BOJ Underwhelms, Yen Takes Off

GBPUSD – technical overview

A recent bullish reversal week ends a sequence of consecutive weekly lower tops and suggests that an interim base could be in place at the +30 year low of 1.2797. Still, the overall downtrend remains well intact and any additional upside from here is likely to run in formidable resistance ahead of 1.3800. Key levels to watch above and below over the coming sessions come in at 1.3315 and 1.3057 respectively.

• R2 1.3291 – 22Jul high – Strong
• R1 1.3248 – 28Jul high – Medium
• S1 1.3117 – 28Jul low – Medium
• S2 1.3057 – 26Jul low – Strong

GBPUSD – fundamental overview

The Pound has mostly been confined to post Brexit consolidation but is tracking lower within this consolidation into Friday trade. Some have attributed the relative weakness to this latest YouGov survey suggesting UK consumer confidence is at a 6 year low. Looking ahead, the Pound will probably trade off macro flow resulting from the BOJ decision, while also looking to UK consumer credit and a batch of data out of the US including GDP, personal consumption, Chicago PMIs and Michigan confidence.

USDJPY – technical overview

The latest topside failure suggests we could be seeing the end of a corrective rally in favour of the next major downside extension below 100.00. At this point, only a break back above 107.49 would negate this outlook and give reason for pause. At the same time, a daily close below 103.90 will strengthen the bearish outlook and accelerate declines.

• R2 105.50 – 28Jul high – Strong
• R1 103.99 – 26Jul low– Medium
• S1 102.70 – 29Jul low – Medium
• S2 102.45 – 12Jul low – Strong

USDJPY – fundamental overview

All of this speculation of a big bazooka stimulus package from the BOJ and in the end, a big letdown to the market, with USDJPY collapsing as a result. Perhaps some of this USDJPY decline has been cushioned by the news of an expansion in ETF purchases, doubling in the size of its USD lending program to USD 24bn and setup of a new facility to lend JGBs. But not what the market was looking for with the QQE program and monetary base unchanged at Yen 80 tln and the policy rate holding steady at -0.10%. Looking ahead, it will be interesting to see if this BOJ disappointment has a more sustained negative impact on risk assets, and the market will continue to digest the implications of the event risk for the remainder of the day. We also get a wave of US data later on, featuring GDP, personal consumption, Chicago PMIs and Michigan confidence.

EURCHF – technical overview

Dips continue to be very well supported despite a recent intense decline into the 1.0600’s. 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 1.0778 compromises the constructive outlook.

• R2 1.1014 – 24Jun high – Strong
• R1 1.0945 – 12Jul high – Medium
• S1 1.0818 – 25Jul low – Medium
• S2 1.0778 – 16Jun low – Strong

EURCHF – fundamental overview

Earlier this week it appeared as though the SNB had stepped into the market in an effort to prop up the EURCHF rate. And yet, all of those gains have been given back, with the BOJ stimulus letdown only adding to a potentially dangerous situation for global risk appetite and SNB’s strategy by extension. There is no doubting the tough battle the SNB will have on its hands if risk assets start to come under pressure and US equities capitulate off record highs. The resulting safe haven flow could prove too much for the SNB to defend against, which could ultimately open another major pullback in the EURCHF rate.

AUDUSD – technical overview

The market has been struggling on rallies above 0.7600 and this suggests the rate could be looking to carve a lower top below the 2016 high at 0.7835, in favour of the next major downside extension. Look for a daily close below 0.7450 to strengthen this outlook and accelerate declines. Ultimately, only a daily close back above 0.7677 would negate the newly adopted bearish outlook and invite a retest of the 2016 highs.

• R2 0.7607 – 18Jul high – Strong
• R1 0.7566 – 27Jul high – Medium
• S1 0.7421 – 27Jul low – Medium
• S2 0.7408 –6Jul low – Strong

AUDUSD – fundamental overview

Aussie private sector credit has come out a little softer on Friday but is not really on anyone’s radar, with the second tier data taking a major backseat to broader macro flows. Overall, the Australian Dollar has mounted a decent recovery post Wednesday’s more dovishly perceived Fed meeting, although with odds still showing a good chance for the RBA to cut rates early August, it’s unlikely we see this rally extend much further before offers emerge from medium-term players looking to take advantage of yield differentials and a safer US Dollar play. Looking ahead, we get a batch of US data to close out the week featuring GDP, personal consumption, Chicago PMIs and Michigan confidence.

USDCAD – technical overview

Finally a major breakout in this pair, with the price clearing critical range resistance at 1.3189 on Monday. The break ends a period of multi-week basing off the 2016 low and opens the door for a fresh upside extension towards a measured move objective into the 1.3500-1.4000 area. Any setbacks from here should be very well supported ahead of 1.2800.

