Currency Market Sails Through Big Risk Week

GBPUSD – technical overview

The market has eased off quite a bit since topping out at a fresh 2017 high in September, with the price dropping back into the 1.3000 area thus far. However, while there is risk for another drop, setbacks should be limited below the psychological barrier, with the greater risk for the formation of that next meaningful higher low ahead of a continuation of the newly formed uptrend in 2017. Ultimately, only a weekly close back below 1.2775 will delay the constructive outlook. At the same time, the market is capable of chopping around some more and it’s going to take a run back above 1.3338 is required to send a signal the market is ready to start moving back up.

• R2 1.3192– 31Oct low – Strong
• R1 1.3100 – Figure – Medium
• S1 1.3027 – 6Oct low – Strong
• S2 1.3000 – Psychological – Strong

GBPUSD – fundamental overview

We had warned against getting to bullish the Pound in the lead up to the BOE decision. We highlighted a priced in event that was screaming sell the fact, and we highlighted areas of concern, including a rate hike motivated by stress from rising inflation and an economy still contending with Brexit uncertainty. The BOE didn't let any of this down, more than offsetting any Pound demand from higher rates with a message oozing with concern about the overall outlook, dropping its line that ‘rates may need to rise more than the market expects.’ And so, the Pound came crashing down as the market quickly moved to reprice BOE rate hike expectations. But just as we believed the market was too aggressive in buying the Pound in the lead up to the BOE, we also believe the fickle market may be too aggressive selling the Pound in the days ahead. Overall, Brexit is a risk, but also a risk we have seen the worst of and while there will be a lot of back and forth along the way, the path points to a more favourable outcome which bodes well for the UK currency. Looking ahead, the focus will be on the monthly employment report out of the US. US trade, ISM non-manufacturing and factory orders are also due but will likely take a backseat to the US jobs report.

USDJPY – technical overview

The major pair has been confined to a range trade for much of 2017, with rallies well capped ahead of 115.00 and dips well supported below 108.00. The market has been in rally mode over the past several days, taking the rate back into the range highs. At this point, look for the market to adhere to the range and stall out yet again for the start to a drop back towards the range lows. A daily close back below 113.00 would strengthen this outlook.

• R2 114.50 – 11Jul high – Strong
• R1 114.28 – 1Nov high – Medium
• S1 112.96 – 31Oct low – Medium
• S2 112.30 – 19Oct low – Strong

USDJPY – fundamental overview

The focus continues to be on the broader macro themes and US Dollar story. Risk sentiment and how things play out with US tax reform and the next Fed Chair appointment will likely influence the next big move here. This week’s continued rally in US equities has been behind this latest jolt and the market will be looking to see what comes of the tax reform as the details continue to come out. The big ticket on today’s calendar is the US employment report. US trade, ISM non-manufacturing and factory orders are also due but will likely take a backseat to the US jobs report.

EURCHF – technical overview

A period of multi-day consolidation has been broken, with the market pushing up to a fresh 2017 high. The bullish break could now get the uptrend thinking about a test of that major barrier at 1.2000 further up. In the interim, look for any setbacks to be very well supported ahead of 1.1400, while only back below 1.1260 would delay the overall constructive tone.

• R2 1.1800 – Figure – Medium
• R1 1.1713 – 26Oct/2017 high – Medium
• S1 1.1485 – 17Oct low – Medium
• S2 1.1390 – 2Oct low – Strong

EURCHF – fundamental overview

The SNB will need to be careful right now as its strategy to weaken the Franc could face headwinds from both the US equity market and the ECB. The record run in the US stock market has been a big boost to the SNB’s strategy with elevated sentiment encouraging Franc weakness. But any signs of capitulation on that front, will likely invite a very large wave of demand for the Franc, which will put the SNB in a more challenging position to weaken the Franc. The Franc has dropped to another yearly low against the Euro last week on what looked to be ramped up SNB activity. This would make even more sense after the ECB delivered a very dovish, Euro bearish monetary policy decision last week. And so, we speculate the SNB continues to be active buying EURCHF in an attempt to build some cushion ahead of what could be a period of intense Franc demand ahead.

