ECB Minutes and NFP Positioning

GBPUSD – technical overview

The latest break below 1.2800 opens the door for the next major downside extension exposing fresh +30 year lows into the 1.2000 to 1.2500 area in the days and weeks ahead. At this point, any rallies are classified as corrective, with only a break back above 1.3533 to negate the downtrend and take the overall pressure off the downside.

• R2 1.3058 – 9Sep high – Strong
• R1 1.2860 – 4Oct high – Medium
• S1 1.2686 – 5Oct/+30 year low – Medium
• S2 1.2500 – Psychological – Strong

GBPUSD – fundamental overview

Although the Pound has sunk to fresh 31 year lows this week, the UK currency has been able to find some comfort in local data, with this latest UK services PMIs coming in above expectation. Of course, ongoing fear of fallout from Brexit, a wave of hawkish Fed speak and solid US economic data have mostly been offsetting. Looking ahead, lack of first tier data on the UK calendar will leave the market focused on US initial jobless claims and broader macro themes.

USDJPY – technical overview

Overall, the pressure remains on the downside with a lower top sought out at 104.32 in favour 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 104.32 would delay this outlook and give reason for pause. Below 99.00 exposes the next major support level in the 95.00 area.

• R2 104.32 – 2Sep high – Strong
• R1 104.00 – Figure – Medium
• S1 102.67 – 5Oct low – Medium
• S2 101.57 – 4Oct low – Strong

USDJPY – fundamental overview

The Yen has come under a good deal of pressure this week on account of this latest wave of hawkish Fed speak and solid US data that suggests we could see a Fed rate hike as soon as next month. Risk markets also continue to hold up well, which is yet another negative for the Japanese currency. Dealers however do report aggressive selling in the major pair ahead of 104.00, with no major buy stops seen until above 104.35. Momentum funds have been the big sellers, while HFTs and leveraged funds have been on the bid into dips. Looking ahead, US initial jobless claims is the only notable standout, with the market likely to take its cues from broader macro themes.

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 1.1000 – Psychological – Medium
• S1 1.0893 – 3Oct low – Medium
• S2 1.0778 – 16Jun low – Strong

EURCHF – fundamental overview

All of the bullish momentum from the ECB taper talk earlier in the week has faded into the background and it’s back to business as usual for the rangebound EURCHF cross rate. Overall, SNB smoothing activity to prop the EURCHF rate has been helping to elevate the cross, but at the same time, any upside moves haven’t been sustainable with the cross rate continuing to get sold aggressively into rallies towards 1.1000. Ultimately, this is a market going nowhere right now and it seems stops need to get taken out below 1.0750 or above 1.1000 for clearer insight. US stocks have been supporting EURCHF but are now looking extended which could invite additional Franc demand if the market continues to roll over from record highs in the sessions ahead.  As far as economic data goes, there will be more eyes on the Swiss calendar today with CPI data due for release.

AUDUSD – technical overview

The market has struggled on rallies above 0.7700 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 towards 0.7000 in the days ahead. Ultimately, only back above 0.7758 will negate the bearish outlook and invite a retest of the 2016 highs.

• R2 0.7758 – 11Aug high – Strong
• R1 0.7711 – 29Sep high – Medium
• S1 0.7590 –30Sep low – Medium
• S2 0.7531 – 20Sep low – Strong

AUDUSD – fundamental overview

This week’s solid Aussie retail sales data has been followed up on Thursday with a better than expected Aussie trade data print, though the market has mostly shrugged off today’s Aussie release. Most of the focus has been on the US Dollar side of the equation with market participants selling Aussie into rallies on the back of a wave of hawkish speak and solid US economic data that suggests the Fed could make a move on rates as soon as next month. Looking ahead, US initial jobless claims is the only notable standout on today’s calendar. Broader macro themes will likely dictate flow.

USDCAD – technical overview

This market looks to be in the process of carving out a longer-term base off the 1.2461, 2016 low. Look for any additional weakness to be supported ahead of 1.2655 in favour of the next major upside extension through 1.3300 and towards a measured move objective into the 1.3500-1.4000 area. Ultimately, only back below 1.2655 would delay the constructive outlook.

• R2 1.3281 – 27Sep high – Strong
• R1 1.3233 – 5Oct high – Medium
• S1 1.3110 – 4Oct low – Medium
• S2 1.3048 – 29Sep low– Strong

USDCAD – fundamental overview

Data from the EIA showing a drawdown of 3 million barrels was enough to give a well bid OIL market yet another boost on Wednesday and this positive flow proved to be a benefit to the Canadian Dollar. The Loonie has mostly been under pressure against the Buck on hawkish Fed speak and strong US economic data, but the combination of higher OIL and pre US NFP positioning could seems to be giving the Loonie temporary reprieve. The only data of note out on Thursday is US initial jobless claims.

