Fed Speak Versus Market Expectation

GBPUSD – technical overview

Although the recent surge through key resistance at 1.4670 may suggest this market is getting ready to carve a more meaningful base, inability to establish a daily close above the level keeps the pressure on the downside. A break back above the previous weekly high at 1.4770 will now be required to force a meaningful shift in the structure and strengthen the case for the formation of a material base. Until then, the structure is still bearish.

• R2 1.4530 – 12May high – Strong
• R1 1.4500 – Psychological – Medium
• S1 1.4375– 9May low – Medium
• S2 1.4300 – 21Apr low – Strong

GBPUSD – fundamental overview

The BOE has come and gone, and in the end, the Pound hasn’t really deviated too far from where it was ahead of the event risk. The BOE delivered a unanimous decision to leave policy on hold as was widely expected. Initial bids were very well capped, especially after talk of Brexit risk filtered its way through. Governor Carney's reminder of recession risk and rate cuts tied to a Brexit, were enough to diffuse any post event risk enthusiasm for the Pound. Still no real surprises and setbacks were also supported, especially after US initial jobless claims and import prices disappointed. But the US Dollar’s broad bid tone on Fed speak, painting a different, less dovish picture than the market is pricing, could open more Sterling weakness in the sessions ahead. As far as today goes, we get UK construction output, US retail sales, US producer prices and Michigan confidence. On the official circuit, BOE Weale and Fed Williams are scheduled to speak.

USDJPY – technical overview

The market has finally entered a healthy period of correction since stalling out a fresh multi-month lows ahead of the major psychological barrier at 105.00. Still, the overall pressure remains on the downside, with a lower top sought out below 111.89 ahead of the next major downside extension towards and below 105.00. Only back above 111.89 would negate and take the pressure off the downside. 

• R2 110.00 – Psychological – Strong
• R1 109.40 –12May high – Medium
• S1 108.23 – 12May low – Medium
• S2 107.50 – 5May high – Strong

USDJPY – fundamental overview

The major pair had seen some initial bids on Thursday, which allowed it to squeak out a fresh recovery high before pulling back on a round of equity weakness and risk off trade from Fed comments suggesting the central bank may be less dovish than the market like to see. Perhaps the softer round of US initial jobless claims and import price data also weighed on the Buck a bit, though mostly, the market was content trading sideways. Looking ahead, we get a batch of data featuring retail sales, producer prices and Michigan confidence. On the official circuit, Fed Williams is slated to speak.

EURCHF – technical overview

Setbacks continue to be very well supported, with the market turning back up in recent trade, clearing key resistance at 1.1062. Look for this latest push back above 1.1062 to strengthen the constructive outlook and accelerate gains towards a retest of the 1.1200 multi-month high from February. Any setbacks should be well supported ahead of 1.0900, while ultimately, only below 1.0800 would compromise the structure.

• R2 1.1200 – 4Feb/2016 high – Strong
• R1 1.1110 – 11May high – Medium
• S1 1.1000 – Psychological – Medium
• S2 1.0955 – 29Apr low – Strong

EURCHF – fundamental overview

Certainly, the Franc has done a good job weakening over the several days, though the price action continues to be suspect, with much of the weakness coming at a time when risk markets are fragile and there is demand for safe haven currencies. This begs the question just how much this latest round of Swiss Franc weakness has come by natural forces and how much has come from SNB efforts to weaken the currency. The SNB remains committed to a policy of weakening the Franc, but it will be interesting to see how the central bank’s efforts fair in the face of further risk liquidation. Thursday’s price action was reflective of this fact, with the market pulling back quite a bit from the weekly high.

AUDUSD – technical overview

Setbacks have extended well off the recent 2016 peak, with the market breaking back below the 100-Day SMA. At this point, the focus has shifted back on the downside, though there is risk for a corrective bounce now that the longer-term moving average has been tested and broken. Still, any rallies should be well capped ahead of 0.7600 in favour of the next downside extension towards the psychological barrier at 0.7000.

• R2 0.7463 – 6May high – Strong
• R1 0.7403 – 11May high – Medium
• S1 0.7286 – 13May low – Medium
• S2 0.7259 – 23Feb high – Strong

AUDUSD – fundamental overview

The Australian Dollar is a relative underperformer over the past few sessions, though there really isn’t all that much to assign to this latest round of weakness other than continued downside pressure from the recent dovish shift in RBA policy. Most of this latest selling has come from medium-term accounts a macro name and algo types. Meanwhile, a New Zealand exporter and model of been hitting the offer in AUDNZD, which is also weighing on this pair into Thursday. Looking ahead, the market will take in a batch of US data including retail sales, producer prices and Michigan confidence. On the official circuit, Fed Williams is slated to speak.

USDCAD – technical overview

The market could finally be in the process of establishing a meaningful base following this latest impressive reversal out from multi-month lows below 1.2500. Look for a daily close back above 1.3000 to help strengthen this outlook and open an acceleration of gains towards next key resistance at 1.3219 further up. Any setbacks from here should ideally be supported ahead of 1.2600.

