Beware The Ides of March

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 1.3917– 28Feb high – Strong
• R1 1.3858 – 27Feb low – Medium
• S1 1.3700 – Figure – Medium
• S2 1.3660 – 2017 high – Strong

GBPUSD – fundamental overview

EU Barnier has been crushing the Pound this week. On Tuesday the official said the UK would not be allowed to cherry pick the aspects of the EU it liked when leaving the bloc, and then on Wednesday he said a transition deal period for the UK was not guaranteed. The Pound has also suffered at the hands of more tension in Theresa May's cabinet and some unsettling headlines relating to two large UK retailers. All of this comes at a time when the US Dollar is reasserting on the back of rising inflation expectations in the US that are pushing yield differentials in the Buck’s favour. Looking ahead, today’s US core PCE reading will be important to watch, with a hotter print to fuel more Pound weakness. We also get another round of Fed Powell testimony, along with manufacturing readings out of the UK and US, US initial jobless claims, US construction spending and scattered central bank speak.

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 107.68 – 27Feb high – Medium
• S1 106.38 – 26Feb low – Medium
• S2 105.56 – 16Feb/2018 low – Strong

USDJPY – fundamental overview

Overall, the Yen has been well bid in early 2018, with the Dollar taking a big hit from US administration soft Dollar policy early on and risk for a capitulation in global equities driving additional Yen demand in recent weeks. Though we did see 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. Traditional flows are supportive of USDJPY weakness in such a backdrop, with risk off taking precedence over any Dollar demand from yield differentials, at least for a period of time. Looking ahead, today’s US core PCE reading will be important to watch, with a hotter print to potentially fuel more Yen demand as stocks come under pressure. We also get another round of Fed Powell testimony, along with manufacturing readings out of the US, US initial jobless claims, construction spending and scattered central bank speak.

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 0.7820 – 28Feb high – Medium
• S1 0.7718 – 1Mar low – Strong
• S2 0.7628 – 14Dec low – Medium

AUDUSD – fundamental overview

The Australian Dollar has come under pressure in recent days, mostly on the back of this resurgence in broad based US Dollar demand as US inflation metrics start to rise faster than expected. Of course this latest Aussie private capex miss hasn’t done anything to help Aussie’s cause on Thursday and with risk sentiment showing signs of rolling back over, setbacks could intensify. As per the February RBA decision, the central bank has been taking a more cautious approach, which lends further support to the case for Aussie weakness. Indeed, US Dollar policy has been a drag, but hotter US inflation and risk off flow will likely more than offset and Dollar weakness from the US administration’s campaign. Looking ahead, today’s US core PCE reading will be important to watch, with a hotter print to potentially fuel more Yen demand as stocks come under pressure. We also get another round of Fed Powell testimony, along with manufacturing readings out of the US, US initial jobless claims, construction spending and scattered central bank speak.

USDCAD – technical overview

There are signs of basing after months of downside pressure. 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 1.2850 – Mid-Figure – Medium
• S1 1.2762 – 28Feb 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, today’s US core PCE reading will be important to watch, with a hotter print to potentially fuel more Yen demand as stocks come under pressure. We also get another round of Fed Powell testimony, along with Canada and US manufacturing readings, US initial jobless claims, construction spending and scattered central bank speak.

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 0.7305 – 27Feb high – Strong
• R1 0.7243 – 28Feb high – Medium
• S1 0.7200 – Figure – Medium
• S2 0.7178 – 8Feb low – Medium

NZDUSD – fundamental overview

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 demand from alternative flows, to usher 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 this Tuesday’s trade data miss, only strengthen the bearish case. Looking ahead, today’s US core PCE reading will be important to watch, with a hotter print to potentially fuel more Yen demand as stocks come under pressure. We also get another round of Fed Powell testimony, along with manufacturing readings out of the US, US initial jobless claims, construction spending and scattered central bank speak.

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 was consistent with these expectations and today’s core PCE data could therefore be critical to watch, as anything hotter here, will fuel more weakness.

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 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.