How Legitimate is the Latest USD Run?

GBPUSD – technical overview

Although the recent surge may suggest this market is getting ready to carve a more meaningful base, inability to establish a daily close above 1.4670 is keeping broader pressure on the downside. Ultimately, 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 remains bearish, with scope another topside failure ahead of renewed declines towards 1.4000.

• R2 1.4668 – 4Feb high – Strong
• R1 1.4614 – 20May high – Medium
• S1 1.4488– 23May low – Medium
• S2 1.4455 – 13May high – Strong

GBPUSD – fundamental overview

While the more hawkish leanings of the Fed have been influencing direction, with the Pound offered into rallies, most of the flow here has been more sensitive to Brexit risk and the UK referendum. We had seen the remain camp gain good ground last week, which opened a nice pop in Cable, before Friday’s news of a new poll putting the ‘leavers’ back in the lead offset a good portion of gains. Looking ahead, the economic calendar is exceptionally thin with no data out of the UK and only second tier US manufacturing PMIs standing out. On the official circuit, we get speeches from Fed’s Bullard and Williams.

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 111.00 – Figure – Medium
• R1 110.59 –20May high – Strong
• S1 109.00 – Figure – Medium
• S2 108.72 – 18May low – Strong

USDJPY – fundamental overview

Japan’s disappointing April export and import data is having an impact on the market, with USDJPY tracking lower in response given the negative risk implication. The drop in the Nikkei in the aftermath of the report has been the big influence on the Yen and the major pair is expected to continue to track along with risk flow in the early week, particularly with very little on the economic calendar. Today we get second tier US manufacturing PMIs and Fed speak from Bullard and Williams.

EURCHF – technical overview

Setbacks continue to be very well supported, with the market turning back up in recent trade, clearing key resistance at 1.1000. Look for this latest push back above 1.1100 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 1.1150 – Mid-Figure – 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 past several days, though the price action continues to be suspect, with much of the weakness coming at a time when risk markets are more 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 and a more hawkish leaning Federal Reserve.

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 0.7500 in favour of additional declines, potentially back towards the 2016 base at 0.6827.

• R2 0.7332 – 18May high – Strong
• R1 0.7300 – Figure – Medium
• S1 0.7176 – 19May low – Medium
• S2 0.7109 – 29Feb low – Strong

AUDUSD – fundamental overview

G7 warnings of slower economic growth over the weekend should keep any rallies in the risk correlated Australian Dollar well capped. Overall, risks are tilted to the downside, with the RBA still needing to proceed with caution and err on the dovish side, while at the same time, the Fed is pushing in the opposite direction. Ongoing concerns over the China outlook are also a threat to the correlated Aussie, but for now, the market has settled in a bit. Looking ahead, the calendar is exceptionally light to start the week, with only second tier US manufacturing PMIs due. On the official circuit, Fed Bullard and Williams are 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. The recent break back above 1.3000 strengthens this outlook and opens an acceleration of gains towards next key resistance at 1.3219 further up. Any setbacks from here should ideally be supported ahead of 1.2772.

• R2 1.3219 – 5Apr high – Strong
• R1 1.3163 – 20May high – Medium
• S1 1.3011 – 19May low – Medium
• S2 1.2895 – 18May low – Strong

USDCAD – fundamental overview

The Canadian Dollar continues to extend declines off recent highs, with the market taking its latest round of hits from a pullback in the price of OIL and Friday’s weaker than expected Canada retail sales print. We have been seeing a more unimpressive round of Canada economic data these past couple of weeks and it will be interesting to see if this factors into the BoC decision on Wednesday. In the interim, the economic calendar is exceptionally thin, with no Canada data on Monday and only second tier US data due in the form of manufacturing PMIs. On the official circuit, we get speeches from Fed’s Bullard and Williams.

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 latest topside failure and impressive bearish reversal strengthens this outlook, opening a deeper correction in the sessions ahead. Look for a daily close below 0.6710 to strengthen the outlook, exposing next key support at 0.6546 further down. Any rallies should now be well capped ahead of 0.7000.

• R2 0.6900 – Figure – Medium
• R1 0.6848 – 9May high – Strong
• S1 0.6756 – 23May low – Medium
• S2 0.6710 – 19May low – Strong

NZDUSD – fundamental overview

Overall, the New Zealand Dollar has done a good job absorbing setbacks in the face of last week’s hawkish Fed Minutes showing the central bank’s willingness to move on rates in June if data warranted. Still, there are plenty of offers reported into rallies, with the RBNZ contending with super subdued inflation and forced to consider additional easing this year. The G7 has also come out over the weekend warning of a slowdown in global growth. Looking ahead, the economic calendar is exceptionally thin for the remainder of the day, with only US manufacturing PMIs due. On the official circuit, we get speeches from Fed’s Bullard and Williams.

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 2021.00 –24May low – Strong
• S2 2000.00 – Psychological – 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, investors are certainly not comforted by the fact that this latest Fed Minutes release has come out on the hawkish side, with the central bank signaling a willingness to move on rates in June if data permits. This will remove incentive to be long stocks and could open the door for a more intensified liquidation as the Fed moves further towards normalization. Looking ahead, the US economic calendar is light, with the more important data stacked in the latter half of the week. In the interim, look for Fed speak and broader flow to dictate trade. Fed’s Bullard and Williams are on the wires today.

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 above 1200, 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 constructive outlook.

• R2 1307.00 – 22Jan/2015 high – Very Strong
• R1 1304.00 – 2May/2016 high – Medium
• S1 1243.90 – 19May 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

USDMXN finally in the process of turning back up after a period of intense correction. The recent break back above 17.9520 strengthens the outlook and opens a measured move upside extension coinciding with next key resistance at 18.9745. Any setbacks should now be well supported ahead of 17.9520, while ultimately, only a weekly close below 17.0500 would give reason for pause.

• R2 18.9745 – 15Feb high – Strong
• R1 18.6000 – 19May high – Strong
• S1 18.0915 – 16May low – Medium
• S2 17.8660 – 12May low – Strong

Feature – fundamental overview

The Mexican Peso has done a good job recovering from last week’s hawkish Fed Minutes low, with the emerging market currency perhaps helped along by this latest as expected Mexico GDP print. The Banxico has also been talking more hawkish, as it believes it has the ability to hike rates some more without compromising growth. The market is now pricing a 25bp hike in June and a total of 65bps of hikes between now and year end. More colour on the Banxico policy outlook will be given on Wednesday, with the release of the quarterly inflation report. In the interim, broader risk flow is expected to dictate trade.