US Jobs Report Warns of More USD Weakness

GBPUSD – technical overview

This latest impressive run to the topside has stalled out ahead of critical resistance in the form of the December peak at 1.2775. While we could still 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. A daily close below 1.2400 will increase bearish prospects.

• R2 1.2707 – 2Feb high – Strong
• R1 1.2538 – 3Feb high– Medium
• S1 1.2450 – Mid-Figure – Medium
• S2 1.2413 – 31Jan low – Strong

GBPUSD – fundamental overview

The Pound has been underperforming again, this time on a Friday UK services PMIs miss and on speculation the UK PM has been facing revolt from party members on the Article 50 bill. All of this has clouded the currency’s ability to benefit from a US jobs report that produced a softer hourly earnings print, reducing odds of a March hike from the Fed. Ongoing Brexit uncertainty is expected to continue impact the Pound until more clarity is offered in the weeks ahead, and this will likely result in some more choppy trade. Recent hawkish comments from Fed’s Evans and Williams, still open to three rate hikes in 2017 have not done anything to help the Dollar, with the market less influenced by Fed rhetoric that has a reputation for letting the market down. Looking ahead, lack of first tier data out of the UK or US, will leave the market focuses on broader themes of UK and US politics.

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 113.49– 3Feb high – Medium
• S1 112.05 – 2Feb low – Medium
• S2 111.36 – 28Nov low – Strong

USDJPY – fundamental overview

The Yen has retained a bid tone into the new week, mostly on the back of this latest US employment report. Friday’s jobs report has fueled more currency gains against the Buck across the board on a account of a softer hourly earnings print that has reduced odds of a March hike from the Fed. Even hawkish comments from Fed’s Williams and Evans, still open to the possibility of 3 hikes this year, have done little to help the US Dollar, with the market seemingly knowing better than to rely on hawkish Fed rhetoric that has consistently proven unreliable. At the same time, the Yen has been finding some offers on account of this latest wave of risk on flow, driving US equities back towards fresh record highs. Looking ahead, Monday’s economic calendar is exceptionally thin and broader macrothemes will dictate flow.

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 1.0725 – 50Day-SMA – 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 0.7700 – Figure– Medium
• S1 0.7578 – 2Feb low – Medium
• S2 0.7512 – 27Jan low – Medium

AUDUSD – fundamental overview

The Australian Dollar has suffered a round of mild setbacks into Monday trade after Aussie retail sales came in softer than expected, while China Caixin PMIs missed. However, TS Securities inflation ticked up, while Aussie job ads improved to offset somewhat. Overall, the Australian Dollar has enjoyed an impressive run in 2017 on the back of broad based US Dollar weakness from soft Dollar Trump talk, higher commodities and ongoing demand for global equities. There is risk Aussie remains supported in the days ahead given Friday’s soft US hourly earnings which has reduced odds for a March hike from the Fed. The market will also start to look ahead to tomorrow’s RBA decision, with the central bank widely expected to leave policy on hold. Hawkish comments from Fed’s Evans and Williams, still talking of the possibility of 3 rate hikes in 2017 have been largely dismissed on account of the Fed’s ability to consistently let the market down when it comes to hawkish rhetoric.

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

The Canadian Dollar is coming off a solid week of trade, benefiting from an impressive run of Canada economic data and an ongoing interest to be selling US Dollars across the board on soft US Dollar talk from the trump administration. Friday’s softer hourly earnings component in the US employment report has been enough to offset the strong NFP print and this has kept the Loonie in demand into the new week. Perhaps hawkish comments from Fed’s Williams and Evans, still open to the possibility of 3 hikes in 2017 has helped to prop USDCAD above 1.3000 for now, but given the Fed’s ability to consistently let down the market with any hawkish rhetoric, it appears the risks for now remain tilted in the Canadian Dollar’s favor. However, it is worth noting the rise in the Canadian Dollar remains a concern for the Bank of Canada. Looking ahead, lack of first tier data on Monday will leave the market focused on broader flows and themes.

NZDUSD – technical overview

Despite this latest upside correction in 2017, 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

The New Zealand Dollar has done a wonderful job absorbing last week’s unimpressive employment data, with the currency still looking to extend its impressive run in 2017. The combination of this latest US employment report which has reduced odds for a Fed March hike on account of softer hourly earnings, and the early Monday softer Aussie retail sales print, have helped to bolster Kiwi into the new week. Still, this market has seen a nice run and it’s possible the RBNZ will be ready to comment on its displeasure with a local currency that is too strong. For now, this broad based US Dollar selloff is the primary driver and even hawkish Fed comments from Fed’s Evans and Williams have done little to slow the US Dollar decline. Looking ahead, lack of first tier data will leave the focus on broader macro flows.

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 there could be signs of exhaustion on the horizon, 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. However, for now, investors have been relieved with this latest US employment report, with the softer hourly earnings component giving them a good excuse to believe the Fed will scale back its 2017 rate hike timeline. Even hawkish comments from Fed Evans and Williams have failed to worry the market, with participants no longer hanging on unreliable hawkish Fed guidance.

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 and this latest Dollar selling from the below forecast hourly earnings in the US jobs report are only making GOLD that much more attractive into the new week.

Feature – technical overview

USDMXN has been in the process of correcting out from recent record highs earlier this year. The market is now coming back into critical psychological support in the 20.00 area and is expected to be well supported around the barrier in favour of a resumption of the uptrend and push back through the record high just over 22.00. Only a daily close below 20.00 would give reason for pause and open the possibility for a more meaningful structural shift.

• R2 22.0380 – 11Jan/Record – Strong
• R1 21.3900 – 11Nov high – Medium
• S1 20.1290 – 17Nov low – Medium
• S2 20.0000 – Psychological – Strong

Feature – fundamental overview

The Mexican Peso has been having a great time of late, recovering over 6% since making record lows in the lead up to the Trump inauguration. It seems the combination of a market that thinks it has priced in the worst case scenario from Trump’s protectionist policies, specifically targeted at Mexico, and broad based US Dollar declines on the back of Trump’s soft US Dollar talk, have been the driving forces behind this recovery. Of course, Friday’s softer hourly earnings in the US jobs report has also helped the Peso a bit, given the reduced odds for a Fed March hike. Still, with all that said, the Mexican economy is struggling and Trump has every capability of reigniting concerns about prospects for the Mexican economy. Thursday’s Banxico’s meeting will be an important event to watch. The market is looking for 50bps of tightening to help offset inflation and the decline in the Peso on the back of the Trump factor, and anything less could prove to be a major disappointment, inviting renewed downside pressure on the emerging market currency. Also keep an eye on risk sentiment, which has been another prop to the Peso.