Looking Beyond the December Fed Hike

GBPUSD – technical overview

The market has broken out of a multi session consolidation off the multi-year low, which could now open the door for a more significant correction higher in the days ahead. Ultimately, there is room to run towards 1.2800 without compromising the intense downtrend, with a lower top sought out in favour of a bearish resumption back towards 1.2000. Only a weekly close above 1.2800 would compromise the structure.

• R2 1.2592 – 14Nov high – Strong
• R1 1.2503 – 16Nov high– Medium
• S1 1.2380 – 15Nov low – Medium
• S2 1.2353 – 9Nov low – Strong

GBPUSD – fundamental overview

Softer components in Wednesday’s UK employment data kept the Pound well capped for most of the day and the market remains under mild pressure into Thursday. But there is plenty to take in on today’s calendar that will likely dictate the UK currency’s next move. Some of the highlights include UK retail sales, US CPI and Fed Yellen testimony.

USDJPY – technical overview

A strong bullish performance in the previous week, with the pair initially pulling back dramatically before surging higher to clear the multi-day range high at 105.53. This should now set the stage for the next major upside extension towards next key resistance at 111.45 in the days ahead. Any setbacks from here should be very well supported above 105.00.

• R2 110.00 – Pyschological – Strong
• R1 109.76 – 16Nov high – Medium
• S1 107.77 – 15Nov low – Medium
• S2 106.73 – 14Nov low – Strong

USDJPY – fundamental overview

The major pair has been well supported on dips with the market happy to buy more after the BOJ announcement of a fixed-rate operation to buy JGBs of 1-3 year maturities and 3-5 year maturities. This is the first operation of this kind since the move over to a yield curve control strategy. Effectively, the move sets an upper limit on yields which is unsurprisingly resulting in Yen weakness. Looking ahead, the calendar is busy today with US CPI and Fed Yellen testimony as the major highlights.

EURCHF – technical overview

The latest daily close below 1.0738 strengthens the bearish outlook and opens the door for an acceleration of declines towards the 2016 low at 1.0624. At this point, a daily close back above 1.0865 would now be required to take the immediate pressure off the downside and suggest the market is once again looking settle back into the previous range.

• R2 1.0865 – 28Oct high – Medium
• R1 1.0832 – 9Nov high – Strong
• S1 1.0688 – 14Nov low – Medium
• S2 1.0624 – 24Jun/2016 low – Strong

EURCHF – fundamental overview

The SNB has unquestionably had a difficult time of late, with the central bank forced to contend with an intense wave of demand for the Swiss Franc. The central bank has been committed to its mandate of ensuring the Franc does not appreciate further through monetary policy and intervention tools. Though despite all efforts, the Franc continues to want to appreciate against the Euro. It seems the strategy has been to buy Euro when risk comes off and to do nothing when risk is back on and natural flows should be CHF bearish. But the trouble is, when risk comes back, the Franc is still appreciating which is a major headache for the SNB and ultimately, could open more unwanted appreciation in the Franc going forward.

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  a daily close back above 0.7700 will delay the bearish outlook and invite a retest of the 2016 highs.

• R2 0.7630 – 11Nov high – Strong
• R1 0.7582 – 15Nov high– Medium
• S1 0.7461 –16Nov low – Medium
• S2 0.7421 – 27Jul low – Strong

AUDUSD – fundamental overview

The Australian Dollar has been weighed down into Thursday following the release of the Aussie employment report which came in mixed but ultimately had many soft undertones. Downward revisions and a dip in the participation rate were the discouraging components and leave the outlook for the labour market uncertain. Looking ahead, the focus shifts to US CPI and Fed Yellen testimony.

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 well ahead of 1.3000 in favour of the next major upside extension towards a measured move objective into the 1.4000 area. Ultimately, only back below 1.3000 would delay the constructive outlook.

• R2 1.3589 – 14Nov high – Strong
• R1 1.3500 – Psychological – Medium
• S1 1.3387 – 10Nov low – Medium
• S2 1.3354 – 1Nov low– Strong

USDCAD – fundamental overview

The Canadian Dollar has been one of the weaker currencies of late, but has managed to recover some this week. Most of this renewed demand has been driven off OIL prices, with a healthy rebound in the commodity directly correlating with the Loonie. Looking ahead, the focus will be on Canada international securities transactions, US CPI and Fed Yellen testimony.

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 at 0.7403 in favour of the next major downside extension below 0.7000 and towards medium-term support at 0.6675 further down.

• R2 0.7229 – 11Nov high – Strong
• R1 0.7145 – 15Nov high  – Medium
• S1 0.7035 – 13Oct low – Medium
• S2 0.7000 – Psychological – Strong

NZDUSD – fundamental overview

Now that fallout from US election risk is fading and a December Fed hike is fully priced, the market will start to focus back on other themes like broader risk sentiment. It seems for now, Kiwi has done a good job being supported ahead of major psychological barriers at 0.7000 as US equities continue to track near record highs. Looking ahead, the focus shifts to US CPI and Fed Yellen testimony.

US SPX 500 – technical overview

While this latest surge back towards the record high could compromise what has been the possibility for a toppish structure, the risk is still tilted to the downside if the market fails to establish above the record high from August just shy of 2200. But ultimately, at this point, any topside failure will also need to be met with a break back below 2100 to once again encourage the possibility for a bearish structural shift.

• R2 2194.00 – 23Aug/Record high – Strong
• R1 2188.00 – 16Nov high – Medium
• S1 2148.00 – 8Nov high – Medium
• S2 2100.00 – Psychological– Strong

US SPX 500 – fundamental overview

Reaction to last week’s US election has been dominated flow with stocks shockingly surging back to record highs despite Donald Trump emerging as the next President of the United States. But overall, once the election volatility is out of the way, the market will need to once again think about the bigger, more worrying issue 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 additional risk liquidation going forward. Looking ahead, we get US CPI and Fed Yellen testimony.

GOLD (SPOT) – technical overview

Despite a major setback, the overall structure remains highly constructive with the market in the process of carving out a longer-term base. Look for any weakness to be very well supported above 1200, 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 1337.30 – 9Nov high – Strong
• R1 1265.50 – 11Nov high – Medium
• S1 1211.60 – 14Nov low – Medium
• S2 1199.90 – 30May 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 turn up even faster in a Trump presidency. 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. Dealers cite strong demand in the $1200 area.

Feature – technical overview

USDMXN has raced to a fresh record high with the market surging through critical psychological barriers at 20.000. The break to new highs now opens the door for a measured move upside extension towards 22.0000 in the sessions ahead, following a period of consolidation roughly between 18.0000 and 20.0000. At this point, only back below 18.000 would compromise the highly constructive outlook.

• R2 22.0000 – Measured Move – Strong
• R1 21.3950 – 11Nov/Record High – Medium
• S1 19.5490 – 3Nov high – Medium
• S2 18.1600 – 9Nov low – Strong

Feature – fundamental overview

The danger of a Trump Presidency to the Mexican economy has become a reality, with Trump emerging victorious in last week’s US election. This has opened a dramatic collapse in the Peso, with the currency sinking to a fresh record low against the Buck and down as much as 10% post election. This will make the Banxico’s job extremely difficult going forward, with most expecting a 50bp rate hike later today and some even calling for as much as 100 basis points. And while a hike of this magnitude may slow the pace of the Peso depreciation, it will also act as a major strain on the local economy and Mexico’s growth prospects. Still, for now, the Banxico has preferred to hold off making any immediate decisions and this has proven somewhat effective, with the central bank getting help from the surprising surge in risk assets and minor correction in the US Dollar which is supportive of the emerging market FX bloc.