Is the Euro Sending a Different Message?

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 1.2135 – 9Mar low – Medium
• S2 1.2100 – Figure – Medium

GBPUSD – fundamental overview

Friday is going to be a tale of two halves for the Pound. Early on we get a batch of UK data releases in the form of industrial production, manufacturing production, consumer inflation expectations and trade. This could open the door for some initial volatility, with the market already capable of moving around on any headlines relating to Brexit developments and the trigger of Article 50. Then into the US open, the market will take in the highly anticipated US employment report. The Pound has come under intense pressure these past several days on the back of ramped up Fed expectations and fear over the imminent Article 50 trigger and today’s data could either exacerbate the UK currency’s outlook or offer a temporary prop.

USDJPY – technical overview

An impressive recovery for the major pair in recent days, with the market pushing back up into critical resistance in the form of a multi-day consolidation peak from January at 115.62. Still, if the market holds below 115.62 on a daily close basis, risk remains for another topside failure and drop back down towards the 111.60 range base. If however the market establishes above 115.62, this opens the door for a bullish continuation.

• R2 116.00 – Figure – Medium
• R1 115.62 – 19Jan high – Strong
• S1 114.31 – 9Mar low – Medium
• S2 113.56 – 6Mar low – Strong

USDJPY – fundamental overview

The market has been selling Yen in the lead up today’s anticipated employment report out of the US on the back of ramped up Fed rate hike expectations and an ongoing demand for global equities. Still, despite the USDJPY push through 115.00, traders need to be careful, with this market very capable of stalling out up here. A solid report today could inspire a sell the fact reaction in USDJPY, while a disappointing report could open broad based US Dollar weakness. There’s even risk a big beat opens USDJPY downside following an initial push higher, if the beat worries the equity market about a faster Fed rate hike path going forward.

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 1.0751 – 9Mar 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 0.7492 – 9Mar 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 this week, with downgraded China growth, a surprising China deficit and cooler China CPI all weighing. On the other side, the ongoing strength of US data is further bolstering the Fed rate hike timeline, pushing yield differentials out of Aussie’s favor. Meanwhile, weakness in commodities is not helping the correlated Aussie’s cause and all of this could suggest deeper setbacks on the cards. Of course, much of the outlook from here will depend on the outcome of today’s critical monthly employment report out of the US. Earlier today, Aussie home loans and investment lending data came in solid but hasn’t really factored into price action.

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 1.3535 – 9Mar high – 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, the biggest drop in OIL since October 2016 and a Bank of Canada that has expressed concern over the outlook for the Canadian economy. Looking ahead, activity is expected to pick up quite a bit with this market forced to contend with monthly employment reports out of both Canada and the US. Dealers have been talking buy stops above 1.3600, though at the same time, the Canadian Dollar is now technically oversold against the Buck, which could warn of limited USDCAD upside from current levels, at least for a few days.

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 0.6890 – 9Mar low – Strong
• S2 0.6862 – 26Dec low – Strong

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, ramped up Fed rate hike odds and weakness in commodities are some of the major drivers behind the Kiwi bearishness. Of course, an overall ongoing bid for equities has been helping to slow the pace of Kiwi declines. But ultimately, if US economic data continues to support a push in yield differentials further in the US Dollar’s favour, additional downside appears to be on the cards. Certainly this week’s discouraging GDT auction and Wednesday’s stellar US ADP print have only inspired more Kiwi selling. Of course, today is going to be a big one, with the market taking in the highly anticipated monthly employment report out of the US.

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. Today’s US jobs report could have a major impact on how this all plays out.

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 1193.85 – 31Jan low – 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 higher Mexico rates, 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. Today’s US employment report is going to be an important event to watch as the result could either open a renewed wave of Peso declines or help to further stabilise the currency. Of course, the fact that global equities could be vulnerable at elevated levels is another serious variable that could undermine any recovery in the Peso and emerging market FX. Looking out, the market is pricing 100 bps of tightening in Mexico by year end, taking the benchmark to 7.25%.