Election Risk, BOE Decision, Equity Declines

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 1.2355 – 2Nov high – Medium
• S1 1.2100 – Figure – Medium
• S2 1.2089 – 11Oct low – Strong

GBPUSD – fundamental overview

There have been signs of demand for the Pound this week, with the UK currency clearing some initial stops against the Buck on Wednesday. Of course, there is plenty of risk ahead, with the market waiting for the EU membership court ruling on Brexit, UK services PMI results and the highly anticipated Bank of England policy decision which will be accompanied by the Quarterly Inflation Report. The key focus will be on whether the BOE downgrades growth forecasts and what it has to say about inflation in light of the softer Pound. Other data out on Thursday includes US initial jobless claims and ISM non-manufacturing.

USDJPY – technical overview

The recent rally above 105.00 could not be sustained and the pressure has once again shifted back to the downside following this latest break back below 103.15. Look for a daily close below 103.00 to reaffirm bearish momentum, exposing a potential retest of the 2016 low around 99.00. At this point, back above 105.53 will be required to take the pressure  off the downside.

• R2 104.17 – 2Nov high – Strong
• R1 103.45 – 3Nov high – Medium
• S1 102.50 – Mid-Figure – Medium
• S2 101.84 – 29Oct high – Strong

USDJPY – fundamental overview

Trading the Yen has been a difficult assignment for many traders. After the currency had looked like it was ready to really fall off in the previous week, it has now rallied back sharply with Trump momentum and risk off trade driving the demand. More Yen upside into Thursday on news the FBI is moving closer towards an indictment against the Clinton Foundation and on a Wikileak’s story of collusion between the Clinton Campaign, State Department and New York Times. Looking ahead, US initial jobless claims and US ISM non-manufacturing are the key standouts on the economic calendar.

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 this latest wave of Trump momentum 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 post Brexit 2016 low 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

Australian Dollar gains have been mild this week. Although, the currency has been supported on a less dovish RBA, US Dollar selling against the developed currencies on Trump momentum, solid China data and this latest better than expected Aussie trade release, broader risk off flow and a sharp downturn in equities is offsetting some of the demand. Looking ahead, the market will continue to focus on risk themes, while also taking in US initial jobless claims and US ISM non-manufacturing.

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 US ADP employment disappointing and the US Dollar under pressure as US election tension heated up. Looking ahead, the primary focus on Wednesday’s economic calendar will be on US initial jobless claims and US ISM non-manufacturing.

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 ahead of 0.7350 in favour of the next major downside extension below 0.7000 and towards medium-term support at 0.6675 further down.

• R2 0.7369 –22Sep high – Strong
• R1 0.7330 – 27Sep high  – Medium
• S1 0.7250 – Mid Figure – Medium
• S2 0.7181 – 2Nov low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has done a great job shrugging off this week’s risk off flow, 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. But at the same time, the market needs to take this week’s data with a grain of salt and also needs to be aware of the fact that a surging Kiwi rate will only invite the RBNZ to downplay solid data and instead focus on easing rates to prevent unwanted currency appreciation. Looking ahead, the primary focus on Wednesday’s economic calendar will be on US initial jobless claims and US ISM non-manufacturing.

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 initial jobless claims and US ISM non-manufacturing.

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 strengthens the outlook and should accelerate gains towards a retest of the 2016 peak at 1375.

• R2 1313.10 – 4Oct high – Strong
• R1 1308.00 – 2Nov high – Medium
• 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. Still, look for any setbacks to be well supported above 1.3700 in favour of the next major higher low and bullish resumption.

• R2 1.4000 – Psychological – Strong
• R1 1.3962 – 27Oct high – Medium
• S1 1.3818 – 2Nov low – Strong
• S2 1.3770 – 12Oct low – Medium

Feature – fundamental overview

Though we have seen a minor recovery this week, the overall 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. Dealers cite plenty of demand for USDSGD on dips into the 1.3700s.