Will Risk Rally Hold Up Post NFPs?

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, with market taking out critical psychological barriers at 1.3000. At this point, technical studies are extended across the board, though the intensity of the downtrend could open more weakness towards 1.2500 in the sessions ahead. Any corrective rallies should be well capped and it will now take a break back above the previous weekly high at 1.3341 to alleviate immediate downside pressure.

• R2 1.3120 – 27Jun low – Strong
• R1 1.3047 – 7Jul high – Medium
• S1 1.2876– 7Jul low – Strong
• S2 1.2796 – 6Jul/+30 Year low – Strong

GBPUSD – fundamental overview

The Pound got a minor distraction from the US employment repot on Friday, though ultimately, mixed messages from the data left he major pair trading mostly sideways and consolidating of recent multi-year lows. There is no economic data of note out of the UK or US on Monday and at this point, the market will continue to trade off Brexit headlines, while positioning into this week’s Bank of England policy decision. Many expect the Brexit vote will already push the BOE into further rate cuts later this week, which could keep the Pound weighed down over the coming days.

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. Any rallies should now be well capped below 103.40, with only a break back above this level to take the immediate pressure off the downside.

• R2 102.59 – 5Jul high – Strong
• R1 101.40 – 7Jul high – Medium
• S1 99.99 –8Jul low – Medium
• S2 98.99 – 24Jun/2016 low – Strong

USDJPY – fundamental overview

The major pair has remained under pressure into the new week, even in the face of last Friday’s very solid US employment report and impressive rally in risk correlated assets. It seems the Yen bids have come from broad based currency strength against the Buck post NFPs and the expectation the Fed will still be looking to hold off on rates with hourly earnings still quite soft. On the local front, the ruling LDP has convincingly won Sunday’s Upper House elections, and this has been fueling talk of additional stimulus in the pipeline. But at this point, the market hasn’t see much of a reaction to the news. Looking ahead, nothing of note on the Monday’s calendar and the market will trade off broader flows.

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

Last week’s SNB sight deposit data confirmed what the market already knew, which was that the SNB has been on the bid supporting the EURCHF rate in the midst of the intense post Brexit risk off flow. The sight deposit data also showed the highest levels since the SNB abandoned the EURCHF floor back in 2015. Overall, the SNB has done a good job offsetting this latest wave of unwanted inflow into the Franc post Brexit. But all of this uncertainty has made the Swiss Franc increasingly attractive even with 50 year Swiss yields sitting in negative territory. Of course, the SNB will be in deeper trouble if risk off price action intensifies in the days ahead.

AUDUSD – technical overview

A recent topside failure above 0.7600 suggests the market could be looking to carve a lower top below the 2016 high at 0.7835, in favour of the next major downside extension. But a break below 0.7145 will be required to strengthen this outlook, opening the door for an acceleration towards the 2016 low at 0.6827 further down. Back above 0.7647 would however negate the bearish outlook and invite a retest of the 2016 highs.

• R2 0.7647 – 24Jun high – Strong
• R1 0.7600 – Figure – Medium
• S1 0.7467 – 7Jul low – Medium
• S2 0.7408 – 6Jul low – Strong

AUDUSD – fundamental overview

The Australian Dollar is coming off a solid performance on Friday, with the currency rallying on the back of a fresh wave of demand for risk correlated assets in the aftermath of a very solid US employment report. The fact that the NFP print was well above forecast was already great news, but the softer hourly earnings really helped risk markets, giving the Fed continued excuse to delay additional rate hikes. Also supporting the Australian Dollar into the new week is more clarity from the Australia election results, with Prime Minister Turnbull claiming victory in the election. Looking ahead, the very light Monday calendar is expected to factor into price action, with the market focused on broader flow.

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 1.3189 – 24May high – Strong
• R1 1.3090 – 8Jul high – Medium
• S1 1.2877 – 7Jul low – Medium
• S2 1.2832 – 4Jul low – Strong

USDCAD – fundamental overview

The Canadian Dollar has deviated quite a bit from its commodity currency cousins in recent sessions, with the Loonie underperforming while Aussie and Kiwi outperform. The relative weakness has come from this latest softer round of Canada employment data and an ongoing pullback in the price of OIL. Looking ahead, nothing of note due on Monday’s calendar and the market will start to look ahead to Wednesday’s Bank of Canada policy decision.

NZDUSD – technical overview

The market has just pushed to a fresh 2016 high which could open the door for additional upside in the sessions ahead. However, it’s worth noting the longer-term downtrend is still well intact and as such, the impressive 2016 run could soon be at risk of stalling out in favour of the next major downside extension. For now, a break back below 0.7080 would be required at a minimum to alleviate immediate tossed pressure.

• R2 0.7350 – Mid-Figure – Medium
• R1 0.7306 – 8Jul/2016 high – Medium
• S1 0.7212 – 8Jul low– Medium
• S2 0.7080 – 6Jul low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has pushed up to a fresh 2016 high against the Buck, with the commodity currency benefitting from some post US NFP risk on trade. The fact that the US NFP print was well above forecast and the fact that hourly earnings were still soft, was the perfect combination for risk correlated assets, with the data solid but also weak enough to leave the Fed with an excuse to hike rates. Still, overall, with the New Zealand Dollar trading at elevated levels, there is risk for a pullback in the sessions ahead. Looking at the economic calendar, there is nothing out that will have any meaningful influence and the market will be left digesting the Friday NFP fallout while looking ahead to a busier calendar in the middle of the week.

US SPX 500 – technical overview

The market has stormed back to retest the record high from 2015 and there is scope from here for additional upside to fresh highs in the sessions ahead. Still overall, the prospect for the formation of a longer-term top is very much alive and any signs of exhaustion and a rolling back over below 2100 in the sessions ahead will strengthen this outlook and invite renewed downside pressure.

• R2 2150.00 – Psychological – Medium
• R1 2133.00 – 2015 Record – Strong
• S1 2094.00 –8Jul low – Medium
• S2 2073.00 – 6Jul low– Strong

US SPX 500 – fundamental overview

The legitimacy of this latest recovery rally back to fresh record highs is in serious doubt given some very light volume behind the move and many unanswered questions over the outlook for the 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 open the door for another topside failure over the coming sessions, ultimately exposing an eventual retest of the 2016 lows just shy of 1800. But for now, the stock market is loving the blowout NFP print and softer hourly earnings which still lets the Fed remain on hold.

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 1250.

• R2 1400.00 – Measured Move – Strong
• R1 1375.20 – 6Jul/2016 high – Medium
• S1 1305.55 – 28Jun low – Medium
• S2 1250.30 – 24Jun 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 and systemic threat. Interestingly, despite a recovery in risk assets, 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 a daily close back below 18.0780 would take the immediate pressure off the topside.

• R2 19.5190 – 24Jun/Record High – Strong
• R1 19.0860 – 16Jun high – Strong
• S1 18.3930 –5Jul low – Medium
• S2 18.0780 – 8Jun low – Strong

Feature – fundamental overview

Forecasts for this emerging market pair in 2016 have now been lifted to 18.430 and 17.990 respectively, versus 18.000 and 17.650. The fact that the Peso has weakened even after the recent aggressive 50bp rate hike from the Banxico is having a lot to do with the revised outlook, with the swaps market now pricing nearly another 50bps of hikes by the end of the year. For now, this latest wave of risk in trade post US employment is helping to prop the emerging market currency a bit, though overall, the risks continue to be tilted to the downside, with risk assets traded at elevated levels and due for a major correction.