US GDP Readings, Yellen, and the Long Weekend

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 1.4770 is keeping broader pressure on the downside. Ultimately, the establishment 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.

• R2 1.4816 – 4Jan/2016 high – Strong
• R1 1.4770 – 3May high – Strong
• S1 1.4601– 25May low – Strong
• S2 1.4549 – 23May high – Medium

GBPUSD – fundamental overview

The Pound finally came back under pressure on Thursday after stalling out ahead of major resistance at 1.4770. The combination of softer components in the UK GDP reading, weaker BBA mortgage approvals and overall healthy US data, all factored into declines. Meanwhile, despite the latest surge in support for the remain camp, there is still risk out there and bulls may not want to get too far ahead of themselves until after the referendum. Looking ahead, key standouts on Friday are the second estimate of US GDP, Michigan confidence and a Fed Yellen conversation. It’s worth noting that trade could lighten up quite a bit into the US and UK long holiday weekends.

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

Japan inflation readings came in a little above expectation, though this hasn’t really done much to factor into Friday trade. Instead, it seems the market is taking its cues from headlines out of the G7, with the group committed to a stronger coordinated response to deal with downside global risks, recognizing that excessive and disorderly FX moves have a negative impact on the global economy, and adding that there will be close consultation on FX moves. This seems to be supporting the major pair a bit, though ultimately, it is likely to be broader risk flow and US events that dictate direction for the remainder of the day. Looking ahead, we get the second estimate of US GDP, Michigan confidence and a Fed Yellen conversation. It’s worth noting that trade could lighten up quite a bit into the US long holiday weekend.

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 event of another round of risk liquidation and 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 Dollar has held up well in the latter half of the week, despite softer Aussie capex readings and overall solid data out of the US. Trade is expected to thin out later today as US desks lighten up for the long holiday weekend, though there is still room for plenty of volatility with second estimate of US GDP, Michigan confidence and a Fed Yellen conversation all due.

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 the door for 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 1.3134 – 25May high – Medium
• R1 1.3037 – 26May high – Medium
• S1 1.2911 – 26May low – Medium
• S2 1.2772 – 12May low – Strong

USDCAD – fundamental overview

The Canadian Dollar has been bit up in recent trade on the back of this impressive run in OIL prices, with the commodity finally breaking back above $50 on Thursday. Also helping to support the Loonie a bit this week has been the less dovish Bank of Canada policy decision. However, we have since seen another round of solid US economic releases and a bit of profit taking off the highs in OIL, which has started to weigh a bit on recent Cad gains into the US long holiday weekend. Looking ahead, the key focus for Friday will be on the second estimate of US GDP, Michigan confidence and a Fed Yellen conversation.

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 0.6807 – 23May high – Strong
• R1 0.6773 – 25May high – Medium
• S1 0.6668 – 28Mar low – Strong
• S2 0.6600 – Figure – Medium

NZDUSD – fundamental overview

The New Zealand Dollar has been underperforming this week, with the currency weighed down on news of a lower than expected Fonterra milk payout forecasts, with the dairy giant citing the elevated Kiwi rate as the cause. Also a negative for the currency has been the government’s downgrading of CPI forecasts. All of this increases chances the RBNZ will need to cut rtes when it next meets. However, some of the negative flow has been offset by the upgrade of government growth forecasts and broad based profit taking on US Dollar exposure. More volatility is expected on Friday, with a healthy US calendar featuring the second estimate of US GDP, Michigan confidence and a Fed Yellen conversation. It’s worth noting the long holiday weekend in the US and lightening up of trade into the daily close as US traders head off early for break.

US SPX 500 – technical overview

The market looks to be in the process of carving a major top on the daily chart after stalling out yet again above 2100. Any additional upside is 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 2101.00 – 28Apr 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 should certainly not be comforted by this latest shift in Fed sentiment, with the central bank signaling a clear willingness to move on rates in June if data permits. This should remove incentive to be long stocks, leaving the door open for a more intensified liquidation as the Fed moves further towards policy normalization. Investor’s will be looking for more clarity on Fed policy today, when the Fed Chair sits down with Harvard professor Greg Mankiw. Also out are US GDP readings and Michigan confidence.

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, current 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 1252.40 – 24May high – Strong
• R1 1234.50 – 26May high – Medium
• S1 1211.70 – 27May low – Medium
• S2 1200.00 – Psychological – Strong

GOLD (SPOT) – fundamental overview

GOLD has taken quite a hit this week but ultimately 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 market FX 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 and renewed Fed hawkishness are 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 in the EM space, with the Mexico economy in better shape than its peers and the Banxico expected to hike rates some more this year. But expectations for more aggressive hikes have cooled after central bank Governor Carstens allayed fears of a speculative attack on the Peso, while dismissing the prospect for any surprise rate hikes. US GDP, Michigan confidence and Yellen ahead.