Fed, Politics and 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

While many markets have been on the move following Tuesday’s volatility surge and wave of risk off trade, the Pound has continued to trade comfortably within a well defined multi-day range. The news of the Trump poll lead inspired intense US Dollar selling against the other major currencies, but with UK manufacturing data disappointing and US manufacturing data bettering expectation, it seemed this would be enough to prevent an already jittery Brexit riddled Pound from making any moves. Looking ahead, we get UK construction PMIs, US ADP jobs and the all important Fed decision. Of course, the market will also be looking ahead to Thursday’s BOE.

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 105.53 – 28Oct high – Strong
• R1 105.12 – 1Nov high – Medium
• S1 103.72 – 24Oct low – Medium
• S2 103.16 – 19Oct low – Strong

USDJPY – fundamental overview

The combination of risk off trade and aversion to the US Dollar on the revelation of a Trump lead in one of the polls, was enough to open the door for a nasty reversal in favour of the Yen. Earlier today, BOJ Kuroda was on the wires rehashing comments from Tuesday, though the downbeat remarks have done very little to slow appreciation in the Yen. Kuroda reminded the downside risks to growth and inflation were much greater than the upside risks. And so, for the time being, its broader risk sentiment flow that will likely continue to dictate direction, with a further deterioration in the global equity market to invite additional Yen demand. Looking ahead, US ADP jobs and the all important Fed policy decision are the key standouts.

EURCHF – technical overview

The latest break below 1.0800 warns the market could be getting set to deviate from what had been a well defined range between 1.0800 and 1.1000. Look for a daily close below previous support at 1.0778 to strengthen the outlook and open the door for an acceleration of declines towards the 2016 low at 1.0624 further down. At this point, a daily close back above 1.0800 would be required to sustain the familiar range trade.

• R2 1.0865 – 28Oct high – Strong
• R1 1.0800 – Previous Support – Medium
• S1 1.0750 – Mid-Figure – Medium
• S2 1.0624 – 24Jun/2016 low – Strong

EURCHF – fundamental overview

SNB President Jordan reiterated his central bank’s stance on monetary policy Tuesday, saying the SNB was committed to using its two tools of intervention and negative interest rates to prevent further appreciation in the Swiss Franc. However, this strategy to prop the local currency is going to prove to be a very tough go if the SNB finds itself in a battle with global themes and flows that demand safe haven passage into the Swiss Franc. Certainly Tuesday’s news of a Trump poll lead was behind this latest flurry of risk off trade that has made the SNB’s job all the more challenging. There had been many talking about 1.0800 as an unofficial EURCHF floor, but with that level broken, the market could quickly turn its attention to the 2016 low post Brexit in the lower 1.0600s.

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 0.7690 – 1Nov high – Medium
• S1 0.7558 –28Oct low – Medium
• S2 0.7507 – 13Oct low – Strong

AUDUSD – fundamental overview

Although Tuesday’s RBA decision came in less dovish and served as a prop for the Australian Dollar, the currency has since run into some major external headwinds that are expected to keep the lid on additional upside. Initially, it was the offers from medium-term players continuing to take advantage of rallies towards 0.7700, and this was followed up by risk off flow from the US election jitters and then capped off with a surge in Aussie outflow on Kiwi demand from an impressive 24 hours of New Zealand data. Looking ahead, the focus will be on US ADP employment, the FOMC policy decision and broader risk appetite.

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

The Canadian Dollar continues to be one of the underperformers in the FX market at the moment, with the Loonie taking hits on a pullback in OIL and broad based risk off flow that is not supportive of the more risk correlated commodity currencies. Still, the Loonie did get a bit of relief on Tuesday with Canada GDP coming in as expected and the US Dollar under some pressure as US election tension heated up. Looking ahead, the primary focus on Wednesday will be US ADP employment and the FOMC policy decision.

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 0.7191 – 1Nov high  – Medium
• S1 0.7109 – 27Oct low – Medium
• S2 0.7077 – 14Oct low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has done a great job shrugging of Tuesday’s risk off flow from US election jitters, with the currency enjoying a number of exceptionally positive local developments. First it was the well received GDT auction results and this was then followed up by a robust employment report and an uptick in RBNZ inflation expectations. All of this of course has forced market participants to reconsider RBNZ easing bets, with odds for a rate cut dropping off. Looking ahead, the focus will shift back to the US, with ADP employment and the FOMC decision ahead.

US SPX 500 – technical overview

Signs of a potential top after the market recently broke below critical support at 2108. 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 2156, with only a daily close back above this level to compromise the newly adopted bearish outlook.

• R2 2156.00 – 25Oct high – Strong
• R1 2137.00 – 31Oct high – Medium
• S1 2080.00 – 200-Day SMA – Strong
• S2 2073.00 – 6Jul low– Strong

US SPX 500 – fundamental overview

US equities have taken a big hit this week, with the market getting clobbered and dropping back below the critical low from September. Investors have been citing US election risk as the reason behind the move, though it would be unfair to dismiss the bigger story at hand, which is an exhaustion of global monetary policy tools and an inability for central banks to continue to support and stimulate the global economy. This leaves financial markets vulnerable to any shocks and exposed to intense periods of risk liquidation going forward. Looking ahead, we get US ADP employment and the FOMC policy decision.

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 1313.10 – 4Oct high – Strong
• R1 1302.50 – 1Sep low – Strong
• S1 1260.40 – 24Oct low – Medium
• S2 1241.45 – 7Oct low – Strong

GOLD (SPOT) – fundamental overview

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. Of course, this latest liquidation in risk assets is also not welcoming of Singapore Dollar demand and if the sell off in equity markets continues, the Singapore Dollar could very well be in for a fresh run of weakness. Today’s FOMC decision will be watched closely.