FX Market Takes in UK, US CPI Readings

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 1.2374 – 12Oct high – Strong
• R1 1.2273 – 13Oct high – Medium
• S1 1.2o89 – 12Oct low – Medium
• S2 1.2000 – Psychological – Strong

GBPUSD – fundamental overview

A UK clearer has been on the bid, while a US prime name is sitting on the offer. For the most part, this market hasn’t been comfortable making any new moves since breaking down to fresh 31 year lows the other week, though the hangover from Brexit seems to be preventing Cable from feeling too good about any meaningful rallies at this juncture. We could get some volatility today, with CPI readings on tap out of the UK and US. We also get US NAHB housing and US TIC flows.

USDJPY – technical overview

The broader pressure remains on the downside after the market was unable to establish above a previous lower top at 104.32. Key support now comes in at 102.81, with a drop below to strengthen the bearish outlook and expose a potential retest of the 2016 low down around 99.00. At this point, a daily close back above 104.63 would be required to signal a bullish shift in the structure.

• 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

Monday’s retreat in US treasury yields was seen as the primary driver behind weakness in the major pair, with many attributing the Yen demand to a softer round of US data. A pullback in risk assets could have also contributed to USDJPY downside, though setbacks were marginal and with equities already recovering early Tuesday, it’s unlikely this has had much to do with USDJPY weakness. Looking ahead, we get a decent batch of US data featuring CPI, NAHB housing and TIC flows.

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 1.08000 or above 1.1000 for clearer insight. Central bank policies from around the globe have been helping to support EURCHF for a long time. But with these policies now exhausted, it could invite additional Franc demand if sentiment continues to roll over 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 0.7000 – Figure – Medium
• S1 0.7625 –18Oct low – Medium
• S2 0.7557 – 14Oct low – Strong

AUDUSD – fundamental overview

Today’s RBA Minutes and RBA Lowe speech have reinforced the probability the RBA will be making no additional accommodative moves to policy unless upcoming CPI data produces a much softer result. Of course, this has been helping to prop up Aussie, with the currency already bid into Tuesday following a softer round of Monday US data. Overall however, while Aussie could see additional strength against many currencies, there is increasing risk for another topside failure against the US Dollar, with the Fed still expected to start raising rates again and yield differentials to continue to move in the Buck’s favour. Moreover, the state of risk assets is rather shaky at the moment, which could act as an additional weight on the risk correlated currency. Looking ahead, we get a healthy batch of US releases featuring CPI, NAHB housing and TIC flows.

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 1.2900 in favour of the next major upside extension towards a measured move objective into the 1.3500-1.4000 area. Ultimately, only back below 1.2764 would delay the constructive outlook.

• R2 1.3184 – 17Oct high – Strong
• R1 1.3135 – 18Oct high – Medium
• S1 1.3048 – 29Sep low – Medium
• S2 1.3000 – 22Sep low– Strong

USDCAD – fundamental overview

The Canadian Dollar has been trading with a firmer tone into this week, with most of the price action attributed to US Dollar selling on the back of Monday’s softer round of US data. But overall, the Loonie remains on the back foot and dealers continue to cite plenty of solid demand for the US Dollar on dips. Yield differentials remain the key driver right now, and these differentials are favouring the Buck as the Fed draws closer to another rate hike. Tomorrow, we get an important Bank of Canada policy decision, where the central bank is expected to remain on hold, while maintaining and easing bias. But with this event risk ahead, there is risk for less volatility today as the market positions for the risk. Still, we do get Canada manufacturing shipments and US CPI today which should not be overlooked.

NZDUSD – technical overview

Setbacks have stalled out ahead of psychological barriers at 0.7000 for now, though the pressure has shifted back to the downside with the market now expected to be very well capped on rallies. Look for a fresh lower top ahead of 0.7350 in favour of the next major downside extension below 0.7000 and towards medium-term support at 0.675 further down.

• R2 0.7221 –26Sep low – Strong
• R1 0.7201 – 7Oct high  – Medium
• S1 0.7128 – 18Oct low – Medium
• S2 0.7077 – 14Oct low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has done a nice job building on Monday’s gains from softer US data, with the risk correlated commodity currency extending its recovery on the back of today’s hotter than expected New Zealand CPI readings. But all of this needs to be taken with a grain of salt as Monday’s US data was hardly first tier, while today’s New Zealand CPI print was only slightly firmer. And so, ultimately, none of this should shift expectations too much from the Fed moving higher on rates and the RBNZ still considering a rate cut. For today, the key focus will be on US CPI and the New Zealand GDT auction.

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. 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 CPI.

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 expectations for a Fed hike 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, 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. Last 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. For today, keep an eye on US inflation readings.