Fed Outlook, Yen Direction and Brexit Risk

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 1.4000 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 1.4515 would be required to take the immediate pressure off the downside.

• R2 1.4171 – 6Apr high – Strong
• R1 1.4157 – 7Apr high – Medium
• S1 1.4041 – 8Apr low – Medium
• S2 1.4005 – 6Apr low – Strong

GBPUSD – fundamental overview

Brexit risk continues to run high in the UK, with the most recent polls showing the two camps evenly split. This has been a major weight on the Pound over the past several weeks and is expected to continue to keep rallies well capped ahead of the June referendum. Still, we have seen setbacks supported into 1.4000, with the beleaguered Pound finding some relief from broad based US Dollar selling on dovish Fed Dudley comments. Looking ahead, the economic calendar for Monday is exceptionally thin and won’t factor into price action.

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. Last week’s daily close below 110.00 strengthens this prospect, with any rallies now seen well capped ahead of 112.00. But ultimately, only back above 115.00 would force a shift in the structure and take the pressure off the downside.

• R2 109.91 – 7Apr high – Strong
• R1 109.10 – 8Apr high – Medium
• S1 107.63 –11Apr/2016 low – Medium
• S2 107.00 – Figure – Strong

USDJPY – fundamental overview

The combination of dovish Fed Dudley comments this past Friday, along with diminished expectation the BOJ will do anything to respond to this latest wave of Yen appreciation, are furtherer contributing to this Yen rally to fresh multi-month highs. Ex-BOJ member Shirai has said there’s little room for cutting negative rates and the central bank shouldn’t add stimulus when it meets at the end of the month. Meanwhile, renewed downside pressure in equity markets is also fueling Yen demand on the currency’s traditional correlation with safety bids. The latest CFTC data now shows net long Yen positions at the highest levels since March 2008. Looking ahead, the economic calendar for Monday is exceptionally thin and won’t factor into price action.

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.

• R2 1.1024 – 17Feb high – Strong
• R1 1.0955 – 31Mar high – Medium
• S1 1.0844 – 7Apr low – Medium
• S2 1.0810 – 29Feb/2016 low – Strong

EURCHF – fundamental overview

The SNB’s job has been easier of late, with the EURCHF rate stable despite warnings of 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.

• R2 0.7678 – 4Apr high – Strong
• R1 0.7638 – 7Apr high – Medium
• S1 0.7492 – 7Apr low – Medium
• S2 0.7477 – 24Mar low – Strong

AUDUSD – fundamental overview

Setbacks in the Australian Dollar have been supported into this latest dip, with dovish Fed Dudley comments that the Fed needs to continue to be cautious, helping to fuel broad based currency gains against the Buck. But overall, there have been signs of a top carving, with the market potentially weighed on risk off flow and downside pressure in equity markets. Looking ahead, the economic calendar for Monday is exceptionally thin and won’t factor into price action.

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 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.

• R2 1.3296 – 24Mar high – Strong
• R1 1.3219 – 5Apr high – Medium
• S1 1.2952 – 8Apr low – Medium
• S2 1.2858 – 31Mar low – Strong

USDCAD – fundamental overview

The Canadian Dollar has been bid back up in recent trade, with the Loonie benefitting from a confluence of drivers. On Friday, Canada employment came in well above expectation, while Fed Dudley was out with dovish comments. Meanwhile, news of a fall in Russian OIL output helped to drive the commodity significantly higher on the day. Looking ahead, the economic calendar for Monday is exceptionally thin and won’t factor into price action.

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.

• R2 0.6904 – 4Apr high – Strong
• R1 0.6863 – 7Apr high – Medium
• S1 0.6759 – 5Apr low – Medium
• S2 0.6668 – 28Mar low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has come under renewed pressure after recently trading to fresh 2016 highs, with the combination of last week’s dovish RBNZ Deputy Governor Bascand comments and a downturn in global equities weighing on the currency. Setbacks have been somewhat supported for now on dovish Fed comments, though with RBNZ officials expected to jawbone the higher Kiwi rate at current levels, additional upside should be limited. Looking ahead, the economic calendar for Monday is exceptionally thin and won’t factor into price action.

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.

• 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

There is clearly a debate going on within the Fed and the case for slowing down the normalisation process is not as clear cut as the market may be pricing. Investors did not like the more upbeat comments from the Fed Chair late Thursday, with Yellen saying the economy could handle further rate hikes. Moreover, the fact that monetary policy is exhausted on a global scale is not something that should be a comfort to stocks trading relatively close to 2015 record highs. Still, we continue to get comments from the other side, with Friday’s dovish Dudley remarks helping to support stocks a bit and offset some of this more recent hawkish speak.

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.

• R2 1283.50 – 10Mar/2016 high – Strong
• R1 1260.15 – 22Mar 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

USDMXN finally looks poised to turn back up after a period of intense correction off the record high from earlier this year. Overall, the structure remains constructive, with the most recent dip well supported ahead of 17.0000. Look for a break and close back above 18.0000 over the coming sessions to strengthen the outlook. Ultimately, only a weekly close below 17.0000 would give reason for pause.

• R2 18.3940 – 18Feb high – Strong
• R1 17.9900 – 16Mar high – Medium
• S1 17.5940 – 7Apr low – Strong
• S2 17.0945 – 31Mar/2016 low – Strong

Feature – fundamental overview

Although the swaps market is still pricing two more Banxico rate hikes between now and year end, there is increasing risk market participants will scale back from this more hawkish pricing. The global outlook is shaky, the local economy is still struggling and Mexican inflation has been rather tame. All of this would be supportive of a more cautious Banxico going forward, which ultimately, should weigh more heavily on the Peso.