Central Bank Non-Event Risk

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 1.2444 – 10Oct high – Strong
• R1 1.2333 – 19Oct high – Medium
• S1 1.2100 – Figure – Medium
• S2 1.2089 – 11Oct low – Strong

GBPUSD – fundamental overview

The Pound hasn’t done much at since early October when it fell off a cliff. But if we are going to dissect price action at this point, the UK currency did receive a bit of a lift on Monday. Much of this bid came on the back of news that Bank of England Governor Carney would be staying on to steer the economy through Brexit negotiations, committing to a term through June 2019. Looking ahead, the focus for the day will be on UK manufacturing PMIs and broader macro themes. We do get some US manufacturing and construction spending data as well.

USDJPY – technical overview

The recent break and daily close back above 105.00 suggests this market could be in the process of carving a more meaningful base. Look for an acceleration of gains back towards next key medium-term resistance at 107.50 in the sessions ahead, while only back below 103.15 would compromise the newly adopted constructive outlook.

• R2 106.54 – 27Jul high – Strong
• R1 105.61 – 29Jul high – Medium
• S1 104.30 – 27Oct low – Medium
• S2 103.72 – 24Oct low – Strong

USDJPY – fundamental overview

As was widely expected, earlier today, the Bank of Japan left monetary policy on hold, with rates steady at -0.1%. The BOJ said risk to the economy and prices were skewed to the downside. Unsurprisingly, there hasn’t been much of a reaction to the decision. Looking ahead, with only some US manufacturing and construction spending data due, the focus will likely shift to broader macro themes including the Fed policy outlook and US elections. 

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 1.0911 – 12Oct high – Medium
• S1 1.0798 – 24Oct low – Medium
• S2 1.0778 – 16Jun low – Strong

EURCHF – fundamental overview

The SNB has been a little more on edge of late, with the cross rate coming back down into what has been called the new floor at 1.0800. But a well known European bank has been talking about the effectiveness of current policy which hasn’t really cited a specific level to defend, as opposed to the policy we had seen that officially isolated the 1.2000 floor. The bank cites a notable pullback in EURCHF trading volume as another reason supporting the market, with less interest to force an appreciation in the Franc. Still, with risk sentiment and equities looking shaky at the moment, the SNB will need to mindful of the prospect for large unwanted inflows into the Franc on safe haven flow. We are also starting to see the emergence of a new unofficial floor at 1.0800 which could spell trouble for the SNB, if the market starts thinking about stops below.

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 0.7709 – 26Oct high – Strong
• R1 0.7653 – 27Oct high – Medium
• S1 0.7558 –28Oct low – Medium
• S2 0.7507 – 13Oct low – Strong

AUDUSD – fundamental overview

The Reserve Bank of Australia was out early Tuesday with its latest monetary policy decision. While the central bank left rates on hold as was widely expected, it did manage to make some waves after coming out less dovish. The RBA said current rates were consistent with sustainable growth in the economy and achieving its inflation target over time. The market had been more worried about the recent horrid Aussie employment data and the possibility it would have a more meaningful impact on this decision, but that didn’t prove to be the case. This has inspired Aussie outperformance on the day. It’s worth noting that China manufacturing data also impressed to the upside which could be giving Aussie an added boost. Looking ahead, with only some US manufacturing and construction spending data due, the focus will likely shift to broader macro themes including the Fed policy outlook and US elections.

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 1.3000 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 1.3500 – Psychological – Strong
• R1 1.3435 – 28Oct high – Medium
• S1 1.3353 – 27Oct low – Medium
• S2 1.3278 – 25Oct low– Strong

USDCAD – fundamental overview

While the Canadian Dollar is one of the weaker currencies out there right now, the Loonie actually held up rather well when you consider Monday’s development. On Monday, OIL prices dropped over 4% on the day and any time that happens, it usually has a big negative impact on the correlated Canadian Dollar. It seems some of the negative flow from lower OIL was offset by the highly disappointing Chicago PMI print. Broad based selling in the US Dollar into the latter half of Monday also helped to keep Canadian Dollar offers contained. Looking ahead, more volatility is expected Tuesday with Canada GDP and manufacturing PMIs due.

NZDUSD – technical overview

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 t 0.7266 in favour of the next major downside extension below 0.7000 and towards medium-term support at 0.6675 further down.

• R2 0.7266 –20Oct high – Strong
• R1 0.7185 – 26Oct high  – Medium
• S1 0.7109 – 27Oct low – Medium
• S2 0.7077 – 14Oct low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has been mostly quiet in recent sessions, taking a backseat to Aussie and Cad price action. But volatility is expected to pick up late Tuesday, early Wednesday with some important releases due. Later today we get the GDT auction result. The market has high hopes for this release, expecting a print above 7% after seeing a very mild 1.4% reading previous. Then, early Wednesday, we get Kiwi employment data, with all of this very capable of influencing the RBNZ going forward. The market is already pricing more RBNZ cuts ahead and today’s data will certainly factor into RBNZ easing odds.

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 hiccup of a shaky global backdrop is 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. Odds for a December rate hike have pushed up to about 80% which should add further pressure on stocks.

GOLD (SPOT) – technical overview

Despite a major setback in October, 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 1240, with only a close back below this level to delay the bullish outlook and give reason for pause. Back above 1300 will strengthen the outlook and accelerate gains.

• R2 1302.50 – 1Sep low – Strong
• R1 1284.25 – 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, solid US data and expectations for a December Fed hike have been cited as major drivers behind GOLD’s slide over the past several weeks. 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

USDSGD has been well bid in recent trade, with the market establishing back above 1.3500 and pushing up towards 1.4000. However, while the structure remains constructive and additional upside is projected, scope exists for a shorter-term correction to allow for stretched interday studies to unwind. There are now signs of a double top on the daily chart, with a break below the neckline at 1.3873 to confirm and open the door for a deeper drop into the 1.3750 area.

• R2 1.4000 – Psychological – Strong
• R1 1.3962 – 27Oct high – Medium
• S1 1.3873 – Neckline – Strong
• S2 1.3770 – 12Oct low – Medium

Feature – fundamental overview

The outlook for the Singapore Dollar is not that bright right now, with the currency under pressure on yield differentials with the US and reduced appetite for emerging market FX. Meanwhile on the domestic front, in its macroeconomic review, the MAS said it did not expect the Singapore economy to pick up significantly in the near term on the drag from lackluster external demand and weak global trade. This has also contributed to more pessimistic growth forecasts. Still, it seems into Tuesday that there has been decent SGD demand from the well received China manufacturing data and a concurrent rebound in stocks. China manufacturing PMIs surged to their highest level in two years. Dealers cite plenty of demand in the 1.3700s.