Thursday Risk Overshadowed by Friday’s Jobs Report

GBPUSD – technical overview

The market has come back under pressure since stalling out several days back ahead of critical resistance in the form of the December 2016 peak at 1.2775. The recent close below 1.2347 ends a period of choppy consolidation and likely opens the door for an acceleration of declines back towards the 1.2000 area, just over the major +30 year base from October 2016 at 1.1841. Ultimately, rallies should continue to be very well capped into the 1.2500 area, with only a break above 1.2775 to compromise the overall bearish outlook.

• R2 1.2308 – 2Mar high – Strong
• R1 1.2214 – 8Mar high– Medium
• S1 1.2139 – 8Mar low – Medium
• S2 1.2100 – Figure – Medium

GBPUSD – fundamental overview

The Pound has been back under pressure in recent days as the reality of the Article 50 trigger nears. Changes to the PM's draft Brexit law will go back to the Commons next week after which the PM could then put the EU on official notice. But with so many questions unanswered, the market is once again worried about the UK walking off a cliff and this has been reflected in price action. Wednesday’s UK budget offered no real suprises and has not factored into price action. Looking ahead, today’s volatility is likely to come from any new headlines on Brexit, the European Central Bank decision and a US initial jobless claims release. Of course, with Friday’s US employment report waiting in the wings, the market may be more cautious.

USDJPY – technical overview

Despite this latest bounce, the short-term pressure remains on the downside in light of a recent break of multi-session consolidation that projects weakness below 110.00 in the days ahead. At this point, it would take a push back above 115.62 to officially alleviate short-term downside pressure and as such, any rallies are expected to stall out ahead of 115.00.

• R2 114.96 – 15Feb high – Strong
• R1 114.76 – 8Mar high – Medium
• S1 113.56 – 6Mar low – Medium
• S2 112.75 – 1Mar low – Strong

USDJPY – fundamental overview

The major pair continues to find strong offers towards 115.00 despite near certain odds for a Fed rate hike in March. It seems the Yen isn’t entirely convinced of the hike just yet, despite Wednesday’s stellar US ADP, with the market still needing to take in tomorrow’s US employment report for added confirmation. Meanwhile, the emergence of some selling in global equities markets is also factoring into Yen price action, with the risk off flow benefiting the traditionally correlated safe haven Japanese currency. Looking ahead, the ECB decision and US initial jobless claims are the main standouts.

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 below the 2016 low at 1.0624 and towards psychological barriers at 1.0500 further down. A bearish consolidation on the daily chart is strengthening the bearish outlook. 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 1.0748 – 7Mar high – Medium
• S1 1.0632 – 21Feb low – Medium
• S2 1.0624 – 24Jun/2016 low – Strong

EURCHF – fundamental overview

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. But despite all efforts, the Franc continues to want to appreciate. It seems the central bank’s strategy has been to sell Francs 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 isn’t able to really weaken. This was evident on Tuesday when talk of added SNB intervention on boosted SNB reserves did little to make a dent, with EURCHF well capped into 1.0750. Eurozone political risk only further contributes to SNB stress, with the Franc finding even more demand on the back of these developments. So if equities start to come off and demand for the Franc ramps up, this SNB headache could turn into a migraine.

AUDUSD – technical overview

The impressive rally in 2017 has finally stalled out into significant medium-term resistance ahead of 0.7800. The latest break back below 0.7600 strengthens the prospect for some form of a top and could open the door for a deeper drop back towards the 0.7100 area in the days ahead. Intraday rallies should now be very well capped ahead of 0.7700, while ultimately, only back above 0.7779 would compromise the outlook.

• R2 0.7600 – Figure – Medium
• R1 0.7535 – 9Mar high– Medium
• S1 0.7494 – 19Jan low – Medium
• S2 0.7430 – 12Jan low – Strong

AUDUSD – fundamental overview

The Australian Dollar has come intense pressure of late, with the currency hit on several external factors. On one side, we’ve seen a bunch of negative China stories, with downgraded China growth, a surprising China deficit and this latest cooler China CPI all weighing. On the other side, ongoing signs of strong US data is further bolstering the Fed rate hike timeline, pushing yield differentials out of Aussie’s favor. Meanwhile, weakness in commodities and global equities is not helping the correlated Aussie’s cause and all of this could suggest deeper setbacks on the cards. Looking ahead, the ECB decision and US initial jobless claims are the main standouts.

USDCAD – technical overview

The market remains very well supported on dips, with the latest bounce out from 1.3000 warning of a more significant bullish resumption. Any setbacks should now be very well supported into the 1.3200 area in favour of an eventual push back through the multi-day peak at 1.3599 and towards 1.4000 further up.

