentiment has been deteriorating this week and clearly this has been reflected in correlated assets, with stocks pulling back and the commodity bloc and EM currencies once again under pressure. Looking ahead, we get speeches from Fed’s Mester and Bullard, along with the FOMC Minutes.

Download complete report as PDF

Chart talk: Major markets technical overview video

Chart talk: Technical & fundamental highlights

EURUSD – technical overview

The market remains well supported on dips, breaking to fresh 2016 highs. But overall, the broader downtrend remains intact and with the price now trading up towards 1.1500, there is risk for another topside failure and bearish reversal. Look for additional upside to remain well capped below 1.1500 on a daily close basis, while ultimately, only back above 1.1709 would force a shift in the structure. A daily close below 1.1335 will help to strengthen this outlook and alleviate immediate topside pressure.

Screen Shot 2016-04-06 at 6.36.04 AM

  • R2 1.1438 – 1Apr/2016 high – Strong
  • R1 1.1413 – 4Apr high – Medium
  • S1 1.1335 – 1Apr low – Medium
  • S2 1.1284 –30Mar low – Strong

EURUSD – fundamental overview

The Euro has been weighed down in recent trade on the back of softer German factory orders and weaker Eurozone and German services PMIs. Meanwhile, ECB Nowotny was out on the wires highlighting the limitations of monetary policy and calling for additional public investment. Still, with risk off flow working its way back into the market, demand for the Euro against the risk correlated currencies has helped to prop EURUSD into setbacks. Looking ahead, the key standouts on the day are German industrial production, speeches from Fed Mester and Bullard, and the release of the Fed Minutes.

GBPUSD – technical overview

The recovery rally out from a recent 7 year low has stalled out ahead of key resistance at 1.4668, potentially setting the stage for the next major lower top and bearish resumption. A daily close below 1.4053 will strengthen this outlook and expose a retest of 1.3836, which guards against the multi-year base at 1.3500 further down. Back above 1.4668 would be required to take the immediate pressure off the downside.

Screen Shot 2016-04-06 at 6.36.25 AM

  • R2 1.4322 – 4Apr high – Strong
  • R1 1.4279 – 5Apr high – Medium
  • S1 1.4122 – 5Apr low  – Medium
  • S2 1.4053 – 16Mar low – Strong

GBPUSD – fundamental overview

Better than expected UK services PMIs did very little to inspire any lasting gains in the Pound, with the UK currency back under pressure on Tuesday. Downbeat comments from Markit, ongoing Brexit risk and a solid US ISM non-manufacturing reading, were all see weighing on the beleaguered Sterling. Looking ahead, there is little of note on the UK economic calendar and the focus for the day will be on a Fed Mester and Bullard speeches and the release of the Fed Minutes.

USDJPY – technical overview

This latest break below the previous multi-month low from March is a significant development, as it potentially warns of a fresh downside extension and measured move into the 106.00s following a period of multi-day bearish consolidation. At this point, a daily close below 110.00 will strengthen this prospect, though any rallies in the interim should be very well capped ahead of 113.00. Ultimately, only back above 115.00 would force a shift in the structure and take the pressure off the downside.

Screen Shot 2016-04-06 at 6.37.37 AM

  • R2 111.80 – 4Apr high – Strong
  • R1 111.35 – 5Apr high – Medium
  • S1 109.95 – 5Apr/2016 low – Strong
  • S2 109.50 – Mid-Figure – Medium

USDJPY – fundamental overview

Fresh multi-month highs for the Yen on Tuesday, with USDJPY finally breaking down below major barriers at 110.00. Less dovish Kuroda comments and a generally downbeat market weighed on sentiment, fueling the Yen demand and setting up the test of the psychological level. However, official comments of watching the Yen rate, a rebound in the price of OIL, recovering stocks and some better China PMIs, have all helped to support the USDJPY market into Wednesday trade. Looking ahead, a Fed Mester and Bullard speeches and the release of the Fed Minutes are the key standouts for the remainder of the day.

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 1.0800, 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.

Screen Shot 2016-04-06 at 6.37.57 AM

  • R2 1.1024 – 17Feb high – Strong
  • R1 1.0955 – 31Mar high – Medium
  • S1 1.0875 – 23Mar low – Medium
  • S2 1.0810 – 29Feb/2016 low – Strong

EURCHF – fundamental overview

Economic data out of Switzerland has been better of late, and there could be signs of an alleviation of intense deflationary pressures. And yet, with the Franc still deemed to be well overvalued, the SNB remains committed to its current policy strategy of intervention and negative rates. The SNB’s job has been a lot easier of late, with the EURCHF rate stable despite more ECB stimulus and accommodations elsewhere, and this should give the central bank the flexibility it needs to keep from making any additional easing moves. But the global backdrop is still shaky and any signs of an intensification of downside pressure on equities, could invite unwanted CHF appreciation, something the SNB needs to continue to closely monitor.

AUDUSD – technical overview

An impressive run for this pair over the past several days, with gains extending to fresh 2016 highs. However, the run is starting to look a little stretched and there is risk for a pullback and potential bearish resumption. Still, a break back below 0.7477 would be required to strengthen this outlook and take the immediate pressure off the topside.

Screen Shot 2016-04-06 at 6.38.19 AM

  • R2 0.7678 – 4Apr high – Strong
  • R1 0.7632 – 5Apr high – Medium
  • S1 0.7510 – 5Apr low – Medium
  • S2 0.7477 – 24Mar low – Strong

AUDUSD – fundamental overview

Tuesday’s as expected RBA decision didn’t really factor much into trade, with the market perhaps more focused on a much wider than expected trade deficit and drop in the performance of service index. This in conjunction with broader risk off flow was enough to keep the Australian Dollar under a good deal of pressure into Wednesday. We have since seen a rebound in the price of OIL and better than expected China Caixin PMIs, which could be helping to prop a bit, though the pressure for now remains on the downside with dealers talking stops below 0.7475. Looking ahead, Fed Mester and Bullard speeches and the Fed Minutes are the key standouts for the remainder of the day.