• R2 1.3016 – 9May high – Strong
• R1 1.2942 – 11May high – Medium
• S1 1.2772 – 12May low – Medium
• S2 1.2697 – 4May low – Strong

USDCAD – fundamental overview

Another solid performance for OIL and a weak round of US economic data in the form of disappointing US initial jobless claims and import prices, failed to offer any meaningful prop to the Canadian Dollar on Thursday. Instead, any Loonie gains were well capped, with the US Dollar looking to regain traction, perhaps on less dovish Fed speak and a pullback in risk assets. Looking ahead, the Canada economic calendar is empty and the focus will be on the US where retail sales, producer prices and Michigan confidence are due along with a Fed Williams speech late in the day.

NZDUSD – technical overview

Despite recent gains to fresh 2016 highs, the market remains confined to a broader downtrend with rallies expected to continue to be well capped. Last week’s topside failure and impressive bearish reversal strengthens this outlook, opening a deeper correction in the sessions ahead. Look for a break back below 0.6716 to strengthen this outlook, exposing a deeper drop towards next key support at 0.6546 in the days ahead. Any rallies should now be well capped ahead of 0.7000.

• R2 0.6891 – 6May high – Strong
• R1 0.6848 – 9May high – Medium
• S1 0.6778 – 10May high – Medium
• S2 0.6716 – 10May low – Strong

NZDUSD – fundamental overview

Kiwi has pulled back into Friday trade, with the current weighed down by a pullback in stocks, less dovish Fed speak and this latest round of softer New Zealand retail sales. The market continues to price additional RBNZ rate cuts this year, and this in conjunction with an RBNZ that is both uncomfortable with an elevated exchange rate and also considering macroprudential measures to cool the housing market, should continue to keep the lid on additional gains going forward. Looking to today’s calendar, we get a batch of US data featuring retail sales, producer pricer and Michigan confidence. On the official circuit, Fed Williams is slated to speak.

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. Look for a break back below 2021 to strengthen this outlook and accelerate declines. Ultimately, only a weekly close above 2100 will delay.

• R2 2112.00 – 20Apr/2016 high – Strong
• R1 2086.00 – 10May high – Medium
• S1 2033.00 –7Apr low – Medium
• S2 2021.00 – 24Mar low – Strong

US SPX 500 – fundamental overview

The stock market is once again looking vulnerable at lofty heights, with the 2016 rally continuing to feel like it has very little behind it. The fact that monetary policy is exhausted on a global scale is not something that should be a comfort to investors. Moreover, there is clearly a debate going on within the Fed and the case for slowing down the normalisation process may not be as much of a done deal as the market is pricing, something that could once again spook investors. But even if the Fed holds off, there is still the issue of this exhausted policy accommodation that ultimately should weigh more heavily on stocks going forward. Looking ahead, we get retail sales, producer prices, Michigan confidence and Fed Williams late in the day.

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, in favour of a higher low and the next major upside extension through medium-term resistance at 1307 and towards 1400 further up. Ultimately, only a weekly close back below 1191 would delay the newly adopted constructive outlook.

• R2 1307.00 – 22Jan/2015 high – Very Strong
• R1 1304.00 – 2May/2016 high – Medium
• S1 1256.90 – 10May low – Medium
• S2 1223.85 – 14Apr low – Strong

GOLD (SPOT) – fundamental overview

Overall, GOLD has been very well supported on dips, with the yellow metal finding solid demand in 2016 on the back of fears over the limitations of exhausted monetary policy and extended global equities. Whether the US Dollar is bid is becoming less relevant, with risk sentiment likely to be the primary driver going forward. Renewed weakness on this front will continue to bolster the yellow metal.

Feature – technical overview

USDSGD finally looks poised to turn back up after a period of intense correction from earlier this year. Overall, the structure remains constructive, with the most recent dip supported ahead of 1.3300. The recent break back above 1.3668 strengthens the outlook and opens a measured move upside extension towards 1.4000 further up. Ultimately, only a weekly close below 1.3300 would give reason for pause.

• R2 1.3883 – 10Mar high – Strong
• R1 1.3800 – Figure – Strong
• S1 1.3645 – 12May low – Medium
• S2 1.3580 – 9May low – Strong

Feature – fundamental overview

A bit of a scare in Singapore after Finmin Heng Swee Keat suffered a stroke during a Cabinet meeting. He has since gone through successful surgery but this has shaken locals a bit with many viewing the official as a viable PM candidate. Overall, scope for additional Singapore Dollar upside should be limited given recent MAS efforts and the prospect the central bank will step in to intervene in an effort to stem a further appreciation in the local currency. Meanwhile, with global equities looking vulnerable at lofty heights, this will put added strain on correlated emerging market FX, which ultimately should invite renewed downside pressure in the Singapore Dollar. Certainly, this week’s round of less dovish Fed comments have not done anything the help the Singapore Dollar’s cause, while ongoing concern over the China outlook is also a major drag on the correlated emerging market currency. US retail sales, producer prices and Michigan confidence ahead, along with a Fed Williams speech late in the day.