Will the Fed Minutes Finally Jolt the Market?

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, with scope for deeper setbacks.

• R2 1.4572 – 4May high – Strong
• R1 1.4531 – 12May high – Medium
• S1 1.4397– 17May low – Medium
• S2 1.4333 – 16May low – Strong

GBPUSD – fundamental overview

Tuesday’s early surge in the Pound, seemingly on the back of an encouraging poll in favour of the ‘remain’ camp, wasn’t able to sustain itself, with the UK currency giving back a good chunk of these gains. The combination of softer UK CPI readings and hotter US CPI, along with more hawkish Fed speak, proved to be more than enough to inspire this latest retreat. Looking ahead, UK employment stands out in the earlier part of the day, while later on, attention will shift to the release of the Fed Minutes.

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 through 105.00. Only back above 111.89 would negate and take the pressure off the downside. 

• R2 110.00 – Psychological – Strong
• R1 109.65 –17May high – Medium
• S1 108.23 – 12May low – Medium
• S2 107.50 – 5May high – Strong

USDJPY – fundamental overview

The Yen is trying to figure out how to respond to this latest better than expected Japan GDP print. While there were some concerning components within the data, as highlighted by a slowing GDP deflator and pullback in capex, overall, the fact that the data managed to come in on the stronger side, allowing the economy to avert recession, could take pressure off the BOJ to add additional stimulus in the months ahead. Still, liquidity conditions have been exceptionally thin of late and the Yen hasn’t really gone anywhere at all. Perhaps today’s release of the Fed Minutes will finally get things moving after several sessions of directionless trade.

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 1.1016 – 13May low – 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.

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 decent corrective bounce or period of consolidation 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 0.7367 – 17May high – Medium
• S1 0.7249 – 16May low – Strong
• S2 0.7200 – Figure – Medium

AUDUSD – fundamental overview

All of the  Aussie gains from the less dovish Tuesday RBA Minutes have been given back, with the commodity currency weighed down initially after a hotter US CPI reading and more hawkish Fed speak, and then accelerating after the early Wednesday softer Aussie wage data. This puts expectations for additional RBA cuts back on the table, exposing the currency to more downside going forward. Softness in equities markets also hasn’t helped the correlated Australian Dollar’s cause and attention will now shift to the late Wednesday release of the Fed Minutes, quite capable of inspiring additional volatility.

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 1.2838 – 17May low – Medium
• S2 1.2772 – 12May low – Strong

USDCAD – fundamental overview

Although Canada manufacturing sales came in better than expected, they were still well in negative territory. This in conjunction with hotter US CPI, more hawkish Fed speak and a lower equities, all kept the Loonie under pressure and lower into Wednesday. Still, weakness in the Canadian Dollar has been somewhat mitigated by the ongoing rally in OIL prices to multi-month highs. Looking ahead, we get Canada international securities transaction, followed by the more highly anticipated Fed Minutes.

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. Any rallies should now be well capped ahead of 0.7000.

• R2 0.6891 – 6May high – Medium
• R1 0.6848 – 9May high – Strong
• S1 0.6747 – 16May low – Medium
• S2 0.6716 – 10May low – Strong

NZDUSD – fundamental overview

Any Kiwi positives from this week’s pickup in RBNZ inflation expectations have now been offset with the early Wednesday release of softer producer prices and output. Once again, the data suggests the RBNZ will be in a position to make additional rate cuts this year, something that could very well weigh more heavily on the Kiwi rate going forward. Certainly Tuesday’s hotter US CPI readings, hawkish Fed speak and lower equities, have also contributed to the latest declines. Looking ahead, the key focus will be on the release of the Fed Minutes late in the day.

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. Tuesday’s hawkish Fed speak and hotter CPI readings only add to this argument. And even if the Fed does off, there is still the issue of this exhausted policy accommodation that ultimately should weigh more heavily on stocks going forward. Looking ahead, the market’s focus will be on today’s Fed Minutes release. Any indication the central bank is still open to a June hike could open more downside pressure on stocks.

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 1.3737 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. Moreover, with risk markets looking shaky and US economic data increasingly supporting the case for additional Fed rate hikes, the outlook for the US Dollar remains highly constructive. Many Fed officials are still open to the possibility of a June rate hike and more colour will be offered today with the release of the Fed Minutes.