Important Levels to Watch into Month End

GBPUSD – technical overview

The market has entered a corrective phase since pushing to a 2018 high at around 1.4350 and rallies should be well capped ahead of the 2018 high for additional corrective activity. There is still scope for additional declines into the 1.3400-1.3600 area, though setbacks should then be very well supported in favour of that next meaningful higher low and bullish continuation.

• R2 1.4145– 16Feb high – Strong
• R1 1.4010 – 21Feb high – Medium
• S1 1.3857 – 22Feb low – Medium
• S2 1.3765 – 5Feb high – Strong

GBPUSD – fundamental overview

EU Barnier didn’t do the Pound any favours on Tuesday after commenting the UK would not be allowed to cherry pick the aspects of the EU it liked when leaving the bloc. Still, most of the Tuesday setbacks in the UK currency were a function of Dollar demand as the market looked to increase that exposure on an upbeat Fed Powell testimony that included references to gradual rate hikes. Overall, nothing all that surprising and it seems the broader flow is also working in the Dollar’s favour at the moment, as the Pound looks to back off, following an explosive start to the year. Dealers do report plenty of demand on dips into the 1.3400 to 1.3600 area. Looking ahead, we get UK consumer confidence readings, US GDP and US pending home sales.

USDJPY – technical overview

A multi-month range trade was broken in February after the market sunk below 107.30. This has opened the door for deeper setbacks in the days ahead, possibly down towards the 102-103.00 area, an area that coincides with a measured move extension target and the 78.6% fib retrace off the 2016 low to high move. At this point, a daily close back above 107.91 would be required to take the immediate pressure off the downside.

• R2 107.91 – 21Jan high – Strong
• R1 107.28 – 21Feb low – Medium
• S1 106.10 – 19Feb low – Medium
• S2 105.56 – 16Feb/2018 low – Strong

USDJPY – fundamental overview

Not much of a reaction in the major pair on a mostly upbeat Fed Powell testimony that included reference to gradual rate hikes. Overall, the Yen has been well bid in early 2018, with the Dollar taking a big hit from US administration soft Dollar policy and risk for a capitulation in global equities driving additional Yen demand. Though we have seen a healthy rebound in risk appetite off the 2018 lows, there has also been a clear downturn in 2018, which could invite additional Yen demand if the market rolls over again. Stops were taken out below the 107.30 area 2017 low this month, with the market dropping to a fresh multi-month low into the 105s thus far. Looking ahead, US GDP readings and US pending home sales stand out on Wednesday.

EURCHF – technical overview

Despite this latest round of setbacks, overall, the market continues to trend higher, recently extending gains to a fresh multi-month high. The bullish price action has the market thinking about a retest of that major barrier at 1.2000 further up. In the interim, look for the current round setbacks to be very well supported, while only back below 1.1260 would delay the overall constructive tone.

• R2 1.1834 – 15Jan/2018 high – Strong
• R1 1.1640 – 5Feb high – Medium
• S1 1.1450 – 8Feb 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 the US equity market in 2018. 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 US equities. But any signs of capitulation on that front into this new year, 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. Recent outperformance in the Swiss Franc despite flows which should have otherwise been supportive of a higher EURCHF, could already be offering up a red flag.

AUDUSD – technical overview

The market has been in the process of rolling over after failing to sustain a break above the 2017 high. The recent daily close below 0.8000 strengthens this outlook and opens the door for a renewed wave of declines towards 0.7500. At this point, only a daily close back above 0.8000 would delay.

• R2 0.7894 – 26Feb high – Strong
• R1 0.7869 – 27Feb high – Medium
• S1 0.7791 – 22Feb low – Strong
• S2 0.7760 – 9Feb low – Medium

AUDUSD – fundamental overview

Overall, the Australian Dollar has managed to hold up on dips in recent months, with the supportive price action more a function of broad based US Dollar weakness than anything else. But this could be changing right now. Risk sentiment is showing signs of potentially deteriorating in 2018, while softer Aussie data leaves room for the RBA to take a more cautious approach as reflected in its February decision. While soft US Dollar policy has been a drag, signs of rising inflation in the US could soon more than offset, especially if global risk sentiment crumbles. The Australian Dollar came under a little more pressure on Tuesday after the market felt good about buying USD on what was thought to be an upbeat Fed Powell tone that included references to gradual rate hikes. Looking ahead, US GDP readings and pending home sales stand out.

USDCAD – technical overview

Despite a recent round of setbacks, there are signs of basing in this pair. This sets the stage for additional upside, with the next focus on a retest of the psychological barrier at 1.3000. In the interim, any setbacks should now be well supported above 1.2450.