NZDUSD – technical overview

Finally signs of a potential top after the market stalled out at 2016 highs ahead of major psychological barriers at 0.7500. Daily studies had already traded up into overbought territory warning of the reversal and this latest bearish reversal strengthens the toppish outlook. Look for a daily close back below 0.7100 to strengthen the structural shift and accelerate declines.

• R2 0.7311 –4Oct high – Strong
• R1 0.7209 – 5Oct high  – Medium
• S1 0.7148 – 5Oct low – Medium
• S2 0.7087 – 8Aug low – Strong

NZDUSD – fundamental overview

The reversal of fortune for the New Zealand Dollar continues into the latter half of the week, with more Kiwi selling coming from CTA and leveraged names following this week’s disappointing GDT auction, fresh wave of hawkish Fed speak and solid US economic data. On one side, you have a market that is now seriously pricing a sooner Fed rate hike, while on the other, participants have been exiting Kiwi longs on account of the softer local data and more dovish RBNZ, well prepared to make further cuts in the months ahead. As far as today goes, only US initial jobless claims stand out. Otherwise, expect pre-NFP positioning. 

US SPX 500 – technical overview

Signs of a potential top after the market recently broke below critical support at 2147. This now opens the door for a meaningful period of weakness exposing a more pronounced decline towards the June base at 1990. Look for any rallies to now be well capped ahead of 2180, with only a daily close back above this level to compromise the newly adopted bearish outlook. Below 2108 accelerates.

• R2 2194.00 – 15Aug/Record high – Strong
• R1 2180.00 – 222Sep high – Medium
• S1 2108.00 – 12Sep low – Medium
• S2 2073.00 – 6Jul low– Strong

US SPX 500 – fundamental overview

It all feels like it’s starting to come to a head for the US equity market. In recent weeks, we have been hearing a lot about the limitations of monetary policy, while at the same time getting a healthy dose of hawkish Fed speak and strong US data. The September low at 2108 will be the critical level to watch. If the market holds above this level, then it can be argued that accommodative policy is still helping to artificially support the market. If however the market turns lower in the sessions ahead and breaks down below 2108, we could see a major intensification of declines as it becomes quite clear that monetary policy has in fact reached its limits, leaving investors to stand on their own two feet in the face of systemic risk. This is an unpleasant prospect in the face of a still recovering US economy and global economy dealing with systemic risk.

GOLD (SPOT) – technical overview

Despite the latest major setback, the overall structure remains highly constructive with the market in the process of carving out a longer-term base. Look for additional weakness to be very well supported above 1250, with only a close back below this level to negate the bullish outlook and give reason for delay.

• R2 1343.75 – 22Sep high – Strong
• R1 1309.30 – 100-Day SMA – Medium
• S1 1255.50 – 200-Day SMA – Strong
• S2 1250.00 – Psychological – Strong

GOLD (SPOT) – fundamental overview

Reports the ECB will start to wind down bond purchases have had a major impact on the yellow metal, with the market exiting the risk hedge on the pricing out of uncertainty from expansive ECB policy. Broad based US Dollar demand on hawkish Fed speak and strong US data has also been attributed to some of GOLD’s sharp declines. But 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, extended global equities and systemic risk. 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

USDMXN is in the process of correcting off fresh record highs from late September. While there is still scope for additional declines in the sessions ahead, ultimately, the uptrend remains intact and a higher lower is now sought out ahead of a bullish resumption and break to another record high through major psychological barriers at 20.0000. At this point, only back below 17.9030 would compromise the highly constructive outlook.

• R2 19.9250 – 26Sep/Record high – Strong
• R1 19.6685 – 30Sep high – Medium
• S1 18.9995 – 3Aug high – Medium
• S2 17.9030 – 16Aug low – Strong

Feature – fundamental overview

The Mexican Peso has been holding up relatively well in recent days, particularly after the currency had sunk to fresh record lows in late September. It seems the Banxico’s efforts to dissuade the market from selling Pesos have been effective, at least in the short term, after the central bank raised rates last week. Meanwhile, a major bank is calling for more tightening in financial conditions from the Banxico over the coming months so that investors will be increasingly uncomfortable holding more expensive short Peso exposure. Still, the impact of higher rates on a struggling local economy is not ideal, while risk for liquidation in global equities on a fear of higher US rates is also something that could easily offset these Banxico moves and once again invite renewed downside pressure on the risk correlated EM currency.