The Roaring Dollar

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 1.1500 to 1.2000 area. At this point, any rallies are classified as corrective, with only a break back above previous support turned resistance at 1.2796 to take the immediate pressure off the downside and delay bearish momentum.

• R2 1.2622 – 7Oct high – Strong
• R1 1.2500 – Psychological – Medium
• S1 1.2ooo – Psychological – Medium
• S2 1.1841 – 7Oct/+30 year low – Strong

GBPUSD – fundamental overview

The Pound has been in a free fall since last week, with setbacks accelerating on Friday’s flash crash. The UK currency remains under pressure though the pace of declines has slowed somewhat. Interestingly, the Daily Sentiment Index (“DSI”) is now tracking at extreme single digit levels, which could be warning of an imminent reversal in the Pound’s favour. Lack of first tier UK data will leave the market focused on Brexit headlines and broader macro themes. The US labor market conditions index is due out later in the day. Earlier, we saw the release up an improved BRC Aug like-for-like retail sales, but this hasn’t factored into trade.

USDJPY – technical overview

Despite the latest impressive rally, overall, the pressure still 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 and daily close 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 104.16 – 6Oct high – Medium
• S1 102.67 – 5Oct low – Strong
• S2 101.84 – 29Sep high – Medium

USDJPY – fundamental overview

Better than expected Japan trade data hasn’t really factored into price action, though the Yen has been softer on the day, perhaps on broad based US Dollar demand. Leveraged and macro funds have been healthy sellers of Yen, while model types have been buying which has kept USDJPY well offered above 104.00 for now. The market isn’t expected to make any major breaks as any Yen weakness continues to be offset by Yen demand on safe haven flow. Looking ahead, the US labor market conditions index is the only notable release on the calendar.

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

Former SNB President Roth has come out proposing alternative measures aimed at neutralizing the disruption of a stronger Franc on the Swiss economy, which include tax cuts and an easing in regulation. Overall, SNB smoothing activity to prop EURCHF has been helping to elevate the cross, but at the same time, 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. Certainly the wave of uncertainty from this latest decline in the Pound could be an added headache for the SNB.

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 0.7711 – 29Sep high – Strong
• R1 0.7629 – 10Oct high – Medium
• S1 0.7531 –20Sep low – Medium
• S2 0.7443 – 13Sep low – Strong

AUDUSD – fundamental overview

S&P warnings that Aussie debt has reached extreme levels is not doing anything to help the Australian Dollar on Tuesday, with the commodity currency already suffering from broad based US Dollar demand on the back of expectations for a December Fed rate hike. Looking ahead, the US labor market conditions index is the only notable standout on the economic calendar and instead, price action will likely be driven off broader macro 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 towards a measured move objective into the 1.3500-1.4000 area. Ultimately, only back below 1.3000 would delay the constructive outlook.

• R2 1.3314 – 7Oct high – Strong
• R1 1.3279 – 10Oct high – Medium
• S1 1.3111 – 4Oct low – Medium
• S2 1.3048 – 29Sep low– Strong

USDCAD – fundamental overview

Of course, it was no surprise to see the Canadian Dollar up a good chunk on Monday in response to the positive OIL flow from Putin comments Russia was ready to join a proposed cap on oil output by OPEC members. But any time we get headlines related to OIL ouput caps and OPEC, they always need to be taken with a grain of salt. Dealers also continue to cite very solid demand for USDCAD on dips from buy side shops playing the yield differential game on an expectation for higher rates in the US. Looking ahead, Canada housing starts and the US labor market conditions index are the key standouts on today’s calendar.

NZDUSD – technical overview

Finally signs of a 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 towards next major support in the 0.6950 area.

• R2 0.7142 –11Oct high – Strong
• R1 0.7100 – Figure  – Medium
• S1 0.7000 – Psychological – Medium
• S2 0.6952 – 21Jul low – Strong

NZDUSD – fundamental overview

There has been a notable shift in Kiwi sentiment over the past few weeks, with market participants feeling much less optimistic about the outlook for the higher yielding commodity currency. Softer local data and warnings from the RBNZ of additional rate cuts have been the primary driver of relative weakness, while of course, broad based US Dollar demand on expectation for a Fed hike has also factored. Tuesday’s slide comes on the back of comments from RBNZ Assistant Governor McDermott who has been talking about the need for additional rate cuts. Looking ahead, the US labor market conditions index is the only notable standout on the economic calendar and instead, price action will likely be driven off broader macro flow.

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

There is a growing concern for stock market bulls that we have reached the limits of monetary policy accommodation and investors will no longer be able to be able to benefit from government and central bank artificial support. Up until recently, softer US economic data had actually been a prop to equities on the assumption it would keep the Fed in accommodative mode. But there has been a notable shift of late, especially now that it looks like the Fed will be hiking, and we are starting to see signs of a deterioration in stocks even when data comes in soft. Last Friday’s US jobs report was a clear reflection of this fact, with stocks off despite the softer data. Perhaps the added hiccups of US election risk, Brexit risk and Deutsche Bank risk are also weighing on sentiment. Right now, the September base at 2108 will be the key level to watch. If that goes, the market could really fall off.

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 1235, with only a close back below this level to delay the bullish outlook and give reason for pause.

• R2 1302.50 – 1Sep low – Strong
• R1 1277.20 – 5Oct high – Medium
• S1 1241.45 – 7Oct low – Medium
• S2 1234.95 – 7Jun low – Strong

GOLD (SPOT) – fundamental overview

Broad based US Dollar demand on hawkish Fed speak and strong US data have been cited as major drivers behind GOLD’s slide. 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, even if the Buck is propped up, 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 18.7910 – 10Oct low – 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 the other 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. Another major driver of Peso outperformance has come from this impressive surge in the price of OIL, with the latest jump coming from Putin’s willingness to join OPEC. Still, overall, 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.