• R2 1.3296 – 24Mar high – Strong
• R1 1.3254 – 27Jul high – Medium
• S1 1.3101 – 28Jul low – Medium
• S2 1.3057 – 22Jul low – Strong

USDCAD – fundamental overview

Into Friday, the Canadian Dollar stands out as an underperformer over the past week, and is one of the only currencies that has tracked lower against the Buck over this timeframe. While many currencies have seen impressive rallies in the aftermath of a more dovishly perceived FOMC decision, the Canadian Dollar has only nudged marginally higher, with the Loonie continuing to be dragged down by ongoing weakness in the price of OIL and worry over bubbling housing markets in Toronto and Vancouver. We haven’t had a whole lot of Canadian data this week, but that changes on Friday, with Canada GDP due. Also out is a batch of US data featuring GDP, personal consumption, Chicago PMIs and Michigan confidence.

NZDUSD – technical overview

Rallies to fresh 2016 highs above 0.7300 have been well capped, with the market looking to adhere to the broader downtrend. The recent break below 0.7080 strengthens the bearish outlook and should now invite declines back towards critical medium-term support further down at 0.6675. At this point, only back above 0.7325 negates.

• R2 0.7154 – 18Jul high – Strong
• R1 0.7130 – 29Jul high – Medium
• S1 0.7004 – 27Jul low – Medium
• S2 0.6952 – 21Jul low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has been enjoying some nice post Fed gains into the end of the week, with the currency benefitting from broad currency buying on a more dovishly perceived policy decision. But there is every expectation the RBNZ will move to cut rates on August 11th and even chatter of a potential 50p cut at this next meeting. Friday data would back this up, with the New Zealand activity outlook and business confidence sliding, easily offsetting any positives from a solid building permits. Looking ahead, we get a batch of US data to close out the week featuring GDP, personal consumption, Chicago PMIs and Michigan confidence.

US SPX 500 – technical overview

The market has stormed back to fresh record highs and there is scope from here for additional upside in the sessions ahead towards next key psychological barriers at 2200. 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. But initially, we would need to see a daily close below 2150 to take the immediate pressure off the topside.

• R2 2200.00 – Psychological – Strong
• R1 2179.00 – 25Jul/Record – Medium
• S1 2149.00 –14Jul low – Medium
• S2 2136.00 – 12Jul low– Strong

US SPX 500 – fundamental overview

Overall, US equities are taking advantage of the current backdrop of improving US economic data, a Fed still in no hurry to move on rates and central banks abroad still committed to offering artificial support through the pumping of additional stimulus into the global economy. The combination of these variables makes for a Goldilocks environment where investors will continue to try and drive the market to fresh record highs. Still, it seems with monetary policy exhausted, the Fed in a tougher spot – forced to be thinking about higher rates following a very solid run of economic data, and the possibility for another asset price bubble, there is a big question mark around how much longer this artificial support can hold up. Certainly risk markets have not been happy after the BOJ underdelivered today.

GOLD (SPOT) – technical overview

The recent break above the previous 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 1300, with only a break below 1250 to compromise the outlook.

• R2 1375.20 – 6Jul/2016 high – Strong
• R1 1347.20 – 14Jul high – Medium
• S1 1310.90 – 21Jul low – Strong
• S2 1303.90 – 1May low – Strong

GOLD (SPOT) – fundamental overview

The combination of a US Dollar sell-off post Fed and mild risk off trade have helped to propel the yellow metal into the end of the week. Overall, 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 and extended global equities. All of this will almost certainly continue to keep the commodity in demand, with many market participants fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax.

Feature – technical overview

USDTRY has finally broken up to another fresh record high after a period of multi-month consolidation. The latest break through the previous peak from 2015 now opens the door for a measured move upside extension towards 3.3500 in the days ahead. At this point, a break back below 2.8390 would be required to take the immediate pressure off the topside.

• R2 3.3500 – Measured Move – Strong
• R1 3.0970 – 20Jul/Record – Medium
• S1 2.9660 –19Jul low – Medium
• S2 2.9260 – 18Jul low – Strong

Feature – fundamental overview

Some post FOMC broad based US Dollar selling and reduced headlines out of Turkey most coup attempt have been helping to stabilise the Lira somewhat off recent record lows. Perhaps comments from Turkey’s Erdem are also helping the Lira a bit after the official felt upcoming Moody’s and Fitch assessments would be positive. Still, there is plenty of uncertainty and risk associated with the Turkish economy, particularly with Erdogan tightening his grip and making foreign investors increasingly nervous about holding assets in Turkey. Moreover, the recent S&P downgrade, loose CBRT policy stance and bubbling US equities, only strengthen the case for additional Lira weakness in the days ahead. Certainly the BOJ’s underdeliverance on Friday could be yet another development to weigh on risk correlated currencies.