USD Outlook and Risk Sentiment in Question

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 1.2445 – 10Oct high – Strong
• R1 1.2374 – 12Oct high – Medium
• S1 1.2o89 – 12Oct low – Medium
• S2 1.2000 – Psychological – Strong

GBPUSD – fundamental overview

The Pound has managed to stabilise a bit into Friday trade, with the UK currency mostly benefitting from a round of profit taking ahead of today’s anticipated US retail sales print. But clearly the hangover from Brexit isn’t going anywhere and should continue to keep the Pound offered into rallies. Friday UK economic data is second tier and won’t factor into price action and the key focus for UK traders will be on a speech from Governor Carney. Other data out on the day comes out of the US with producer prices and Michigan sentiment scheduled. We also get more official speak from Fed’s Harker and Rosengren, before the Fed Chair steps in with her speech to close out the week.

USDJPY – technical overview

The recent break above the previous lower top at 104.32 could be a significant development, potentially setting the stage for a bullish reversal. The market had been downtrending for several weeks, but a daily close above 104.32 in the days ahead will do a good job opening the door for an upside extension back towards 110.00. Inability however to close above 104.32 suggests a false upside break and keep the pressure on the downside. Back below 102.81 would confirm false break.

• R2 105.00 – Psychological – Strong
• R1 104.63 – 13Oct high – Medium
• S1 103.28 – 12Oct low – Medium
• S2 102.81 – 10Oct low – Strong

USDJPY – fundamental overview

The Yen has been mostly offered of late, with USDJPY looking like it wants to push higher, and most of this flow is coming from yield differentials which are decidedly in the US Dollar’s favour. On the one side, the Fed is looking to hike, while on the other, the BOJ is still considering additional easing. But there are other factors at play that should not be overlooked with the Yen, namely risk sentiment. Thursday’s recovery in sentiment helped to prop the major pair. But if we see risk come off again on Friday, this could easily offset any of the yield differential flow, with USDJPY coming back under pressure on the Yen’s ability to generate safe haven bids. As far as today’s calendar goes, we get US retail sales, producer prices and Michigan sentiment, along with speeches from Fed’s Harker, Rosengren and Yellen.

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

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 for a long time 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.

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 0.7507 –13Oct low – Medium
• S2 0.7443 – 13Sep low – Strong

AUDUSD – fundamental overview

The Australian Dollar has found some support into the latter half of the week, mostly on profit taking and position squaring ahead of today’s US retail sales print. Certainly Thursday’s 43 year low in US initial jobless claims shouldn’t be doing much to help Aussie’s cause, though it seems for now the market is consolidating. The early Friday release of hotter China inflation could be another source for some Aussie demand, which also is helping to offset Thursday’s discouraging China trade data. Looking ahead, it will be about the mentioned US retail sales and some other US data including producer prices and Michigan sentiment. On the official circuit, we get speeches from Fed’s Harker, Rosengen and Yellen.

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 1.3250 – Mid-Figure – Medium
• S1 1.3163 – 11Oct low – Medium
• S2 1.3140 – 10Oct low– Strong

USDCAD – fundamental overview

Thursday was a day where OIL prices recovered and the market decided to book profit on long US Dollar exposure across the board. And so, when you get that type of a day, you are going to find the Canadian Dollar trading higher. But overall, data is still supportive of the Fed moving forward with a rate hike, particularly after Thursday’s US initial jobless claims came in at a 43 year low, and it’s unlikely that any Canadian Dollar strength will be able to persist for more than a few sessions before USD bulls swoop back in. Dealers now cite solid demand in USDCAD down towards 1.3000. Looking ahead, lack of data on the Canada calendar will leave the focus on US retail sales, producer prices and Michigan sentiment. We also get a docket of Fed speak, with Harker, Rosengren and Yellen all scheduled.

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 0.7133 – 14Oct high  – Medium
• S1 0.7036 – 13Oct low – Medium
• S2 0.6952 – 21Jul low – Strong

NZDUSD – fundamental overview

It’s been a tough go for Kiwi of late, with sentiment changing dramatically these past several days. A wave of softer New Zealand economic data and dovish comments from the RBNZ all have the market staring at a more significant yield differential with the US Dollar, as the Fed prepares for a hike while the RBNZ is seriously considering another cut. There has been a lot of speculation about next week’s New Zealand inflation data and if these readings come in soft, as the market is expecting, it could open another downturn in the Kiwi rate as the odds for another RBNZ cut push to a near certainty. As far as today goes, the focus will be on US retail sales and some other US data including producer prices and Michigan sentiment. On the official circuit, we get speeches from Fed’s Harker, Rosengen and Yellen.

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. For today, all eyes are on US retail sales and a speech from the Fed Chair.

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, systemic risk and a bet that record low inflation will eventually start to turn up. 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 19.3810 – 7Oct high – Strong
• R1 19.0990 – 13Oct 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. Thursday’s Banxico Minutes confirmed the latest 50bp rate hike was a unanimous decision. 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, 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.