Relief Rallies Are Few and Far Between

GBPUSD – technical overview

The latest downside acceleration has resulted in a break of the critical 2015 low from March at 1.4566, with setbacks extending to the lowest levels since June 2010. Next key support comes in the form of the May 2010 low at 1.4230. However, at this point, daily studies are looking stretched and there is risk for some form of a decent corrective bounce in the sessions ahead, potentially towards 1.5000. Ultimately, only back above 1.5240 would negate the bearish structure.

• R2 1.4427 – 15Jan high – Strong
• R1 1.4352 – 12Jan low – Medium
• S1 1.4248 – 18Jan low  – Medium
• S2 1.4230 – May 2010 low  – Strong

GBPUSD – fundamental overview

Even a round of discouraging economic data out of the US failed to prop the beleaguered Pound, with the currency sinking to a fresh five and half year low early Monday. Friday’s softer US retail sales and industrial production prints only helped to intensify risk liquidation flows, which in turn translated into an even more dovish outlook for the Bank of England in sympathy. Adding to the downside pressure in the UK currency was yet another Brexit poll, which now shows a majority of Britons in favour of leaving the EU. Looking ahead, the economic calendar is empty in the UK, while US markets are out for the Martin Luther King holiday. Risk sentiment flows and OIL price action will dictate direction.

USDJPY – technical overview

The market remains pressured to the downside, with the latest break below 118.00 exposing a deeper drop towards the critical August base just ahead of 116.00. However, at this point, the market is in the process of consolidating, to allow for some oversold studies to unwind. Still, rallies should be well capped towards previous support in the 120.00 area, with only a break back above 120.65 to take the immediate pressure off the downside.

• R2 118.38 – 13Jan high – Strong
• R1 118.00 – Figure – Medium
• S1 116.51 – 15Jan low – Medium
• S2 116.18 – 24Aug low – Strong

USDJPY – fundamental overview

The major pair continues to be driven off risk flows, with the liquidation in correlated assets inviting Yen demand. Ahead of the European open dealers talk of USDJPY short covering from leveraged names and demand from Japanese accounts and algo funds. Another steady fixing in the Yuan has been sourced for some of the stability in risk assets, though overall, there is no sign of any meaningful abatement of this latest wave of early 2016 risk off trade, which could soon open a retest of the critical August base at 116.18. Mixed Japanese data on Monday has failed to factor into price action after industrial production beat, while capacity utilisation and the territory industry index disappointed. Looking ahead, the economic calendar is empty, with the US out for the Martin Luther Day holiday. Risk sentiment flows will continue to dictate direction.

EURCHF – technical overview

The market has entered a period of multi-week consolidation. At this point, the recovery structure remains intact, with only a break back below 1.0715 to compromise. As such, look for setbacks to continue to be well supported ahead of 1.0715 in favour of the next major upside extension through 1.1050 and towards 1.1500 further up. The recent break above 1.0950 suggests the market could be poised for a bullish move over the coming days following a period of contracted volatility.

• R2 1.1050 – 11Sep high – Strong
• R1 1.0982 – 14Jan high – Medium
• S1 1.0870 – 13Jan low – Medium
• S2 1.0828 – 6Jan low – Strong

EURCHF – fundamental overview

SNB’s Zurbruegg was on the wires last week using his appearance as another opportunity to talk down the Franc. The Swiss central banker said that despite weakness in the Franc over the past year, the currency is still overvalued. Zurbruegg added the combination of negative interest rates and the SNB’s willingness to intervene in the market have proven to be effective tools in making the Franc less attractive. Certainly recent price action would agree, with the EURCHF rate inching back towards 1.1000, despite an intensification in risk liquidation flows.

AUDUSD – technical overview

The latest break below the 2015, multi-year low at 0.6908 is a significant development, with the move potentially opening the door for the next major downside extension back towards the critical 2008 base in the 0.6000 area. However, with the market trading to its lowest levels since March 2009 and looking stretched on the daily chart, there is risk for some corrective price action before any meaningful bearish continuation. But a break back above 0.7050 would be required to take the immediate pressure off the downside.

• R2 0.7048 – 13Jan high – Strong
• R1 0.7000 – Psychological – Medium
• S1 0.6827 – 15Jan low – Strong
• S2 0.6800 – Figure – Medium

AUDUSD – fundamental overview

Surprisingly, the latest CFTC report shows Aussie shorts actually being reduced from -14k to -12k. The neutral bias from this data would suggest any rallies could be very well capped, in favour of renewed downside pressure. The current environment of declining commodities and intense liquidation in risk assets is not Aussie supportive, with the commodity currency exposed to the correlated flows. Aussie has dropped down to a near 7-year low as a result and could very well be poised for additional weakness if this uneasiness persists. For Monday, the economic calendar is empty, with the US out for the Martin Luther Day holiday. Look for risk sentiment flows to continue to dictate direction. We have however seen some demand ahead of Europe on the back of another steady Yuan fixing.

