What Holds the USD Back if Jobs are Strong?

GBPUSD – technical overview

This latest impressive run to the topside is coming into critical resistance in the form of the December peak at 1.2775. Ultimately however, while we could see a test and overshoot beyond 1.2775 in the sessions ahead, the market would need to establish a weekly close above this level to suggest a major base in place and force a bullish structural shift. Until then, expect any moves into or through 1.2775 to stall out, especially with this run starting to look extended on the daily chart.

• R2 1.2775 – 6Dec high – Strong
• R1 1.2707 – 2Feb high– Medium
• S1 1.2526 – 2Feb low – Medium
• S2 1.2413 – 31Jan low – Strong

GBPUSD – fundamental overview

Into Friday, the Pound is the only developed currency tracking lower on the week against the US Dollar. Most of this weakness came Thursday in the aftermath of a BOE decision which clearly let down BOE hawks. While the BOE did raise GDP forecasts and warn about their tolerance limit with inflation, little actual change to inflation projections and a downbeat assessment on Brexit risk were enough to open an intense round of Thursday declines. There is a lot of talk now about no BOE hikes until 2019. The market should chop around into today’s US session, where the next wave of volatility is expected with US NFPs due, followed up by US ISM non manufacturing. UK services PMIs are also due but won’t get much attention.

USDJPY – technical overview

Daily studies have been unwinding from stretched levels which suggests additional upside could still be limited in favour of a more significant corrective pullback. The recent bearish break below 112.50 strengthens this outlook and could open a deeper drop towards a measured move objective in the 109.50. But ultimately, any additional setbacks below 112.50 are expected to be well supported below 110.00 in favour of that next higher low and bullish resumption towards 120.00.

• R2 113.96 – 31Jan high – Strong
• R1 113.36– 2Feb high – Medium
• S1 112.05 – 2Feb low – Medium
• S2 111.36 – 28Nov low – Strong

USDJPY – fundamental overview

Earlier today, the BOJ shook up the Yen a bit after initially disappointing the market with a less than expected increase in bond purchases at the regular bond purchase operation, but then announcing an unscheduled and unlimited fixed rate bond operation in the 5-10 year segment. The Yen has been flirting with the possibility of another big run higher (USDJPY lower) on the back of broad based USD weakness, some signs of stress in risk markets and technicals. Clearly a lot could be decided on Friday when the market takes in the first US monthly employment report of 2017. The market will also be paying attention to the US ISM non manufacturing print due shortly after NFPs.

EURCHF – technical overview

A recent close below 1.0800 which had been defined as the bottom of a multi-week range has strengthened the bearish outlook, opening the door for additional declines towards the 2016 low at 1.0624. At this point, a daily close back above 1.0763 would be required to take the immediate pressure off the downside.

• R2 1.0763 – 30Dec high – Strong
• R1 1.0700 – Figure – Medium
• S1 1.0638 – 30Jan low – Medium
• S2 1.0624 – 24Jun/2016 low – Strong

EURCHF – fundamental overview

Though you wouldn’t necessarily know it from looking at the EURCHF rate, the SNB is in a quiet battle with the market, forced to contend with an ongoing wave of demand for the Swiss Franc in a less certain global environment, especially with the weapon of monetary policy worn down. The central bank has been committed to its mandate of ensuring the Franc does not appreciate further through monetary policy and intervention tools. But despite all efforts, the Franc continues to want to appreciate. It seems the central bank’s 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, even with global equities elevated, arguably reflecting global appetite for risk, the Franc is still not depreciating as much as the SNB would like to see. And if global equities begin to falter, it could invite a wave of demand for the Franc that the SNB will have a very hard time offsetting.

AUDUSD – technical overview

The market has entered a healthy bullish phase after setbacks stalled shy of key medium-term support at 0.7145 in late December. Still, overall, rallies continue to be very well capped on a medium-term basis, with only a daily close back above 0.7800 to compromise this outlook. Look for a daily close below 0.7500 to officially put the pressure back on the downside.

• R2 0.7779 – 8Nov high – Strong
• R1 0.7697 – 2Feb high– Medium
• S1 0.7578 – 2Feb low – Medium
• S2 0.7512 – 27Jan low – Medium

AUDUSD – fundamental overview

The Australian Dollar has been a star performer this week, with the currency getting a major boost from a very impressive Aussie surplus print. Broad based US Dollar weakness on Trump protectionism has also factored into the Aussie’s run and the market will now turn its attention to the upcoming batch of US data highlighted by the monthly employment report but also featuring an important ISM non manufacturing reading. An earlier miss in China Caixin manufacturing PMIs has not factored into price action, though technically, it is worth noting this Aussie run is starting to look stretched against the Buck.

USDCAD – technical overview

The latest break below the 1.3000 psychological barrier could delay bullish prospects for this market, though we would need to see a daily close below 1.3000 to confirm such a structural shift. Until then, look for the market to continue to be well supported around the barrier ahead of the next major upside extension back towards and through the December peak at 1.3600. In the interim, a push above 1.3170 will officially take the immediate pressure off the downside.

