Will There Be Pain?

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. Look for a daily close back above a multi-day consolidation high at 1.3338 to strengthen the bullish prospect. Back below 1.3027 would delay but not negate the constructive outlook.

• R2 1.3402– 2Oct high – Strong
• R1 1.3338 – 13Oct high – Strong
• S1 1.3280 – 20Nov high – Medium
• S2 1.3209 – 21Nov low – Strong

GBPUSD – fundamental overview

This week’s UK Budget seemed to go off without a hitch, despite concerns going in, while economic data out of the UK was mostly in line, leaving the Pound to run up a bit on optimism surrounding the Brexit negotiation process and broad based US Dollar weakness. The economic calendar is exceptionally thin on an already thin holiday Friday, with most of the US still out. And so the focus will mostly be on any additional news relating to the Brexit bill and US tax reform updates. We do get second tier US manufacturing data, though this is expected to factor into price action. There have been some sell orders capping gains this week ahead of 1.3340 resistance, but there are also buy stops in size reported above the level.

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 latest break below 111.65 reaffirms this outlook, encouraging the next big drop all the way back to the range lows in the 107-108 area. Look for rallies to be well capped below 113.00.

• R2 112.50 – 22Nov high – Strong
• R1 111.89 – 20Nov high – Medium
• S1 111.07 – 23Nov low – Medium
• S2 110.67 – 31Aug high – Strong

USDJPY – fundamental overview

The Yen has put in a healthy recovery this week, with mild profit taking in record high US equities, US Dollar bearishness from upgraded Fed concerns and discouraging US economic driving the move. USDJPY stops were taken out below 111.65, with the drop further strengthening the case for a deeper setback towards the 107-108 area in adherence of a very well defined range play in 2017. Trading conditions will be very thin on this Friday, with most of the US still off the desks, though we do get some second tier US manufacturing data. It will also be worth keeping an eye out for any updates relating to US tax reform.

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 – Strong
• R1 1.1724 – 17Nov/2017 high – Medium
• S1 1.1544 – 5Nov low – Medium
• S2 1.1485 – 17Oct 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 the US equity market. The record run in the US stock market has been a big boost to the SNB’s strategy with elevated sentiment encouraging Franc weakness. Of course, the SNB is no stranger to this risk, given a balance sheet with massive exposure to the US equity market. 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.  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 extending declines into the 0.7500s thus far. It’s worth noting technical studies are in the process of unwinding from oversold readings, resulting in this latest minor bounce. But overall, the pressure is on the downside and rallies are viewed as corrective while below 0.7900.

• R2 0.7696 – 10Nov high – Strong
• R1 0.7650 – 14Nov high – Medium
• S1 0.7556– 22Nov low – Medium
• S2 0.7533 – 21Nov low – Strong

AUDUSD – fundamental overview

A round of Aussie demand finally kicked in this week, though the bounce was to be expected with the currency so offered of late. The primary driver of the mild recovery has come from this intense wave of mid-week US Dollar bearishness on the back of upgraded Fed concerns about prolonged subdued inflation and discouraging US economic data. At the same time, iron ore prices recovered, while the market wasn’t feeling as dovish about the RBA outlook after Governor Lowe commented earlier this week that the next move in rates would likely be a hike. Looking ahead, trading conditions will be very thin on this Friday with most of the US still out for a long holiday weekend. We do get some second tier US manufacturing data, and it will also be worth keeping an eye out for any updates relating to US tax reform.

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 1.2837 – 21Nov high – Strong
• R1 1.2787 – 22Nov high – Medium
• S1 1.2666 – 10Nov low – Medium
• S2 1.2599 – 6Oct high – Strong

USDCAD – fundamental overview

While there has been some improvement in economic data over the past couple of weeks, data overall has deteriorated in the aftermath of the central bank’s aggressive move of consecutive rate hikes in 2017. This week’s disappointing Canada retail sales is a testament to this fact. Moreover, while Poloz appearances post BoC have been less dovish than the tone from the latest BoC meeting, this doesn’t come as a surprise, as the central banker is going to do his best to justify the recent consecutive rate hikes. And Poloz and the Canadian government will have another big fear on their hands into 2018, with the possibility of a NAFTA breakup looking a lot more realistic than the market is giving it credit for. For now, there is optimism surrounding the outlook for NAFTA, with news on Tuesday of progress, helping to fuel some Loonie demand, while an intense wave of mid-week US Dollar bearishness on the back of upgraded Fed concerns over a prolonged period of subdued inflation and discouraging US economic data. But again, when considering the broad based US Dollar bearishness, NAFTA news and another run up in OIL to +2 year highs, the Canadian Dollar strength looks a lot less impressive. Looking ahead, trading conditions will be very thin on this Friday with most of the US still out for a long holiday weekend. We do get some second tier US manufacturing data, and it will also be worth keeping an eye out for any updates relating to US tax reform.

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 that has accelerated declines to fresh 2017 lows below 0.6800. This sets the stage for a fresh downside extension to support from May 2016 at 0.6676, though with daily studies turning up from oversold, the market is taking time to allow those studies to unwind a bit so the market can carve out a lower top. While below 0.7200, the structure remains bearish.

• R2 0.6980 – 9Nov high – Strong
• R1 0.6919 – 15Nov high – Medium
• S1 0.6840 – 20Nov high – Medium
• S2 0.6780 – 17Nov/2017 low – Strong

NZDUSD – fundamental overview

It’s been a welcome week of trade for the ailing New Zealand Dollar, with the Kiwi rate recovering out from 2017 lows against the Buck and even outperforming over the past 5 days into Friday. Most of the demand has been driven off this intense wave of US Dollar bearishness on the back of upgraded Fed concerns over a prolonged period of subdued inflation and discouraging US economic data. Better than expected Kiwi retail sales also helped, though the GDT auction was not good and trade data missed earlier today (despite some mitigating factors). Overall, we would caution against getting overly optimistic about Kiwi’s prospects. Data has been less than impressive on the whole and this should keep the RBNZ erring on the side of accommodation. Looking ahead, trading conditions will be very thin on this Friday with most of the US still out for a long holiday weekend. We do get some second tier US manufacturing data, and it will also be worth keeping an eye out for any updates relating to US tax reform.

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 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 establishing above this next major barrier at 2600.

• R2 2650.00 – Psychological – Strong
• R1 2602.00 – 21Nov/Record high – Medium
• S1 2544.00 – 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, on a macro level, the combination of blind momentum, expectation US tax reform will ultimately work out well 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 fahead of 13.50.

• R2 14.76 – August 2016 high – Strong
• R1 14.58 – 14Nov high – Medium
• S1 13.65 – 23Oct low – Medium
• S2 13.25 – 15Oct low – Strong

Feature – fundamental overview

On Thursday, the SARB left the benchmark rate on hold at 6.75% in a unanimous decision as was widely anticipated. The central bank has been contending with the pressure to hike on rising inflation, but is not in a position to do so given the weak economy. And so, it wasn’t surprising to see the central bank talking down rising inflation when justifying the move to keep things still. There was also the issue of today’s critical rating agency reviews from Moody’s and S&P, with any downgrades here likely to have been more severe had the SARB made any moves. There was the positive of Fitch affirming South Africa’s ratings on Thursday, though there is certainly tension ahead of today’s rating agency reviews. Overall, 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. 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. 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.