Making Sense of Wacky Price Action

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 1.4770 – 3May high – Very Strong
• R1 1.4668 – 4Feb high – Strong
• S1 1.4549– 23May high – Medium
• S2 1.4442 – 23May low – Strong

GBPUSD – fundamental overview

The market continues to price out the risk of Brexit as polls show a more significant lead for the remain camp. This has opened relative outperformance in the Pound, with the UK currency even outpacing a resurgent US Dollar. BOE officials have also offered supportive comments after highlighting an expectation that inflation will turn up. There is a good amount of resistance up into the 1.4700s, with Tuesday’s rally stalling ahead of the figure, perhaps also capped on the better than expected US new home sales and ongoing hawkish Fed speak. Looking ahead, the UK calendar is empty, with only the second tier US advanced goods trade balance standing 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 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 109.11 – 23May low – Medium
• S2 108.72 – 18May low – Strong

USDJPY – fundamental overview

Tuesday’s jump in the US Dollar was not lost on the Yen, with the Japanese currency under pressure on ongoing hawkish Fed speak and strong US new home sales, but also helped along by surging equities. Still, USDJPY gains have been somewhat capped, perhaps on the less dovish BOJ expectations and comments from FinMin Aso that there will be no delays in the Japan’s sales take hike. Looking ahead, the economic calendar is exceptionally thin, with only the second tier US advanced goods trade balance standing out for the remainder of the day.

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 1.1000 to strengthen the constructive outlook and accelerate gains towards a retest of the 1.1200 multi-month high from February. Current 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 1.1130 – 20May 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 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 0.7260 – 23May high – Medium
• S1 0.7145 – 24May low – Medium
• S2 0.7109 – 29Feb low – Strong

AUDUSD – fundamental overview

The Australian is attempting to stabilise, after taking a hit on dovish RBA Stevens comments that inflation was low and below target. This fueled speculation the RBA could very well be looking to easy further, particularly if Q2 CPI comes in soft. Meanwhile, Fed speak has been leaning to the hawkish side, while this latest impressive round of US new home sales only adds additional strain on the commodity currency. Looking ahead, the economic calendar is exceptionally thin, with only the second tier US advanced goods trade balance standing out for the remainder of the day.

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 in the 1.3219-1.3296 area further up. Any setbacks from here should ideally be supported ahead of 1.2772.

• R2 1.3188 – 24May high – Strong
• R1 1.3132 – 25May high – Medium
• S1 1.3050 – Mid-Figure – Medium
• S2 1.3011 – 19May low – Strong

USDCAD – fundamental overview

OIL’s recovery has been a big help to the Canadian Dollar, which has come back under intense pressure over the past several days. The Canadian Dollar has also found additional bids into Wednesday, ahead of the Bank of Canada policy decision, with market participants squaring up on Loonie shorts into the risk. Still, while the Bank of Canada is expected to hold steady on rates, it is also expected to lean more dovish in light of a recent run of softer local data and the fallout from the Alberta wildfires.

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 0.6700 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 0.6848 – 9May high – Strong
• R1 0.6807 – 23May high – Medium
• S1 0.6706 – 24May low – Medium
• S2 0.6668 – 28Mar low – Strong

NZDUSD – fundamental overview

There New Zealand Dollar had come into Wednesday under pressure, with ongoing hawkish Fed speak and solid US data offsetting any demand from an impressive recovery in risk appetite. Yet, the market has found some support today on the back of the better than expected round of New Zealand trade data. Looking ahead, the economic calendar is exceptionally thin, with only the second tier US advanced goods trade balance standing out for the remainder of 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 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 2016 rallies continuing to feel like they have very little behind them. 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 has been backed up by Fed speak and removes incentive to be long stocks, leaving the door open for a more intensified liquidation as the Fed moves further towards normalization.

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 1223.40 – 25May low – Medium
• S2 1200.00 – Psychological – Strong

GOLD (SPOT) – fundamental overview

GOLD is expected to be very well supported into the current dip, 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 almost certainly keep the commodity supported ahead of $1200 and invite fresh upside in the sessions ahead.

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 18.8015 – 21Jan high – Strong
• S1 18.0915 – 16May low – Medium
• S2 17.8660 – 12May low – Strong

Feature – fundamental overview

Quite a reversal of fortune for emerging markets over the past few weeks. Much of the direction in these markets has been dictated by Fed policy. Up until a few weeks ago, the market was more convinced the Fed would be sitting tight on rates. But solid US data, ongoing hawkish Fed speak and this latest Fed Minutes are all suggesting otherwise and the market is starting to pay attention. The prospect of higher US rates is a negative for risk correlated markets like EM, as it makes it less attractive to be betting on these markets, while at the same time, it also makes the yield differentials less enticing. Still there is room for the Peso to outperform amongst other EMs, with the Banxico also expected to hike rates some more this year. The Mexican economy looks better than other EMs and we will get more colour today with the release of trade data.