UK Event Risk Front and Centre

GBPUSD – technical overview

The market is in the process of correcting out from the recent +30 year low of 1.2797. While the downtrend is firmly intact, there is still room for this rally to run before it looks for the next lower top and bearish resumption. Ideally, any upside should be limited to formidable previous support turned resistance in the 1.3800 area.

• R2 1.3481 – 15Jul high – Strong
• R1 1.3372 – 3Aug high – Medium
• S1 1.3200 – Figure – Medium
• S2 1.3117 – 28Jul low – Strong

GBPUSD – fundamental overview

All eyes on today’s Bank of England decision where a good chunk of the market is expecting some form of easing from Carney and Co. The question of course is how much easing. Will the central bank cut rates and add to QE, cut rates and leave QE alone, or do something else. Certainly with a good deal of easing priced in, there is room for the BOE to disappoint, leaving the door open for a decent rally in the UK currency. But if we do see any meaningful rallies, also expect formidable offers into these rallies as the weight of Brexit uncertainty still hangs over the UK economy.

USDJPY – technical overview

The latest topside failure sets up a prospective lower top at 107.49 ahead of the next major downside extension below the recent yearly and multi-month low at 98.99. At this point, only a break back above 107.49 would negate this outlook and give reason for pause. In the interim, look for any rallies to be well capped ahead of 104.00.

• R2 102.83 – 2Aug high – Strong
• R1 101.97 – 29Jul low – Medium
• S1 100.68 – 2Aug low – Medium
• S2 99.99 – 8Jul low – Strong

USDJPY – fundamental overview

A bit of a breather for the Yen on Wednesday though overall, the Japanese currency  has been bid back up in a big way post BOJ, with the currency generating additional momentum from this latest downturn in US equities. The combination of a central bank starting to recognize the limitations of monetary policy and downturn in sentiment, could very well open the door for additional Yen upside in the days ahead. Looking ahead, the Bank of England policy decision could have an impact on the Yen given the broader macro implications of central bank decisions these days, while the market will also be monitoring US initial jobless claims and factory orders.

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 1.0790 – 29Jul low – Medium
• S2 1.0778 – 16Jun low – Strong

EURCHF – fundamental overview

SNB smoothing activity to prop the EURCHF has been helping into dips but hasn’t been all that effective with the cross rate continuing to get sold aggressively into rallies. Earlier this week, the market wasn’t too bothered by SNB Jordan comments that there was still room to intervene. Instead, his acknowledgment of a large balance sheet seems to be having a bigger impact on price action, while broader risk off flow is also helping to keep EURCHF weighed down. Still, dealers continue to sight solid bids in the 1.0800 area where it appears the SNB is trying to make a stand.

AUDUSD – technical overview

The market has struggled 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 break back below 0.7421 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 0.76777 – 15Jul high – Strong
• R1 0.7638 – 2Aug high – Medium
• S1 0.7488 – 2Aug low – Medium
• S2 0.7421 –27Jul low – Strong

AUDUSD – fundamental overview

Seemingly against all odds, the Australian Dollar continues to defy gravity. This week we have already seen soft Aussie trade and building approvals, an RBA rate cut, this latest discouraging retail sales print and broader risk off flow. And yet, Aussie has managed to remain elevated, with the market shrugging all of this off, perhaps more focused on the relatively attractive yield this currency has to offer. Looking ahead, the BOE decision could have an impact as far as future RBA expectations are concerned, while on the data front, US initial jobless claims and factory orders are the only notable releases.

USDCAD – technical overview

Finally a major breakout in this pair, with the price clearing critical range resistance at 1.3189. 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 1.3187 – 29Jul high – Strong
• R1 1.3148 – 3Aug high – Medium
• S1 1.3002 – 29Jul low – Medium
• S2 1.2862 – 15Jul low – Strong

USDCAD – fundamental overview

What a surprise. OIL recovers and the Canadian Dollar rallies. The impressive bounce in the commodity was unquestionably the primary driver behind the Loonie’s bid tone on Wednesday. The Canadian Dollar performed well even in the face of a comeback in the US Dollar. It seems Fitch affirming Canada’s AAA rating and stable outlook also helped to keep the Loonie propped. But overall, it was only one day and with OIL still under pressure and the Buck coming back, there could be a nice amount of USDCAD bids into this dip. Looking ahead, the Canadian calendar is empty and the only data of note comes in the form of US initial jobless claims and factory orders.

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. As such, look for this latest bounce to once again be well capped, in favour of a resumption of declines. Key support now comes in at 0.6952, with a break below to accelerate.

• R2 0.7325 – 12Jul/2016 high – Strong
• R1 0.7257 – 2Aug high – Medium
• S1 0.7128 – 28Jul high – Medium
• S2 0.7062 – 28Jul low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar was feeling the pressure from early Wednesday’s softer employment metrics and this continued to weigh on the currency for the remainder of the day as expectations for additional RBNZ cuts ramped up. Moreover, the release of a balanced US ISM non manufacturing print and better than expected US ADP employment only helped to knock Kiwi lower into the close. Fed Evans was on the wires with some mildly dovish comments late in the day which may have helped to mitigate some of the Kiwi weakness. Looking ahead, US initial jobless claims and factory orders are the only notable economic data releases, though the New Zealand Dollar will likely be watching to see what the BOE does for additional insights into RBNZ policy strategy.

US SPX 500 – technical overview

The market continues to push 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 2183.00 – 1Aug/Record – Medium
• S1 2147.00 –2Aug low – Medium
• S2 2136.00 – 12Jul low– Strong

US SPX 500 – fundamental overview

The stock market has done a marvelous job steering clear of  underlying fundamentals, rallying at every turn and extending to fresh record highs this week. But with each passing day, there is a sense this artificial support from governments and central banks is running out, and even if there were more to pump in, there is no longer the same level of confidence this strategy will continue to be effective. Last Friday’s BOJ letdown could be sending a bigger message to this effect, reflecting the limitations of monetary policy and fiscal stimulus measures. Looking ahead, it will be interesting to see if the Bank of England also opts to underdeliver later today. Otherwise, the market will be watching US initial jobless claims, factory orders and Q2 earnings.

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 1367.30 – 2Aug high – Medium
• S1 1310.90 – 21Jul low – Strong
• S2 1303.90 – 1May low – Strong

GOLD (SPOT) – fundamental overview

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 2.9550 –6Jul high – Medium
• S2 2.9260 – 18Jul low – Strong

Feature – fundamental overview

Wednesday’s sharp rise in Turkish CPI presents problems for both the local economy and currency. The CBRT is battling the combination of rising inflation and a struggling economy and doesn’t have the luxury to be thinking about raising rates to offset inflation. In fact, the CBRT is still looking to cut rates going forward and this implies a lower Lira over the medium term, well below the current record low from July. Throw in uncertainty in the aftermath of the coup attempt and an upcoming Moody’s review and the outlook is rather suspect. Meanwhile, US equities are showing signs of rolling over which could open an exodus from emerging market FX, yet another negative for the TRY.