Monetary Policy Exhausted But No One’s Flinching

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 which could open some short-term corrective upside. But overall, the intensity of the downtrend still leaves the door open for 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 1.2850– 11Jul low – Strong
• S2 1.2796 – 6Jul/+30 Year low – Strong

GBPUSD – fundamental overview

Theresa May’s appointment as the head of the conservative party and her transition into the role of the next UK PM has been helping the Pound a good deal in the early week, with the UK currency benefitting from the removal of political uncertainty and likely acceleration of the Brexit process. However, with the May indicating the UK will be heading in the direction of Brexit and with the Bank of England on the verge of cutting rates 25bps this week as many are now projecting, it would seem the upside in the Pound should be limited. Looking ahead, the economic calendar is exceptionally thin on Tuesday. More headlines relating to Brexit and the new UK leadership and a flurry of Fed speak will likely influence direction.

USDJPY – technical overview

Signs of the possibility for a meaningful bullish reversal, though at this point the latest upside break would need to establish back above 103.40 to take the immediate pressure off the downside. Inability to close back above 103.40 will suggest the move is only corrective in nature ahead of a resumption of the current downtrend. A close above 103.40 could open an acceleration of gains.

• R2 103.40 – 1Jul high – Strong
• R1 103.00 – Figure – Medium
• S1 102.28 –8Jul high – Medium
• S2 100.52 – 11Jul low – Strong

USDJPY – fundamental overview

The combination of an Abe victory and ongoing record high prints in US equities have been the primary drivers behind this latest sharp reversal higher in USDJPY. Abe’s victory all but seals the deal for additional stimulus in the pipeline. Media reports float a new stimulus package in the area of JPY10 Trillion. Abe is scheduled to meet with former Fed Chair Bernanke today, presumably to discuss the strategy of additional easing. Meanwhile, with risk coming back as reflected by US stock prices, it’s also no surprise to see this resurgence in demand for USDJPY. Looking ahead, the market will see what comes of the Bernanke, Abe meeting and will also focus on a raft of Fed speak 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

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 waves of unwanted inflow into the Franc post Brexit. Still, the central bank’s cause of weakening the Franc has also been helped along in a big way by ongoing support for asset prices and global equities.

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 0.7575 – 11Jul high – Medium
• S1 0.7467 – 7Jul low – Medium
• S2 0.7408 – 6Jul low – Strong

AUDUSD – fundamental overview

The outlook for the Australian Dollar is significantly improved in the new week. A wave of risk on trade, confirmation of a Turnbull government and this latest upbeat Aussie NAB business survey have all been helping to drive relative outperformance after the currency had suffered an opposite fate in the previous week from political uncertainty and rating agency downgrades. Early Tuesday, business confidence and business conditions saw healthy improvements, while the employment and capex components in the data also improved. This takes some of the wind out of the sails of doves expecting an imminent cut from the RBA, which could very well continue to leave policy unchanged. Looking ahead, we get a slew of Fed speak in Tuesday trade.

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 1.3030 – 11Jul low – Medium
• S2 1.2877 – 7Jul low – Strong

USDCAD – fundamental overview

Canada housing starts came in much better than expected on Monday, though the data was mostly shrugged off with the Loonie continuing to underperform. Over the past week, the Canadian Dollar is actually the weakest of the developed currencies, with the Loonie hit on an OIL pullback, softer Canada data in the previous week and fallout from Friday’s blowout US employment report. Looking ahead, there is no data scheduled on the Canada calendar on Tuesday, while second tier US data will not get much attention. Instead, the market is likely to focus more on a wave of Fed speak throughout the day.

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

Despite the solid New Zealand electronic card retail sales data on Monday and despite a break to fresh 2016 highs against the Buck, Kiwi is starting to look vulnerable at elevated levels. The higher the exchange rate goes, the more it increases the likelihood the RBNZ will cut rates at its upcoming meeting, with the stronger rate acting as a strain on the local economy. The RBNZ has also been moving towards the implementation of macroprudential measures to cool the property market which will also give it more room to cut rates. Mostly however, this latest pullback off fresh 2016 highs seems to be coming from position adjustment with Kiwi longs hitting their highest level in more than three years, suggesting a reversal could very well be on the cards. Looking ahead, lack of economic data will leave this currency focused on risk appetite and a slew of Tuesday Fed speak.

US SPX 500 – technical overview

The market has stormed back to retest and break 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 2144.00 – 11Jul/2016 Record – Strong
• S1 2094.00 –8Jul low – Medium
• S2 2073.00 – 6Jul low– Strong

US SPX 500 – fundamental overview

Last week’s Goldilocks US employment report with strong NFPs and a softer hourly earnings giving the Fed an excuse to keep from raising rates has certainly been behind this latest push to fresh record highs. But overall, it’s this across the board commitment from governments and central banks to continue to stimulate the global economy that has been fueling the ongoing bid tone in US equities. The latest Abe election victory virtually guarantees more stimulus from the BOJ in the months ahead, while the Brexit vote has set the stage for easing from the Bank of England later this week. Investors still don’t seem to be bothered in any way that these policy gestures are lacking given already exhausted monetary policy. For now, this idea of easy money and lower for longer continues to support the market.

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 record highs in stocks, 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 18.3505 –11Jul 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 is still looking vulnerable 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 on trade is helping to prop the emerging market currency a bit, though overall, the risks continue to be tilted to the downside, with asset prices trading at elevated levels and due for a major correction. Looking ahead, the market will focus on a wave of Fed speak later today but will also be thinking about Thursday’s Banxico Minutes from this latest decision to hike 50bps, in an effort to gain better insight into future policy decisions. On Friday, Governor Carstens said that the latest move had not set a precedent.