Risk On and Red Flags

GBPUSD – technical overview

The drop below the previous multi-year base from earlier this year at 1.3836 has accelerated declines to +30 year lows. At this point, technical studies are extended, though the focus is now on next major psychological support at 1.3000. Any rallies should be well capped into the previous base 1.3836 base and ahead of 1.4000. A daily close back above 1.4000 will now be required to alleviate immediate downside pressure.

• R2 1.3836 – Previous Base – Strong
• R1 1.3533 – 29Jun high – Medium
• S1 1.3287– 29Jun low – Medium
• S2 1.3120 – 27Jun/+30 year low – Strong

GBPUSD – fundamental overview

The market’s realization that Article 50 won’t be triggered any time soon, has taken some of the momentum out of the Sterling short play, with the UK currency rallying nicely in Wednesday trade. Leveraged accounts have been amongst the names actively covering short exposure, though macro names have been reported on the offer in the 1.3500 to 1.3700 area. Looking ahead, Brexit headlines and developments will continue to dictate flow, while on the data front, UK GDP and US initial jobless claims are the key standouts.

USDJPY – technical overview

The downtrend remains firmly intact with the market collapsing to fresh 2016 lows below critical psychological barriers at 100.00, exposing next key medium-term support in the form of the June 2013 base at 93.80. Daily studies are however unwinding from oversold territory, which could warn of some form of a correction and period of consolidation before the market considers any additional meaningful declines. Still, any rallies should now be well capped below 106.00.

• R2 106.81 – 24Jun high – Strong
• R1 103.55 – Previous Base – Medium
• S1 101.40 – 27Jun low – Medium
• S2 98.99 – 24Jun/2016 low – Strong

USDJPY – fundamental overview

Though there is still plenty of risk on the table associated with Brexit, the market has opted to put in a few sessions of recovery since the shocking UK vote. This has coincided with broader risk on flow as the market becomes less concerned with the fallout from Brexit (at least for the minute). It seems supportive comments from PM Abe and BOJ Kuroda have also propped the major pair, with both officials reminding markets of Japan’s ability to intervene if necessary. But this recovery can just as easily be assigned to healthy corrective price action before the market once again finds renewed offers taking it to fresh lows. Looking at the economic calendar, softer Japan industrial production has been shrugged off and attention shits to US initial jobless claims later in the day.

EURCHF – technical overview

Dips continue to be very well supported despite last week’s intense decline, with the market unable to establish a daily close below 1.0700. From here, there is risk for a more meaningful bounce that extends back to the range highs in the 1.1130 to 1.1200 area. Only a daily close below 1.0700 negates.

• R2 1.1013 – 24Jun high – Strong
• R1 1.0923 – 13Jun high – Medium
• S1 1.0770 – 28Jun low – Medium
• S2 1.0623 – 24Jun/2016 low – Strong

EURCHF – fundamental overview

The cross rate has done a good job absorbing this latest wave of unwanted inflow into the Franc post Brexit. The unsettling Brexit development had invited a massive round of Franc demand, putting the SNB in the uncomfortable position of needing to step in to intervene on behalf of the overvalued currency. The market has since stabilized but things will get more intense if sentiment turns back down. As we look forward, Brexit headlines will continue to dictate flow.

AUDUSD – technical overview

The latest topside failure suggests the market is looking to carve a lower top below the 2016 high at 0.7835, in favour of the next major downside extension. Look for a break below 0.7145 to confirm the 0.7647 lower top, opening the door for an acceleration towards the 2016 low at 0.6827 further down. A daily close above 0.7500 would be required to alleviate immediate downside pressure.

• R2 0.7526 – 22Jun high – Strong
• R1 0.7491 – 23Jun low – Medium
• S1 0.7381 – 29Jun low – Medium
• S2 0.7305 – 24Jun low – Strong

AUDUSD – fundamental overview

Second tier economic data in the form of Aussie job vacancies and private sector credit haven’t really factored into trade on Thursday, with the market far more comfortable tying its fate to risk flow. Wednesday’s impressive recovery in risk sentiment on the back of diminished worry post Brexit helped to inspire a nice recovery in the Australian Dollar. But there are signs of this risk on rally fizzling out, which is expected to keep the commodity currency well capped into this rally. Looking ahead, risk sentiment will continue to dictate direction, while on the data front, only US initial jobless claims stands out.

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. A higher low looks to be carving at 1.2655 with a break back above 1.3189 to confirm the higher low and basing outlook, opening an acceleration of gains towards 1.3500 further up. Only back below 1.2655 negates.

• R2 1.3296 – 24Mar high – Strong
• R1 1.3189 – 24May high – Strong
• S1 1.2861 – 20Jun high – Medium
• S2 1.2655 – 8Jun low – Strong

USDCAD – fundamental overview

Worry over a Norwegian OIL worker strike has been one of the drivers behind this latest impressive recovery in the price of OIL. This of course has helped fuel Loonie gains along with the broader recovery in risk sentiment on diminished Brexit fears. Looking ahead, risk sentiment flow and OIL prices will continue to play an important role in the Loonie’s direction, though economic data should also not be overlooked on Thursday. Key releases for the day include Canada GDP and US initial jobless claims.

