Settling in Ahead of Central Bank Risk

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 1.4000– Psychological – Strong
• R1 1.3930 – 6Mar high – Medium
• S1 1.3817 – 6Mar low – Medium
• S2 1.3756 – 2Mar low – Strong

GBPUSD – fundamental overview

A lot of talk this week on the UK side about a transition deal getting done, though as of yet, the talk has not been backed by substance, with a clear divide still showing on many key issues. This leaves the Pound exposed to another round of weakness on any confirmation of the bigger divide than what the PM has advertised. We don’t get any first tier economic data out of the UK today, and the focus will be on any new headlines on the Brexit drama front, the ECB meeting, fallout from US protectionism and some US initial jobless claims.

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 – 21Feb high – Strong
• R1 106.47 – 6Mar high – Medium
• S1 105.56 – 16Feb low – Medium
• S2 105.25 – 2Mar/2018 low – Strong

USDJPY – fundamental overview

Overall, the Yen has been well bid in early 2018, with the Dollar taking a hit from US administration protectionism and soft Dollar policy and hints of capitulation in global equities also factoring into the flow. 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. 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, the market will be monitoring any updates relating to US protectionism, while taking in fallout from the ECB decision. We also get US initial jobless claims and an early Friday Bank of Japan decision.

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 1.1750 – Mid-Figure – Medium
• S1 1.1632 – 7Mar low – Medium
• S2 1.1448 – 8Feb/2018 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 0.7843 – 6Mar high – Medium
• S1 0.7757 – 6Mar low – Strong
• S2 0.7713 – 1Mar low – Medium

AUDUSD – fundamental overview

Both Australia and China trade data came in better than expected early Thursday, though this hasn’t done much to inspire renewed demand for the Australian Dollar. Overall, as per this week’s RBA decision, the central bank continues to retain a cautious outlook and this in conjunction with renewed demand for the US Dollar and risk off flow from US administration protectionist rhetoric have been keeping the currency capped into rallies. Looking ahead, Aussie will react to risk implications from the ECB decision, while also taking in US initial jobless claims and monitoring any updates relating to US administration tariffs and trade policy.

USDCAD – technical overview

There are signs of basing after months of downside pressure, with the market racing back above critical resistance at 1.2921. Look for any setbacks from here to be very well supported ahead of 1.2600, in favour of the next higher low and bullish continuation well beyond 1.3000.

• R2 1.3044– 29Jun high – Strong
• R1 1.3002 – 7Mar high – Medium
• S1 1.2868 – 5Mar low – Medium
• S2 1.2762 – 28Feb low – Strong

USDCAD – fundamental overview

The Canadian Dollar has been a standout underperformer in the currency market over the past several days, with ongoing stress relating to the fate of NAFTA weighing heavily on the Loonie. This stress was advertised in Wednesday’s Bank of Canada policy decision, which had the central bank shifting to a more cautious outlook. Things have calmed since Monday’s worrying comments from President Trump, with the news that Canada would be temporarily excluded from the next announced tariff, helping to slow the Loonie’s depreciation. But all of this comes at a time when Canada’s recovery is already somewhat fragile, and this coupled with an unstable macro picture should keep the Canadian Dollar pressured, especially with the Bank of Canada now needing to possibly reconsider what may have been an overly optimistic policy normalisation path. Looking ahead, we get Canada housing starts and building permits along with central bank speak from BoC’s Poloz and Lane. But fallout from the ECB decision and any updates relating to US protectionism, will also factor into price action. It’s worth noting, US initial jobless claims are also due.

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 0.7311 – 6Mar high – Medium
• S1 0.7204 – 5Mar low – Medium
• S2 0.7178 – 8Feb low – Medium

NZDUSD – fundamental overview

In February, the RBNZ adopted a more dovish leaning outlook and this coupled with signs of rising inflation in the US and increased tension around fallout from US protectionist measures, could easily offset any demand from alternative flows that might otherwise be supportive of the Kiwi rate. Looking ahead, Kiwi will react to risk implications from the ECB decision, while also taking in US initial jobless claims and monitoring any updates relating to US administration tariffs and trade policy.

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 2662 – 1Mar 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, CPI, and core PCE are the types of things that could weigh more heavily on sentiment in the sessions ahead, if there is more evidence confirming this bias. Of course, the added wrench of ramped up US protectionism should only intensify the negative sentiment, especially after this week’s resignation of President Trump’s top economic adviser.

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 1303 – 2Mar 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.