AUDUSD – technical overview

Despite rallying to a fresh +2 year high in September, the market has been unable to hold onto gains, quickly reversing course and trading back below 0.8000. There is now risk for the formation of a more meaningful top opening the door for the next downside extension towards 0.7500. Look for rallies to be well capped ahead of 0.7800, with only a close back above the 0.7900 to put the pressure back on the topside. Last week’s break below 0.7734 has strengthened the bearish outlook.

• R2 0.7785 – 25Oct high – Strong
• R1 0.7750 – Mid-Figure – Medium
• S1 0.7673– 2Nov low – Medium
• S2 0.7626 – 27Oct low – Strong

AUDUSD – fundamental overview

The struggling Australian Dollar had been trying to put in a comeback this week but was stopped in its tracks early Friday after retail sales came in weaker than expected. There were some bright spots within the data, but the net result was enough to knock Aussie back down. This follows a dovish RBA and ongoing softenss on the inflation front, all of course bearish Aussie. Looking ahead, the big ticket on today’s calendar is the US employment report. US trade, ISM non-manufacturing and factory orders are also due but will likely take a backseat to the US jobs report.

USDCAD – technical overview

Clear signs of basing in this pair, with the recovery from plus two year lows back in September extending through an important resistance point in the form of the August peak. This sets the stage for additional upside in the days and weeks ahead, with the immediate focus now on a retest of the psychological barrier at 1.3000. In the interim, any setbacks should now be well supported ahead of 1.2500.

• R2 1.2917 – 27Oct high – Strong
• R1 1.2876 – 2Nov high – Medium
• S1 1.2782– 26Oct low– Medium
• S2 1.2693 – 24Oct high – Strong

USDCAD – fundamental overview

The Canadian Dollar has been hit hard over the past several weeks, extending a run of recent declines that have come since economic data has deteriorated in the aftermath of the central bank’s aggressive move of consecutive rate hikes in 2017. The BoC has been forced to do a 180, saying it will now remain cautious when considering future rate hikes while also citing concern over the stronger currency. And so, no surprise to see the currency struggling to recover after an extended move, with this week’s horrid GDP holding it back. Market odds for a December BoC hike have since declined rapidly, with the hike no longer expected to happen after the market had been pricing an 80% chance for a hike in early September. Looking ahead, it will be a busy close to the week for the Loonie, as it digests the employment reports out of both Canada and the US. US trade, ISM non-manufacturing and factory orders are also due but will likely take a backseat to the respective jobs reports.

NZDUSD – technical overview

Medium term studies have turned down sharply after the market pushed up to a plus two year high through 0.7500 in late July. A recent break below 0.7000 has opened a more meaningful reversal to retest the 2017 low at 0.6818. Any rallies should now be very well capped ahead of 0.7200 ahead of the next downside extension below 0.6818 that would target 0.6500.

• R2 0.7036 – 20Oct high – Strong
• R1 0.7004 – 24Oct high – Medium
• S1 0.6883 – 2Nov low – Medium
• S2 0.6818 – 21May/27Oct/2017 low – Strong

NZDUSD – fundamental overview

There have been very few rays of sunshine for the New Zealand Dollar since the currency topped out at a +2 year high back in July. But things have died down post election and the uncertainty has taken a bit of a breather for the time being which has helped to support the market a bit.  This week’s well received New Zealand employment data has also been a driver of the Kiwi recovery, with the data not only strong but also important because it might diminish stress about the new government’s desire to see a new mandate at the RBNZ that includes employment. Finally, we’re also seeing some cross related Kiwi demand, as the market sells AUDNZD after Aussie retail sales disappointed. Overall however, it should continue to be a tough go, with the broader economic outlook less encouraging and the new government bringing in another layer of uncertainty. The market will now settle in and look to focus on today’s US employment report. US trade, ISM non-manufacturing and factory orders are also due but will likely take a backseat to the US jobs report.