• R2 1.3599 – 28Dec high – Strong
• R1 1.3500 – Psychological – Medium
• S1 1.3398 – 8Mar low – Medium
• S2 1.3324 – 2Mar low – Strong

USDCAD – fundamental overview

The Canadian Dollar has been a victim of hawkish interest rate expectations in the United States, lower OIL prices and a Bank of Canada that has expressed concern over the outlook for the Canadian economy. Wednesday’s stellar US ADP print and another big slide in OIL have opened fresh 2017 lows in the Loonie. Meanwhile, the small pullback in risk markets over the past few sessions is only adding to the weakness in the Loonie, which correlates somewhat with the negative sentiment. Looking ahead, second tier data out of Canada is unliekly to factor, with the ECB decision and US initial jobless claims getting more attention. Of course, we may also see positioning ahead of what should be a wild day for the Loonie with monthly employment reports out from both Canada and the US.

NZDUSD – technical overview

The overall pressure remains on the downside with the market expected to be very well capped on rallies. The weekly chart is reflective of this fact as it looks like we’re seeing the formation of a major top off the 2016 high. As such, expect the market to continue to roll over in the days ahead, with setbacks projected towards medium-term support in the 0.6600s. Only back above 0.7400 compromises the outlook.

• R2 0.7046 – 6Mar high – Strong
• R1 0.6978 – 8Mar high – Medium
• S1 0.6862 – 26Dec low – Strong
• S2 0.6800 – Figure – Medium

NZDUSD – fundamental overview

There has been a notable shift in sentiment towards the New Zealand Dollar in recent days. Softer local data, a more dovish RBNZ, a rotation into AUDNZD and ramped up Fed rate hike odds are some of the major drivers behind the Kiwi bearishness. Of course, an overall ongoing bid for equities and rallying commodities have been helping to slow Kiwi declines. But ultimately, if the US Dollar pushes back to focusing on Trump reflation and hawkish Fed policy, and if US equities falter, we could very well see a more intense liquidation of Kiwi longs. Certainly Tuesday’s discouraging GDT auction and Wednesday’s stellar US ADP print have inspired this latest round of Kiwi selling. Looking ahead, the ECB decision and US initial jobless claims are the key standouts.

US SPX 500 – technical overview

The latest break to yet another record high following a healthy period of consolidation, has opened the door for the next big push through 2400. While technicals are severely stretched and there are definitive signs of exhaustion on the horizon, given the intensity of this uptrend, a break back below 2350 would be required at a minimum to alleviate immediate topside pressure.

• R2 2450.00 – Psychological – Strong
• R1 2402.00 – 1Mar/Record high – Medium
• S1 2350.00 – 24Feb low – Medium
• S2 2304.00 – 26Jan high– Strong

US SPX 500 – fundamental overview

US equities haven’t been bothered by anything over the past several years, with even rate rises from the Fed doing nothing to dissuade equity investors. Instead, the focus has been on a still exceptionally low rate environment supportive of higher stocks and Trump policies that will fuel additional upside in the market. Many market participants have dismissed the idea that the reversal of Fed policy will have negative impact on stocks, citing recent price action as a testament to this fact. But the reality is that the reversal of policy is still likely to weigh heavily on the market if the market sees that the Fed is committed to holding to its rate hike projections. The market hasn’t believed the Fed will hike at a consistent pace, given the fact that the only consistency investors have seen is the Fed’s consistency to back away from hawkish guidance. So one or two hikes here and there with the expectation the Fed will continue to underdeliver continues to be supportive of stocks. But if the market actually starts to believe the Fed may stick with projections, we could see a more significant reaction to the downside. A lot of that shift could come in the days ahead if the Fed follows through this month.

GOLD (SPOT) – technical overview

The market has been very well supported since basing out around 1120 in 2016. A recent break above 1260 strengthens the outlook, opening the door for the next major upside extension towards a measured move into the 1300 area. Look for the latest setbacks to be very well supported around 1200, with only a break back below 1180 to compromise the constructive outlook.

• R2 1264.00 – 27Feb high – Strong
• R1 1236.85 – 6Mar high – Medium
• S1 1200.00 – Psychological – Medium
• S2 1180.60 – 27Jan 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. Dealers talk of large bids in the 1180-1200 area.

Feature – technical overview

USDMXN has been in the process of correcting out from recent record highs earlier this year. The market has now dropped back into critical support in the 19.00-20.00 area and is expected to be well supported around this area(200-Day SMA)  in favour of a resumption of the uptrend and push back through the record high just over 22.00. Ultimately, only back below 19.00 would give reason for pause and open the possibility for a more meaningful structural shift.

• R2 20.5480 – 17Feb high – Strong
• R1 20.1625 – 1Mar high – Medium
• S1 19.4300 – 7Mar low – Medium
• S2 19.2610 – 4Nov high – Strong

Feature – fundamental overview

The Peso had been benefiting from a healthy wave of positive developments including a unanimously decided Banxico rate hike, subsequent Banxico actions to curb Peso weakness, reduction in speculative Peso shorts and more conciliatory talk out of the White House. Still, the Peso is far from out of the woods, with Trump uncertainty running high and the Fed on it policy normalisation path. Wednesday’s stellar US ADP print only further strengthens the case for the hawkish Fed timeline, which has once again been weighing on the Peso into the latter half of the week. Of course, the fact that global equities look like they could come off the rails is yet another serious variable that could undermine any recovery in the Peso and emerging market FX. Looking out, the market is pricing more than 75bps of Banxico hikes in 2017.