Reconsidering the Fed’s Timeline

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 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 1.4455 – 13May high – Medium
• S1 1.4300– 21Apr low – Strong
• S2 1.4271 – 19Apr low – Medium

GBPUSD – fundamental overview

The Pound has come back under pressure over the past several days with this latest round of weakness coming on the back of an impressive round of Friday US data including retail sales and Michigan confidence. All of this has the market reconsidering a dovish Fed timeline and the possibility the Fed may move faster on rates than has been expected. Throw in the ramped up rhetoric surrounding the UK referendum and the uncertainty on this front will also likely keep gains well capped for now. Looking ahead, US empire manufacturing and NAHB housing stand out.

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 109.56 –13May high – Medium
• S1 108.23 – 12May low – Medium
• S2 107.50 – 5May high – Strong

USDJPY – fundamental overview

Speculation PM Abe will postpone the planned sales tax hike has helped to prop the major pair early Monday, though this has since been denied by officials. For the most part, this is a market confined to a consolidation at the moment as it keeps an eye on the flow of risk sentiment, equities and the Fed’s timeline trajectory. Looking ahead, US empire manufacturing and NAHB housing are the key standouts.

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. Last Thursday, Friday price action was reflective of this fact, with the market pulling back quite a bit from recovery highs.

AUDUSD – technical overview

Setbacks have extended well off the recent 2016 peak, with the market breaking back below the 200-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 0.7403 – 11May high – Strong
• R1 0.7324 – 13May high – Medium
• S1 0.7249 – 16May low – Strong
• S2 0.7200 – Figure – Medium

AUDUSD – fundamental overview

The Australian Dollar has done a good job recovering off early Monday lows, after taking an initial hit in reaction to the softer round of China data. But overall, this is a market that is exposed to the recent dovish RBA shift and ongoing prospect of a more significant deterioration in global risk sentiment. Throw in Friday’s impressive US data and this only adds to the bearish case for the Australian Dollar, with yield differentials moving back in the Buck’s favour as the possibility of a sooner Fed rate hike increases. Looking ahead, US empire manufacturing and NAHB housing stand out.

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 1.2963 – 16May high – Medium
• S1 1.2836 – 13May low – Medium
• S2 1.2772 – 12May low – Strong

USDCAD – fundamental overview

Although the price of OIL has managed to hold up well, the Canadian Dollar has come back under pressure in recent days on the combination of softer Canada data, more hawkish Fed speak and impressive US leads. Friday’s solid US retail sales and Michigan confidence did a good job of weakening the Loonie and dealers are now citing solid buy stops in USDCAD above 1.3025. Looking ahead, Canada existing home sales are accompanied by US empire manufacturing and NAHB housing.

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. The recent 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 expose next key support at 0.6546 in the days ahead. Any rallies should now be well capped ahead of 0.7000.

• R2 0.6848 – 12May high – Strong
• R1 0.6831 – 13May high – Medium
• S1 0.6747 – 16May low – Medium
• S2 0.6716 – 10May low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has come back under pressure in recent trade on the combination of solid US economic data, more hawkish Fed speak and a concurrent pullback in risk sentiment and equities. Interestingly, Kiwi has held up rather well in the face of the discouraging weekend China data, though offers are sitting into rallies, with this latest strong US retail sales and Michigan confidence data to put more pressure on the Fed to think about raising rates this year. Looking ahead, US empire manufacturing and NAHB housing are due.

US SPX 500 – technical overview

The market looks to be in the process of carving the right shoulder of a head & shoulders top on the daily chart. Any additional upside expected to be well capped below 2100 in favour of the next major downside extension. Look for a break back below 2021 to strengthen this outlook and accelerate declines towards a measured move in the 1930 area.

• R2 2112.00 – 20Apr/2016 high – Strong
• R1 2086.00 – 10May high – Medium
• S1 2036.00 –5May 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. Certainly Friday’s solid round of US retail sales and Michigan confidence data only puts more pressure on the Fed to hike rates this year. Meanwhile, the weekend batch of China data was unimpressive and could invite more risk off flow in the sessions ahead.

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

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 latest round of solid US economic data, highlighted by retail sales and Michigan confidence have done nothing to help the EM currency’s cause, while the softer weekend China data only adds further fuel to the case to short the Singapore Dollar.