Market Prepares for ECB Decision

GBPUSD – technical overview

The market has broken out of a multi session consolidation off the multi-year low, which has opened a sizable correction higher. Ultimately, there is room to run a little more to the 1.2800 area 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. A daily close below 1.2300 will put the immediate pressure back on the downside.

• R2 1.2796 – 6Jul low – Strong
• R1 1.2775 – 6Dec high – Medium
• S1 1.2570 – 7Dec low – Medium
• S2 1.2386 – 28Nov low – Strong

GBPUSD – fundamental overview

Wednesday was not a good day for the Pound, with the UK currency getting hit on multiple fronts. As far as data went, both industrial and manufacturing production came in well below forecast, which was already enough of a reason to be selling. But we also got the UK parliament’s vote not to delay PM May’s plan to trigger Article 50 by the end of March 2017, which got the market more worried about harder Brexit implications. Looking ahead, the UK calendar is quiet and the Pound will turn its attention to the ECB decision and some US initial jobless claims.

USDJPY – technical overview

The major pair has seen an intense bullish shift in recent days, with the most recent break above 107.50 exposing fresh upside towards next meaningful resistance in the 115.00 area. However, daily studies are looking stretched which suggests that additional upside could be limited  in favour of a more significant healthy corrective pullback. But ultimately, any setbacks are expected to be well supported above previous resistance at 107.50.

• R2 114.83 – 1Dec high – Strong
• R1 114.41 – 7Dec high – Medium
• S1 112.87 – 5Dec low – Medium
• S2 111.36 – 28Nov low – Strong

USDJPY – fundamental overview

Once again, the major pair is caught between diverging flow, with rallies well capped on broad based profit taking on US Dollar longs, while at the same time dips have been supported on this ongoing demand for equities, with US stocks pushing to fresh record highs. Earlier today, China trade data was positive which has also been supporting, but looking ahead, the Yen will be watching closely to see what the ECB decides to do. Otherwise, US initial jobless claims is the only other notable release. It’s worth noting that Japan GDP came in softer but hasn’t factored into trade.

EURCHF – technical overview

A recent close below 1.0800 which had been defined as the bottom of a multi-week range 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 – Strong
• R1 1.0854 – 5Dec high – Medium
• S1 1.0687 – 18Nov low – Medium
• S2 1.0624 – 24Jun/2016 low – Strong

EURCHF – fundamental overview

The SNB has unquestionably had a challenging time of late, with the central bank forced to contend with an ongoing wave of demand for the Swiss Franc, mostly recently in the aftermath of this latest Italian referendum NO vote. 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, with risk on and global equities elevated, the Franc is still not depreciating as much as the SNB would probably like to see and if global risk sentiment deteriorates, it could invite a massive wave of demand for the Franc that the SNB will be unable to offset.

AUDUSD – technical overview

The latest break below 0.7400 is a significant development and now opens the door for deeper setbacks towards next key support at 0.7145 in the days ahead. At this point, look for any rallies to be well capped ahead of 0.7600. Only back above 0.7700 delays the bearish outlook.

• R2 0.7582 – 15Nov high – Strong
• R1 0.7509 – 8Dec high– Medium
• S1 0.7371 – 1Dec low – Medium
• S2 0.7312 – 21Nov low – Strong

AUDUSD – fundamental overview

The Australian Dollar has been in search of some good news after taking in a batch of softer data of late including employment and growth. Aussie has been benefitting a bit from broad based profit taking on USD longs, though on Thursday, the currency got a bit more of a welcome boost from the well recieved China trade data. Looking ahead, the Australian Dollar will likely be influenced by the fallout from the ECB decision. US initial jobless claims are also due but are not expected to have any material impact on price action.

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 1.3357 – 30Nov low – Strong
• R1 1.3297 – 7Dec high – Medium
• S1 1.3200 – Figure – Medium
• S2 1.3190 – 100-Day SMA – Strong

USDCAD – fundamental overview

The Canadian Dollar has managed to extend its recent run after the Bank of Canada came out and left rates unchanged at 0.5% as expected, while also offering a more balanced assessment. Stronger Canada economic data of late and a run up in the price of OIL have been behind much of this recent run, while the Loonie has received an added prop on some broad based profit taking on US Dollar longs. Looking ahead, we get some Canada housing data and US initial jobless claims, though most of the volatility is likely to come from the ECB decision.