US SPX 500 – technical overview

The market continues to shrug off overextended technical readings, with any setbacks quickly supported for fresh record highs. At the same time, it’s worth noting that the market broke out in August after a 75 point consolidation, which projected a measured move to 2565. And now that this 2565 measured move objective has been met and slightly exceeded, it could warn of some form of a reversal to come, though we would need to see a daily close back below 2544 at a minimum to take the immediate pressure off the topside. Until then, the record run continues into unchartered territory, with the focus on the next major barrier at 2600.

• R2 2600.00 – Psychological – Strong
• R1 2589.00 – 1Nov/Record high – Medium
• S1 2543.00 – 25Oct low – Medium
• S2 2487.00 – 25Sep low – Strong

US SPX 500 – fundamental overview

The US equity market continues to be well supported on dips, pushing further into record high territory. It seems the combination of blind momentum, expectation of favourable US tax policy and the appointment of Jerome Powell as the next Fed Chair are helping to keep the move going. But at the same time, there’s a clear tension out there as the VIX sits at unnervingly depressed levels. The fact that Fed policy is normalising, however slow, could start to resonate a little more, with stimulus efforts exhausted, balance sheet reduction coming into play and another rate hike still on the cards this year. But for now, it’s more of the same. At this point, it will take a breakdown in this market back below 2500 to turn heads.

GOLD (SPOT) – technical overview

Setbacks have been well supported over the past several months, with the market continuing to put in higher lows and higher highs, opening a recent push to a fresh 2017 high up around 1357. And so, look for this most recent dip to round out that next higher low around 1260 in favour of a bullish continuation towards a retest of the 2016 peak at 1375 further up. Ultimately, only a drop back below 1200 would negate the outlook.

• R2 1334.35 – 15Sep high – Strong
• R1 1316.10 – 20Sep high – Medium
• S1 1260.70 – 6Oct low – Medium
• S2 1251.45 – 8Aug 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 exhausted monetary policy, extended global equities, political uncertainty, systemic risk and geopolitical threats. All of this should continue to keep the commodity well supported, with many market participants also fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax. Certainly the US Dollar under pressure in 2017 has added to the metal’s bid tone as well, but there is a growing sense that even in a scenario where the US Dollar is bid for an extended period, GOLD will hold up on risk off macro implications. Dealers are now reporting demand in size ahead of 1260.

Feature – technical overview

USDZAR has been breaking out of a period of multi-month consolidation, with the price surging to fresh 2017 highs beyond 14.00, suggesting the run could have a lot more to go. The next major level of resistance comes in at 14.76, the high from August 2016. Setbacks should be well supported from here ahead of 13.65.

• R2 14.76 – August 2016 high – Strong
• R1 14.36 – 27Oct high – Medium
• S1 14.00 – Psychological – Medium
• S2 13.65 – 23Oct low – Strong

Feature – fundamental overview

The South African economy is in greater need for flexibility on rates on the basis of a near zero growth and a negative output gap, though rising inflation is forcing the SARB to think about going in the opposite direction.  Meanwhile, the Rand remains exposed to ongoing tension on the political front which will persist into year-end on account of the upcoming ANC leadership election. Last Wednesday’s Budget Statement dealt the emerging market currency another big blow, with the Rand sinking to a fresh 2017 low on the revelation of sharp revisions to debt and deficit projections, highlighting risk for further downgrade. The only supportive Rand driver at the moment has come from the record run in US equities, which is a positive for risk correlated emerging market currencies. However even here the Rand should be sitting uneasy as the prospect for a capitulation is looking increasingly realistic on overbought technicals and an unstable backdrop around the globe.