• R2 1.3170 – 30Jan high – Strong
• R1 1.3103 – 1Feb high – Medium
• S1 1.2969 – 31Jan low – Medium
• S2 1.2823 – 7Sep low – Strong

USDCAD – fundamental overview

Canada has seen a nice run of economic data this week, with impressive GDP numbers followed up on Wednesday by a solid manufacturing print. This has helped the Canadian Dollar run, while ongoing broad based selling in the US Dollar is clearly the more prominent driver at the moment, with the market continuing to pay close attention to Trump protectionist policy talk which includes softer US Dollar comments. However, the rise in the Canadian Dollar remains a concern for the Bank of Canada as reflected in the recent policy decision and again when Governor Poloz spoke this week. Looking ahead, all eyes turn to today’s US employment report where volatility is always a good bet. But US ISM non manufacturing due shortly after is also capable of moving the market and should not be overlooked. At the moment, USDCAD is trying to figure things out around a major psychological barrier at 1.3000.

NZDUSD – technical overview

Despite this latest upside correction, the overall pressure remains on the downside with the market expected to be very well capped on rallies into the 0.7400 area. The weekly chart is reflective of this fact as it looks like we are seeing the formation of a major top off the 2016 high. As such, expect the market to stall out over the coming sessions in favour of that next lower top. Back below 0.7200 will help strengthen this outlook.

• R2 0.7403 – 8Nov high – Strong
• R1 0.7350 – 31Jan high – Medium
• S1 0.7222 – 26Jan low – Medium
• S2 0.7209 – 24Jan low– Strong

NZDUSD – fundamental overview

Although the New Zealand Dollar is up against the Buck over the past week into Friday, the price action is deceptive, with the currency underperforming against its peers and only benefiting from broad based US Dollar weakness, albeit marginally. Disappointing Kiwi employment data has really weighed on the commodity currency, while some risk off flow is also keeping the market capped into rallies. Moreover, the RBNZ isn’t likely to be pleased with the appreciation in the exchange and will be justified in adopting a more accommodative policy approach in light of this week’s employment miss. Ongoing subdued inflation is yet another Kiwi negative at the moment. So while there could be risk for additional Kiwi gains on Dollar selling themes, it looks like the currency could continue to underperform relative to its peers. Looking ahead, all eyes turn to the US employment report. US ISM non manufacturing is due shortly after the jobs report and should also be watched.

US SPX 500 – technical overview

The latest break to yet another record high following a healthy period of consolidation, opens the door for the next big push towards a measured move objective in the 2320-2340 area. While we have seen signs of exhaustion this week, given the intensity of this uptrend, a break back below 2232 would be required at a minimum to alleviate immediate topside pressure.

• R2 2320.00 – Measured Move – Strong
• R1 2304.00 – 26Jan/Record high – Medium
• S1 2254.00 – 12Jan low – Strong
• S2 2232.00 – 30Dec low– Strong

US SPX 500 – fundamental overview

The record run in US equities has been more than impressive, particularly at a time when the Fed is embarking on a hawkish path to policy normalisation and the Trump administration is focusing more on protectionist policies that threaten prospects for stability and global 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 monetary policy around the rest of the globe is exhausted with very little left in the tank to artificially support risk assets.

GOLD (SPOT) – technical overview

The market has been very well supported since basing out around 1120 in 2016. This latest break through 1220 confirms a fresh higher low at 1180 and opens the next major upside extension towards a measured move into the 1260 area. Only back below 1180 would delay the constructive outlook, while ultimately, below 1120 would be required to negate.

• R2 1233.10 – 16Nov high – Strong
• R1 1225.40 – 24Jan high – Medium
• S1 1180.60 – 27Jan low – Medium
• S2 1170.95 – 6Jan low  – Strong

GOLD (SPOT) – fundamental overview

Solid demand from medium and longer-term players continues to emerge on dips, with these players more concerned about the limitations of exhausted monetary policy, extended global equities, political uncertainty and systemic risk. All of this should continue to keep the commodity in demand, 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. Meanwhile, soft US Dollar policy talk out from the US administration is also factoring into demand and the market is now thinking about buying into today’s jobs report even if the data is strong, given soft Dollar talk out from the US administration.

Feature – technical overview

USDTRY has exploded to the topside in 2017, with the market extending its violent run of fresh record highs, closing in on critical psychological barriers at 4.0000. The parabolic price action has however inspired the onset of a necessary corrective pullback to allow for severely stretched studies to unwind. The market is super extended across the major time frames, with the weekly and monthly charts severely overbought. Look for a close back below 3.7000 on Friday to trigger a more significant correction. However, inability to establish below 3.7000 will open the possibility of fresh record highs through the major psychological barriers at 4.0000.

• R2 4.0000 – Psychological – Strong
• R1 3.9410 – 11Jan/Record High – Strong
• S1 3.7000 – Psychological – Strong
• S2 3.6300 – 9Jan low – Medium

Feature – fundamental overview

All of this broad based US Dollar selling on soft US administration US Dollar policy talk and yet not much of an appreciation in the beaten down Lira. Overall, recent measures from the CBRT to slow the depreciation in the Lira haven't done much to dissuade the market from  selling the Lira at every turn. And so, while the Lira has avoided fresh lows for the moment, alternative forms of restrictive policy may not be enough to do the trick, despite the CBRT’s reluctance to use the benchmark as a tool to combat FX moves, as once again hinted at in the latest Minutes. But Erdogan could be forced to advise his central bank to go the more direct route to slowing TRY depreciation via the benchmark rate. Erdogan has been vehemently against the idea of raising the benchmark given its strain on the local economy, yet if the USDTRY rate pushes through 4.00, he will likely be forced to reconsider this stance. Today’s Turkish CPI data will be watched closely for additional upward pressure on inflation.