NZDUSD – technical overview

The rally to fresh 2016 highs has stalled out, with the market sharply reversing course after trading up just shy of 0.7300 this past Friday, putting in an intense bearish outside day formation. From here, look for a daily close below 0.6963 to officially confirm the bearish shift and open a further drop to next key support at 0.6675 further down.

• R2 0.7297 – 24Jun/2016 high – Strong
• R1 0.7148 – 9Jun high – Medium
• S1 0.6963 – 15Jun low– Strong
• S2 0.6893 – 7Jun low – Medium

NZDUSD – fundamental overview

Some mixed data out of New Zealand on Thursday with business confidence and the activity outlook coming in above previous, while building permits sorely disappointed. But most of the price action in the risk correlated currency has been a function of the market’s attitude towards Brexit, with diminished fear from the fallout of this event helping to support the Kiwi rate. Still, with the RBNZ unlikely to be welcoming of a higher New Zealand Dollar and with many unanswered questions out there over the fate of the UK and potential for a serious systemic threat to the global economy, any additional Kiwi upside could very well be limited. As far as August rate expectations go, the market is pricing just over a 50% chance the RBNZ will move to cut. Looking ahead, US initial jobless claims is the only notable standout on the calendar for the remainder of the day.

US SPX 500 – technical overview

The latest intense drop back below critical support at 2020 officially puts the pressure on the downside, opening more pronounced declines over the coming sessions. Last Friday’s failure to clear the record high from 2015, followed by the sharp pullback below 2020 now opens the door for a deeper drop to the 2016 base at 1808 in the days and weeks ahead. Any rallies from here should be very well capped ahead of 2100.

• R2 2128.00 – 24Jun/2016 high – Strong
• R1 2100.00 – Psychological – Medium
• S1 2031.00 –29Jun low – Medium
• S2 1990.00 – 27Jun low– Strong

US SPX 500 – fundamental overview

The legitimacy of this latest sharp recovery rally in the market is in question given some very light volume behind the move and many unanswered questions over the outlook for the UK and global economy in the aftermath of the unsettling Brexit vote. The expectation is that this event could now pose a systemic threat to the global economy. And even if governments and central bank’s try to prop the market up as they have done since the 2008 financial crisis, with monetary policy tools exhausted, there isn’t a lot of incentive left in the tank. This could ultimately open the door for a more accelerated decline back to SPX500’s 2016 lows just ahead of 1800. Economic data is taking a major backseat to all things Brexit but as far as data on Thursday data goes, the US initial jobless claims stand out.

GOLD (SPOT) – technical overview

The recent break above the 2015 peak at 1307 strengthens the case for a longer term base with the market confirming a medium-term higher low in the 1200 area, opening the door for the next major upside extension towards a measured move at 1400. Any setbacks should be very well supported ahead of 1200.

• R2 1400.00 – Measured Move – Strong
• R1 1358.45 – 24Jun/2016 high – Medium
• S1 1250.30 – 24Jun low – Medium
• S2 1234.95 – 7Jun low – Strong

GOLD (SPOT) – fundamental overview

GOLD has been very well supported in 2016, with the yellow metal finding solid demand from medium and longer-term players on the back of fears over the limitations of exhausted monetary policy, a downturn in risk sentiment and extended global equities. All of this will almost certainly continue to keep the commodity in demand, with a fresh batch of interest stemming from this latest uncertainty surrounding Brexit. Interestingly, despite a recovery in risk sentiment this week, the yellow metal has remained well supported, perhaps offering a red flag warning to the rest of the market not to throw too much weight behind any upticks in sentiment.

Feature – technical overview

USDMXN has recently broken to a fresh record high, with the market trading up to as high as 19.5190 thus far. From here, look for any setbacks to be very well supported ahead of 18.0800 in favour of the next major upside extension through 19.5190 and towards major psychological barriers at 20.000 further up. Only back below 18.0780 would take the immediate pressure off the topside.

• R2 20.0000 – Psychological – Strong
• R1 19.5190 – 24Jun/Record High – Strong
• S1 18.4000 –Psychological – Medium
• S2 18.0780 – 8Jun low – Strong

Feature – fundamental overview

There is no denying the Peso’s role as a proxy for risk, with the emerging market currency hit hard post Brexit, trading down to fresh record lows against the Buck, before recovering this week as Brexit fears notch down on positive messages from central banks standing ready to prevent any risk for Brexit contagion. But overall, the fallout from Brexit and negative implications for the global economy and risk correlated assets should add pressure on the Banxico when it meets later today. The market is now torn over whether the central bank will look to raise 25bps or 50bps to keep the Peso from additional intense declines.