• R2 1.2921– 19Dec high – Strong
• R1 1.2800 – Figure – Medium
• S1 1.2669 – 27Feb low – Medium
• S2 1.2616 – 26Feb low – Strong

USDCAD – fundamental overview

Canada’s recovery is already somewhat fragile, and this coupled with an unstable macro picture and plenty of uncertainty around the fate of NAFTA, should keep the Canadian Dollar pressured, especially after the Bank of Canada opted to go ahead with another rate hike in January, which will only add to the strain if the global sentiment picture deteriorates even further. The Loonie did get a bit of a boost from last Friday’s hotter CPI data, though the bigger picture themes present a greater risk and last week’s discouraging Canada retail sales has also offset positives from the CPI. Meanwhile, the US Dollar continues with its broad recovery as the market takes the prospect for additional rate hikes more seriously, following Fed Chair Powell’s Tuesday testimony. Looking ahead, we get Canada industrial product and raw materials prices, along with US GDP and US pending home sales.

NZDUSD – technical overview

The market looks to be in the process of rolling over, with the daily chart showing a possible double top formation. Right now, it will take a clear break above 0.7400 to take the pressure off the downside. Until then, there is risk for continued weakness back towards 0.6900, with a break of the double top neckline at 0.7178 to trigger the bearish formation and strengthen the outlook.

• R2 0.7346 – 26Feb high – Strong
• R1 0.7305 – 27Feb high – Medium
• S1 0.7200 – Figure – Medium
• S2 0.7178 – 8Feb low – Medium

NZDUSD – fundamental overview

Earlier in February, the RBNZ took on a more dovish outlook and this coupled with signs of rising inflation in the US and the possibility for equity market capitulation, could easily offset any of the recent demand, ushering in a wave of Kiwi underperformance. We’re already seeing signs of this after last week’s impressive Kiwi retail sales did nothing to prop the currency. Certainly last week’s discouraging GDT auction result and Tuesday’s trade data miss, only strengthen the bearish case. Looking ahead, US GDP readings and pending home sales stand out.

US SPX 500 – technical overview

A severely overbought market is finally showing signs of relenting, allowing for stretched readings to unwind. There’s plenty of room for these setbacks to extend following the break back below the 2675 area January low, with the market at risk for a further intensification of declines. Any rallies should now be very well capped ahead of 2800.

• R2 2882 – 29Jan/Record high – Strong
• R1 2794 – 27Feb high – Medium
• S1 2686 – 22Feb low – Medium
• S2 2624 – 12Feb low – Strong

US SPX 500 – fundamental overview

Investor immunity to downside risk is not looking as strong these days and there’s a clear tension out there as the VIX starts to rise from 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 the Fed finally following through with forward guidance. Certainly, the Fed’s more hawkish tone and subsequent jumps in hourly earnings and CPI, are the types of things that could weigh more heavily on sentiment in the sessions ahead if there is more evidence confirming this bias. Tuesday’s initial round of Powell testimony is consistent with these expectations and Thursday’s core PCE data could therefore be critical to watch.

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. Look for some more chop followed by an eventual push above massive resistance in the form of the 2016 high at 1375. This will then open the door for a much larger recovery in the months ahead. In the interim, setbacks are expected to be well supported around 1300.

• R2 1375 – 2016 high – Very Strong
• R1 1341 – 26Feb high – Medium
• S1 1307 – 8Feb low – Strong
• S2 1300 – Psychological  – Strong

GOLD (SPOT) – fundamental overview

Solid demand from medium and longer-term players persists, 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 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. The 2016 high at 1375 is a massive level that if broken and closed above, could be something that triggers a widespread panic and rush to accumulate more of the hard asset.

Feature – technical overview

Bitcoin has come under intense pressure since topping out at a record high just shy of 20,000 in December. The market has now exceeded a measured move downside objective that had targeted a drop to $7,000, with deeper setbacks now on the cards for a move to retest the September 2017 peak around $5,000. At this point, it will take a daily close back above $13,000 at a minimum, to take the pressure off the downside.

• R2 13,000 – 20Jan high – Strong
• R1 12,000 – Figure – Medium
• S1 9,000 – Figure – Strong
• S2 6,000 – 6Feb/2018 low – Strong

Feature – fundamental overview

The crypto asset has come under pressure in 2018, with ramped up regulatory oversight and potential government crackdowns forcing many holders to exit positions. The market is also coming back to earth after a euphoric 2017 run that had bubble written all over. Bitcoin has struggled on the transaction side as well, with transactions per second a major drawback, along with a mining community that has been less willing to process transactions due to the lower fees. The Lightning network has been a welcome development and will ramp up transaction speed, which has been behind some of the recovery off the 2018 low, though it seems the combination of a massive bubble, more regulatory oversight, a market that is still trying to convince of its proof of concept, and the threat of a reduction in global risk appetite, could all suggest even deeper setbacks ahead.