Plenty of Distraction Ahead of ECB, ADP

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 for another drop towards 1.4000. Next key support comes in at 1.4333.

• R2 1.4588 – 30May low – Medium
• R1 1.4508 – 1Jun high – Strong
• S1 1.4386– 1Jun low – Medium
• S2 1.4333 – 16May low – Strong

GBPUSD – fundamental overview

Wednesday’s better than expected UK manufacturing PMIs were completely shrugged off, with the market much more focused on the UK referendum just three weeks out. The tide has shifted back in the leave camp’s favour this week and this is having a weighing influence on the Pound, with the UK currency emerging as a relative underperformer on the news. Looking ahead, we get UK construction PMIs, the ECB decision, US ADP employment and initial jobless claims. But the market will continue to prioritize Brexit risk for the time being.

USDJPY – technical overview

Overall, the pressure still remains on the downside after the market recently stalled out ahead of the previous lower top at 111.89. A fresh lower top is now potentially in place at 111.45 ahead of the next major downside extension through 105.55. Ultimately, only back above 111.89 would negate and take the pressure off the downside.

• R2 110.50 – 31May low – Medium
• R1 109.58 –2Jun high – Medium
• S1 108.72 – 18May low – Medium
• S2 108.23 – 12May low – Strong

USDJPY – fundamental overview

BOJ Sato’s bold and scathing critique of negative interest rate policy has caught the market’s attention, with the USDJPY rate coming back under intense pressure. Sato has been an opponent of the implementation of negative rates and believes the BOJ should adopt a policy framework more suited for a longer battle to defeat deflation. The comments remind market participants of the clear debate on the effectiveness of BOJ strategy, while at the same time, also stoke concern the central bank will hold off on additional easing measures for now. Looking ahead, we get volatility from the ECB policy decision, US ADP employment and US initial jobless claims.

EURCHF – technical overview

Setbacks continue to be very well supported, with the market putting in a series of higher lows and higher highs. Look for this most recent push back above 1.1100 to strengthen the constructive outlook and open the door for the next set of gains towards a retest of the 1.1200 yearly and 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 1.1130 – 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 weeks, 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 this 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 0.7367 – 17May high – Strong
• R1 0.7299 – 1Jun high – Medium
• S1 0.7200 – Figure – Medium
• S2 0.7145 – 24May low – Strong

AUDUSD – fundamental overview

A mixed round of data out of Australia early Thursday, with retail sales coming in a tad softer, while trade was narrower than expected. This has left the commodity currency deferring to some consolidation ahead of the next round of volatility today from the ECB policy decision, US ADP employment and US initial jobless claims.

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 1.3189 – 24May high – Strong
• R1 1.3135 – 31May high – Medium
• S1 1.2967 – 27May low – Medium
• S2 1.2911 – 26May low – Strong

USDCAD – fundamental overview

There has been chatter of OPEC considering the implementation of a new output cap on the price of OIL at today’s meeting, and this has kept the commodity well supported into Thursday, with the correlated Canadian Dollar benefitting a bit from the news. Still, with Fed expectations having shifted to the hawkish side and with the central bank seriously considering a rate hike this summer, the prospect of higher rates and a more pronounced widening in yield differentials is offsetting much of the Canadian Dollar demand on well supported OIL prices. Looking ahead, expect volatility from the ECB policy decision, while on the data front, we get US ADP employment and initial jobless claims.

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 drop towards next key support at 0.6546, which guards against the 2016 low at 0.6347 further down. Any rallies should now be well capped ahead of 0.6900.

• R2 0.6891 – 6May high – Medium
• R1 0.6848 – 12May high – Strong
• S1 0.6760 – 1Jun low – Medium
• S2 0.6675 – 30May low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar stands out as the strongest developed currency over the past week, with Kiwi extending gains into Thursday following the improved GDT auction results. However, the 1.7% decline in the price of whole milk powder should not be ignored and definitely takes away from the headline result. The RBNZ isn’t going to be happy with this latest Kiwi outperformance, which could push the central bank to either cut rates or lean exceptionally dovish when it meets in the coming days. Looking ahead, expect volatility from the ECB policy decision, while on the data front, we get US ADP employment and initial jobless claims.

US SPX 500 – technical overview

The prospect for the formation of an imminent top has faded, with the price rallying back above critical psychological resistance at 2100. If the market can now break back above the 2016 peak at 2112, this will open the door for a direct retest of the record high from 2015 at 2037. However, inability to establish a daily close above 2112, could warn of another topside failure and bearish reversal.

• R2 2133.00 – 20Jul 2015/Record – Very Strong
• R1 2112.00 – 20Apr/2016 high – Strong
• S1 2085.00 –1Jun low – Medium
• S2 2076.00 – 25May low– 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 the months ahead 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. Looking ahead, we get US ADP employment and initial jobless claims.

GOLD (SPOT) – technical overview

The market has undergone an intense round of setbacks since stalling out just shy of the 2015 peak above 1300. Still, while the price holds above 1191 on a daily close basis, the overall structure remains constructive, with scope for the formation of the next medium term base ahead of a resumption of gains back through 1300 and towards 1400 further up.

• R2 1252.40 – 24May high – Strong
• R1 1234.50 – 26May high – Medium
• S1 1200.00 – Psychological – Medium
• S2 1191.70 – Previous Resistance – Strong

GOLD (SPOT) – fundamental overview

GOLD has taken quite a hit over the past several days but ultimately is expected to be very well supported into the current dip, with the yellow metal finding solid demand form medium-term players 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 $1180 and invite fresh upside in the sessions ahead. Dealers report buy-stops above $1230.

Feature – technical overview

USDTRY remains exceptionally well supported on dips, with the latest round of setbacks propped ahead of 2.9200. From here, look for a higher low at 2.9250 in favour of the next major upside extension through 3.0120 and back towards a retest of the 2016 high from January at 3.0610. Ultimately, only a break back below 2.9250 would delay the constructive outlook.

• R2 3.0610 – 20Jan 2016 high – Very Strong
• R1 3.0120 – 24May high – Strong
• S1 2.9250 – 26May low – Strong
• S2 2.8960 – 5May low – Strong

Feature – fundamental overview

Turkey is coming off a bad month, with the local equity market getting slammed about 8% and putting in its worst performance since January 2014. This was the biggest slide for an equity market amongst all of the benchmarks tracked at Bloomberg. Meanwhile, the Lira also took a nice hit in May, down about 5% and coming in as one of the softest currencies on the month. The political uncertainty in Turkey has been driving the relative weakness, following the resignation of Prime Minister Davutoglu and attempts by President Erdogan to tighten up his power grip. Meanwhile, the hawkish shift in Fed expectations and possibility for a sooner hike has also factored into Lira weakness. More policy divergence talk into Thursday after Turkish economic minister Zeybecki said the goal was to cut rates as much as possible. This adds to an already strained relationship between the government and CBRT.