Rate Cuts and Rallies

GBPUSD – technical overview

The latest break below internal range support at 1.3057 ends a period of bearish consolidation and opens the door for a direct retest of the +30 year low from July just under 1.2800. A daily close below 1.3055 will strengthen the bearish outlook, while ultimately, only back above 1.3372 would take the immediate pressure off the downside.

• R2 1.3175 – 5Aug high – Strong
• R1 1.3094 – 10Aug high – Strong
• S1 1.2956 – 12Jul low – Medium
• S2 1.2900 – Figure – Medium

GBPUSD – fundamental overview

The Sterling market got a bit of a shake on Wednesday after the Bank of England found itself in a shortage of UK gilts for its quantitative easing program. Overall, the Pound remains weighed down on the Brexit overhang and will continue to have a hard time finding any material bids until this uncertainty is out of the way. Until then, there is risk for additional downside pressure below the +30 year lows from July. The only mitigating factor at the moment has been some broad based selling in the US Dollar as the market bets the Fed still won’t be in any rush to move on rates. Looking ahead, US initial jobless claims is the only notable release on the day.

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 102.66 – 8Aug high – Medium
• R1 101.95 – 10Aug high – Strong
• S1 100.97 – 10Aug low – Medium
• S2 100.68 – 2Aug low – Strong

USDJPY – fundamental overview

The calendar has been light this week but that hasn’t made price action in the Yen any less interesting. The currency has found itself in the unique position of being well bid whichever way the wind blows right now. The other week it was the BOJ’s underwhelming policy decision that inspired renewed Yen demand, while this week, it’s broad based US Dollar weakness and some risk off flow on Wednesday that are opening deeper setbacks in USDJPY. Dealers cite plenty of fresh offers into rallies. Looking ahead, US initial jobless claims is the only notable release on the day.

EURCHF – technical overview

Not much doing here over the past several days, with the market confined to a range trade, roughly between 1.0800 and 1.1000. At this point, a daily close above 1.1000 or back below 1.0800 will be required for clearer directional insight. Until then, look for dips to be supported and rallies well capped.

• 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 rate has been helping to elevate the cross, but overall, any upside moves haven’t been sustainable with the cross rate continuing to get sold aggressively into rallies. Last week, the market wasn’t too bothered by SNB Jordan comments that there was still room to intervene, perhaps offset by his concern over the central bank’s large balance sheet. Overall, this is a market going nowhere right now and it seems sell-stops need to get taken out below 1.0750 or above 1.1000 for clearer insight. US stocks have been showing signs of weakness off record highs, which could invite Franc demand if this risk liquidation intensifies in the sessions ahead.

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 0.7700 would negate the newly adopted bearish outlook and invite a retest of the 2016 highs.

• R2 0.7835 – 21Apr/2016 high – Strong
• R1 0.7758 – 11Aug high – Medium
• S1 0.7662 – 10Aug low – Medium
• S2 0.7569 –3Aug low – Strong

AUDUSD – fundamental overview

More gains for the Australian Dollar into Thursday with the commodity currency now looking like it may want to retest the 2016 high from April. The currency has been driving higher on a combination of factors which include search for yield, expectations the Fed still won’t be in a rush to hike, solid Aussie consumer confidence and this latest rally in Kiwi post the less dovish RBNZ policy decision. The only negative for Aussie at the moment, which could factor more over the coming sessions, is the possibility for a downturn in equity markets, which in turn would likely weigh on the correlated currency. Looking ahead, US initial jobless claims is the only notable standout.

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 1.2862.

• R2 1.3254 – 27Jul high – Strong
• R1 1.3123 – 10Aug high – Medium
• S1 1.2990 – 10Aug low – Strong
• S2 1.2862 – 15Jul low – Strong

USDCAD – fundamental overview

There have been a lot of banks out there calling for a lower Canadian Dollar over the medium-term and some are now issuing buy recommendations in USDCAD on diverging fundamentals and increasingly attractive yield differentials. The Canadian Dollar was higher on Wednesday, riding along with most other currencies as the US Dollar extended declines. But there were plenty of strong bids waiting in USDCAD down around 1.3000 to support the dip. The sharp pullback in OIL prices helped to contain any additional upside into the close. Looking ahead, the Canada new housing price index and US initial jobless claims are the notable standouts.

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 surge to once again be well capped, in favour of a resumption of declines. Key support now comes in at 0.6952, but a break below 0.7087 will get things going to the downside.

• R2 0.7400 – Figure – Medium
• R1 0.7341 – 11Aug/2016 high – Strong
• S1 0.7200 – Figure – Medium
• S2 0.7087 – 8Aug low – Strong

NZDUSD – fundamental overview

The RBNZ went ahead and cut rates 25 basis points, while signaling additional rate cuts. The trouble is, the market had completely priced in the event which ended up leading to a letdown for doves after chatter of a 50 basis point reduction was dispelled. In the end, a push to another 2016 high as this trend of rate cuts and rallies continues in the commodity bloc with investors starved for any kind of yield they can get their hands on. Looking ahead, US initial jobless claims is the only notable release for the remainder of the day.

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 2188.00 – 9Aug/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. 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. For now, we’re living in a Goldilocks world where investors are feeling good about US economic data, and at the same time, aren’t expecting the Fed to move on rates. It will be interesting to see what Fed officials have to say on the matter over the coming days and if any hawkish comments spook this overinflated market. Certainly Wednesday’s retreat in OIL prices has opened some downside in the market.

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 recently 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 weeks ahead. At this point, setbacks should be limited with only a break back below 2.8390 to take immediate pressure off the topside.

• R2 3.0970 – 20Jul/Record – Strong
• R1 3.0270 – 4Aug high – Medium
• S1 2.9450 –50-Day SMA – Medium
• S2 2.9260 – 18Jul low – Strong

Feature – fundamental overview

Tuesday’s reserve requirement cut has been followed up by some more interesting news on Wednesday. President Erdogan has stepped up pressure on local banks to cut mortgage rates from 14% down around 9% in an effort to help stimulate the economy post coup attempt. Interestingly, the Lira has been supported even as Erdogan warns any resistance to his calls for lower rates will be considered an act of treason. Still, with US equities showing signs of weakness, any follow through Thursday will likely invite renewed downside pressure on the emerging market currency.