The Fed Outlook and ‘If Data Permits’

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

The combination of solid Thursday US employment data in the form of ADP and initial jobless claims, and ongoing momentum back in favour of the leave camp in the EU referendum, have opened more downside pressure in the Pound, which stands out as an underperformer over the past week. Looking at today’s calendar, some of the releases include UK services PMIs, US ISM non-manufacturing and US factory orders. But all of this will take on a supporting role to Brexit headlines and the highly anticipated monthly employment report out of the US.

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 108.22 – 2Jun low – Medium
• S2 108.23 – 12May low – Strong

USDJPY – fundamental overview

The Yen was the biggest mover on Thursday, extending gains from previous sessions and up just under 1% against the Buck. It seems the combination of the sales tax hike delay, critique from BOJ Sato over the effectiveness of negative interest rate policy and some risk off flow all contributed to the demand. The Yen move was also turning heads against other currencies, with both EURJPY and CHFJPY breaking down to fresh 2016 lows on Thursday. Looking at today’s calendar, some of the releases include US ISM non-manufacturing and US factory orders. But these releases will take on a supporting role to the highly anticipated monthly employment report out of the US.

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, with the price action well received by an SNB looking to maintain a weaker currency. Overall, 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 0.7201 – 2Jun low – Medium
• S2 0.7145 – 24May low – Strong

AUDUSD – fundamental overview

Economic data out from Australia this week has been solid, with GDP and trade both exceeding expectation. And yet, the Australian Dollar has struggled to recover, with broader market flows keeping the commodity currency weighed down. It seems the prospect of a Fed rate hike over the coming weeks is what is ultimately driving trade, with this expectation narrowing yield differentials in the US Dollar’s favour. Looking at today’s calendar, some of the releases include US ISM non-manufacturing and US factory orders. But these releases will take on a supporting role to the highly anticipated monthly employment report out of the US.

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 1.3144 – 2Jun high – Medium
• S1 1.3017 – 31May low – Medium
• S2 1.2967 – 27May low – Strong

USDCAD – fundamental overview

The Canadian Dollar extended declines on Thursday, albeit marginally, with the currency dragged lower on the better than expected US ADP and initial jobless claims data and a pullback in OIL after OPEC failed to produce a production cut deal. Looking at today’s calendar, some of the releases include Canada trade and labour productivity, US ISM non-manufacturing and US factory orders. But all of this will take on a supporting role to the more highly anticipated monthly employment report out of the US.

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 Friday following the improved GDT auction results. However, 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 next Thursday. Looking at today’s calendar, some of the releases include US ISM non-manufacturing and US factory orders. But these releases will take on a supporting role to the highly anticipated monthly employment report out of the US.

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. And so, if today’s highly anticipated US employment report out of the US comes in at or better than expected, this should remove incentive to be long stocks, leaving the door open for an intensified liquidation as the Fed moves further towards policy normalization.

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

Politics in Turkey have been driving relative weakness in the Lira. The recent resignation of Prime Minister Davutoglu has allowed more room for President Erdogan to tighten up his power grip on the CBRT. Erdogan has been pressuring the CBRT to worry less about price stability and focus more on lowering rates in an effort to help stimulate jobs and growth. Meanwhile, the hawkish shift in Fed expectations and possibility for a sooner hike has also factored into Lira weakness. Looking ahead, today’s monthly employment report out of the US will be watched closely for broader implications on the Lira and other emerging market currencies.