NZDUSD – technical overview

Despite the latest bounce, the overall pressure has shifted back to the downside with the market now expected to be very well capped on rallies ahead of 0.7300. Look for a fresh lower top at 0.7403 in favour of the next major downside extension below 0.6952 and towards medium-term support at 0.6675 further down.

• R2 0.7266 – 20Oct high – Strong
• R1 0.7223 – 8Dec high – Medium
• S1 0.7164 – 8Dec low – Medium
• S2 0.7095 – 6Dec low– Strong

NZDUSD – fundamental overview

The New Zealand Dollar was already benefitting from a wave of broad based profit taking on US Dollar longs and another uptick in US equities, before getting another boost early Thursday from RBNZ Governor Wheeler. The key takeaway from the Wheeler comments was that the RBNZ were likely to be done with interest rate cuts. Looking ahead, US initial jobless claims are due, though most of the focus for the day will be on the fallout from the ECB decision.

US SPX 500 – technical overview

While this latest surge back to a fresh 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 2200 on a monthly close basis. 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. Initial support comes in at 2180, with a break below to take the immediate pressure off the topside.

• R2 2250.00 – Psychological – Strong
• R1 2242.00 – 7Dec/Record high – Medium
• S1 2180.00 – 5Dec low – Medium
• S2 2156.00 – 25Oct high– Strong

US SPX 500 – fundamental overview

The ongoing support for US equities has been more than impressive, particularly at a time when the Fed is about to embark on a steady path to policy normalisation. But 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 globally and an inability for central banks to continue to support and stimulate growth. This leaves financial markets vulnerable to any shocks and exposed to intense periods of additional risk liquidation going forward, especially at a time when the Fed is moving further away from accommodation.

GOLD (SPOT) – technical overview

Despite a major setback, the overall structure remains constructive with the market in the process of carving out a longer-term base. Look for any weakness to be very well supported above 1130, with only a close back below this level to negate the basing outlook and give reason for pause. Back above 1197.70 strengthens the outlook and should accelerate gains towards a retest of the 2016 peak at 1375.

• R2 1221.10 – 22Nov high – Strong
• R1 1197.70 – 28Nov high – Medium
• S1 1157.10 – 5Dec low – Medium
• S2 1150.00 – Psychological – Strong

GOLD (SPOT) – fundamental overview

GOLD has suffered quite a blow over the past several days, with the yellow metal unable to ignore the intense rotation into the US Dollar. However, solid demand from medium and longer-term players continues to emerge on dips despite the setbacks, with these players more concerned about 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.

Feature – technical overview

USDTRY continues to push into unchartered territory, breaking to yet another record high, this time through psychological barriers at 3.5000, stalling just shy of 3.6000. While the uptrend remains firmly intact, daily studies are now at the point where they are overextended. This warns of some form of a major corrective pullback ahead to allow for these studies to unwind. Medium-term studies are also extended, yet another indication we could soon see a period of correction. Ultimately however, any setbacks should be well supported ahead of 3.2000.

• R2 3.6500 – Psychological – Strong
• R1 3.5950 – 2Dec/Record High – Medium
• S1 3.3690 – 24Nov low – Medium
• S2 3.3515 – 21Nov low – Strong

Feature – fundamental overview

The Lira is feeling a little better and has managed to mount a decent recovery from record lows, with the currency helped along by broad based profit taking on US Dollar longs, fresh record highs in US equities and an expectation substantial measures will be introduced today from the Turkish Economic Coordination board. But overall, event risk and political risk are major headaches on the domestic front, while the CBRT also has to continue to worry about Fed normalisation. One major bank has come out with a downbeat assessment for Turkey and the Lira into 2017, declaring that Turkey has ‘by far the worst external position in CEEMEA’. The CBRT’s latest financial stability report has tried to paint a more upbeat picture but that’s a difficult thing to do when the currency is crashing and you get trade data showing a wider deficit.