USDCAD – technical overview

Signs of a potential bottom after the market stalled ahead of the critical October base at 1.2832. The market will need to establish back above 1.3296 to strengthen this outlook and accelerate gains, setting up a possible double bottom and bullish resumption. But while the market holds below 1.3296, a deeper drop to test the October 2015 base at 1.2832 should not be ruled out.

Screen Shot 2016-04-06 at 6.38.50 AM

  • R2 1.3296 – 24Mar high – Strong
  • R1 1.3219 – 5Apr high – Medium
  • S1 1.3068 – 5Apr low – Medium
  • S2 1.3003 – 4Apr low – Strong

USDCAD – fundamental overview

Downbeat IMF Lagarde comments on the outlook for the global economy and a better than expected US ISM non-manufacturing print, were seen as the primary drivers behind this latest bout of strength in USDCAD. However, the market has since pulled back a bit as sentiment recovers and OIL rebounds into Wednesday. Looking ahead, the market will be focused on Canada Ivey PMIs, speeches from Fed Mester and Bullard and the release of the Fed Minutes.

NZDUSD – technical overview

Despite gains over the past several days, the market still remains confined to a broader downtrend with rallies continuing to be very well capped ahead of the key psychological barrier at 0.7000. However, a break back below 0.6668 will be required to strengthen the outlook and expose fresh declines towards next key support at 0.6546 further down. Ultimately, only a weekly close above 0.7000 compromises the bearish outlook.

Screen Shot 2016-04-06 at 6.39.14 AM

  • R2 0.6904 – 4Apr high – Strong
  • R1 0.6835 – 5Apr high – Medium
  • S1 0.6759 – 5Apr low – Medium
  • S2 0.6668 – 28Mar low – Strong

NZDUSD – fundamental overview

The recent pullback in business confidence and NZIER comments that risks were building for a preemptive cut in April have been driving underperformance in the New Zealand Dollar this week. Although the GDT auction produced a positive print, there was little reason to be bidding Kiwi on this release, with the dairy index still tracking near cyclical lows. Looking ahead, Fed Mester and Bullard speeches and the Fed Minutes are the key standouts for the remainder of the day.

US SPX 500 – technical overview

This latest multi-day rally is classified as corrective, with any additional upside expected to be well capped below 2100 on a weekly close basis in favour of the next major downside extension below 1800 and towards a measured move at 1500 further down. Ultimately, only a weekly close back above 2100 will delay the bearish outlook.

Screen Shot 2016-04-06 at 6.39.41 AM

  • R2 2083.00 – 29Dec high – Strong
  • R1 2080.00 – 4Apr/2016 high – Medium
  • S1 2021.00 –24Mar low – Strong
  • S2 2004.00 – 15Mar low – Medium

US SPX 500 – fundamental overview

This latest pullback in risk sentiment has been weighing on stocks this week, with many investors looking to square up longs now that the Yellen dovishness has been priced in. Certainly the recent Fed Rosengren comment warning that the market may be too pessimistic with its Fed rate hike outlook, has done nothing to help stocks, while an IMF Lagarde downbeat assessment on the global economic outlook has further contributed to weakness. The Yen is also back on the bid, pushing to fresh 2016 highs, and any additional upside on that front could put additional stress on an already stretched equity market rally off the February lows. Looking ahead, the key standouts on the calendar are Fed Mester and Bullard speeches and the the release of the Fed Minutes.

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 1191. From here, any setbacks should be well supported ahead of 1191, 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 2016-04-06 at 6.39.58 AM

  • R2 1283.50 – 10Mar/2016 high – Strong
  • R1 1244.10 – 30Mar high – Medium
  • S1 1208.35 – 28Mar low – Medium
  • S2 1191.50 – Previous Resistance – Very Strong

GOLD (SPOT) – fundamental overview

GOLD has been very well supported in recent dips, with the yellow metal finding solid demand in 2016 on the back of fears over the limitations of exhausted monetary policy. Overall, whether the US Dollar is bid or not is becoming less relevant, with risk sentiment likely to be the primary driver. Any weakness on this front will continue to bolster the yellow metal.

Feature – technical overview

USDSGD is finally poised to turn back up after a period of intense correction. Overall, the structure remains constructive, with the most recent dip well supported into the 78.6% fib retrace off the 2015-2016 low to high move at 1.3425. Look for the market to find a meaningful base in the 1.3400s ahead of the next major upside extension. Ultimately, only a weekly close below 1.3400 would compromise the outlook.

Screen Shot 2016-04-06 at 6.40.21 AM

  • R2 1.3650 – Mid-Figure – Medium
  • R1 1.3590 – 5Apr high – Medium
  • S1 1.3425 – 78.6% Fib Retrace – Strong
  • S2 1.3412 – 31Mar/2016 low – Strong

Feature – fundamental overview

Downbeat comments from IMF Lagarde on the global economy and a broad based deterioration in risk sentiment have been weighing on emerging market currencies this week, with the Singapore Dollar hit as a result. Throw in calls from uber dove Fed Evans, calling for two more hikes from the Fed this year and this is further contributing to Singapore Dollar declines, with yield differentials moving back in the Buck’s favour. Looking ahead, we get more Fed speeches, this time from Mester and Bullard, while the Fed Minutes are also due.

Peformance chart: Five day performance v. US dollar

Screen Shot 2016-04-06 at 6.48.44 AM

Wake-up call

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