Busy Day Capped Off with FOMC Decision

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 exposing a drop back towards a retest of the+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 1.2251 – 13Mar high– Medium
• S1 1.2109 – 14Mar low – Medium
• S2 1.2100 – Figure – Medium

GBPUSD – fundamental overview

Plenty of choppy trade in the Pound at the moment, with the market quite jittery on any headlines relating to Brexit with Article 50 on the verge of being triggered. There has been talk that once triggered, the period before negotiations with the EU begin might extend to June. Meanwhile, the UK currency is getting a bit of a boost on news of new polls showing Scots wanting to remain in the UK. But overall, the Pound is likely to continue to be well offered into rallies as Brexit becomes a reality in the days ahead. Today, the Pound will also have many more distractions with UK employment data due, followed by a batch of US readings including retail sales, CPI and empire manufacturing and then capped off with the Fed decision where a 25bp hike has been fully baked in. The Fed’s dot plot and overall tone will likely be the big driver late in the day.

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, while 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 114.48 – 13Mar low – Medium
• S2 113.56 – 6Mar low – Strong

USDJPY – fundamental overview

The Yen hasn’t been moving much this week and appears to be comfortable settling in ahead of today’s highly anticipated FOMC decision. While a 25 basis point hike is widely expected, the key focus will be on whether Fed officials upgrade their dot plot forecasts and just how much more upbeat and hawkish the monetary policy statement and Yellen presser comes off. Ahead of the decision there is also room for some movement, with the market taking in key first tier data out of the US in the form of retail sales, CPI and empire manufacturing. It’s worth noting that if the Fed is in fact more hawkish, Yen weakness is still not a guarantee, with the Yen capable of rallying in the event the equity market takes the hawkishness as risk off.

EURCHF – technical overview

The latest surge through resistance at 1.0760 could threaten a broader downtrend and suggest we are in the process of seeing a bullish structural shift. However, a daily close above 1.0800 would be required to confirm, while inability to do so keeps the downtrend intact opening the door for a drop back towards and below the 2016 base at 1.0624.

• R2 1.0900 – 8Dec high – Strong
• R1 1.0826 – 13Mar high – Medium
• S1 1.0690 – 8Mar 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 weaken all that much. There have been some signs of the SNB perhaps making a little headway on reports of a boost in SNB reserves, but we will need to see if this latest EURCHF rally holds up above 1.0700.

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 0.7633 – 7Mar high – Strong
• R1 0.7593 – 13Mar high – Medium
• S1 0.7534 – 13Mar low – Medium
• S2 0.7492 – 9Mar low – Strong

AUDUSD – fundamental overview

Tuesday’s softer Aussie business conditions and business confidence readings have been followed up on Wednesday with a less than impressive Westpac consumer confidence print. And yet, the Australian Dollar hasn’t been bothered by this, with the currency pushing back up against the Buck. It seems surging iron ore prices and renewed appetite for risk in early Wednesday trade have been driving the bid. Still, overall, the market could easily find offers into this run, with first tier US data on tap and the Fed decision to follow. Yield differentials with the US Dollar are a major driver and with US economic data looking increasingly impressive on the whole and with the Fed moving to higher rates, this should be a drag on the commodity currency. We’ve also seen less impressive data out of China of late, yet another reason traders may be looking to take advantage of selling into rallies. As far as that US data today goes, we get retail sales, CPI and empire manufacturing. It’s also worth noting that we get some important Aussie employment data early Thursday.

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 doing its best to hold off on extending declines since this past Friday’s super strong Canada employment data. But it looks like the Loonie is going to need some help from OIL prices, which have come back under intense pressure in recent days, weighing heavily on the correlated currency. Tuesday’s bullish close in the OIL market could be a positive sign for the Loonie, though there are plenty of other things going on today that could come into play. Canada existing home sales are due along with a batch of important first tier US data including retail sales, CPI and empire manufacturing. And once all of this is digested, the market will then need to take in the Fed decision where a 25 basis point hike has been priced and there is a risk for upgraded hawkishness.

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

The New Zealand current account came in slightly better than forecast, while equity markets have been finding renewed interest early Wednesday, which could be helping to prop Kiwi. But overall, there has been a notable shift in sentiment towards the New Zealand Dollar in recent days which could make it hard for the currency to build any serious upside momentum. 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 recent wave of Kiwi bearishness. Looking ahead, Wednesday is going to be a busy day. The market first will take in important first tier US data in the form of retail sales, CPI and empire manufacturing before turning its attention to the highly anticipated Fed decision. While a 25 basis point hike has been priced, the focus will be on the Fed’s dot plot and tone. It’s worth noting that things will continue to be active after the Fed with New Zealand GDP due early Thursday.

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. Of course, this sets the stage for a critical Fed decision later today, where investors will either be forced to more seriously consider the Fed’s hawkish guidance or will once again walk away feeling like the Fed will continue to back down. US CPI and retail sales are also due earlier in the day.

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 1195.05 – 10Mar 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. 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. Today, the focus will be on important first tier data out of the US including retail sales and CPI, before attention shifts to the highly anticipated FOMC decision. Looking out, the market is pricing 100 bps of tightening in Mexico by year end, taking the benchmark to 7.25%.