USDCAD – technical overview

The strong uptrend remains well intact, with the market taking out the previous 11-year peak from December, and surging to a fresh +12 year high at 1.4607. However, with daily, weekly and monthly studies looking stretched, the risk for any meaningful upside beyond the 1.4600 handle is limited, with a more significant and healthy correction favoured before bullish trend continuation. A daily close below 1.4343 will be required to trigger a bearish reversal and take the immediate pressure off the topside.

• R2 1.4700 – Figure – Medium
• R1 1.4607 – 18Jan high – Strong
• S1 1.4398 – 14Jan high – Medium
• S2 1.4343 – 15Jan low – Strong

USDCAD – fundamental overview

The Canadian Dollar continues to get battered, trading to near 13 year lows against the Buck. While risk liquidation has definitely factored into the price action, it’s unquestionably the ongoing rout in the price of OIL that is dominating flows. The news of the US and European lifting sanctions on Iran hasn’t helped matters, as this only invites more supply into an already oversupplied market. All of this has resulted in calls from economists and rate strategists for a rate cut from the Bak of Canada this week, which is further contributing to Canadian Dollar weakness. Looking ahead, there is no economic data on the Canada calendar, while the US is out for the Martin Luther Day holiday.

NZDUSD – technical overview

Any rallies continue to be very well capped, with the market confined to a broader downtrend. From here, look for the formation of a meaningful lower top in the 0.6900 area, in favour of a bearish resumption to fresh multi-year lows. The recent daily close below 0.6429 strengthens the bearish outlook exposing a retest of the critical multi-year base from August 2015 at 0.6130. Only back above 0.6510 would take the immediate pressure off the downside.

• R2 0.6590 – 13Jan high– Strong
• R1 0.6515 – 14Jan high– Medium
• S1 0.6418 – 14Jan low – Medium
• S2 0.6381 – 15Jan low – Strong

NZDUSD – fundamental overview

The latest CFTC positioning data actually shows traders net long Kiwi, which could make things a lot easier for Kiwi to trade lower in the sessions ahead. Certainly, according to this data, there is no reason to think the New Zealand Dollar is stretched, despite a drop to a three and a half month low against the Buck. The massive bout of risk liquidation flow is not supportive of the risk correlated New Zealand Dollar and could very well invite more downside pressure towards the critical August 2015 base at 0.6130. Looking ahead, with the economic calendar empty for the remainder of the day, on account of the Martin Luther King holiday in the US, participants will continue to track risk flows, while also positioning into the Tuesday GDT auction and Wednesday’s New Zealand inflation data.

US SPX 500 – technical overview

Signs of exhaustion following an impressive multi-year rally to a fresh record high in 2015. The market has finally stalled out at 2137, with the recent break back below 2000 strengthening the case for the formation of a major top. Look for this bearish price action to pave the way for a retest of medium-term support in the 1830 area over the coming sessions. Any rallies should now be well capped below 2000.

• R2 1993.00 – 14Dec low – Strong
• R1 1955.00 – 13Jan high – Medium
• S1 1857.00 –15Jan low – Medium
• S2 1834.00 – 24Aug low – Strong

US SPX 500 – fundamental overview

The market isn’t too focused on earnings season in the US at present, as it contends with larger, more worrying macro risk. The combination of a Fed on a path to policy normalisation in a global economy that is still struggling has not been a welcome mix for investors into 2016. Stocks are fast approaching the August 2015 flash crash lows, with setbacks intensifying as OIL continues to collapse. The shakeup in China markets has also resulted in massive capital outflows, inviting additional fear, panic and uncertainty. On Friday, Fed Dudley did nothing to help matters, with the central banker seeing no real change to the US economic outlook since December liftoff, while dismissing recession risk. This offset any hope for a more dovish Fed post the discouraging round of US data, highlighted by retail sales and industrial production. Looking ahead, the US market will be mostly out for the Martin Luther Day holiday.

GOLD (SPOT) – technical overview

The early January push back above 1100 was a significant development and suggests the market is in the process of a bullish structural shift. Look for a meaningful base to now be in place down at 1046, with fresh upside projected back towards the 1200 area over the coming days and weeks. Any setbacks should be well supported above 1070, with only a close back below this level to compromise the newly adopted bullish outlook.

• R2 1123.00 – 4Nov high – Strong
• R1 1112.00 – 8Jan high – Medium
• S1 1075.00 – 6Jan low – Medium
• S2 1046.00 – 3Dec/2015 low – Very Strong

GOLD (SPOT) – fundamental overview

Despite favourable US Dollar fundamentals as the Fed finally sets out on its path to policy normalisation, GOLD is finding formidable support into 2016, given deteriorating global sentiment and uncertainty in the air, most recently brought on by a worrisome China outlook, rising geopolitical tensions and a collapse in the price of OIL. Longer term macro players have been accumulating the metal as a hedge against an overinflated equity market that could be on the verge of a more significant decline. Dealers cite solid demand in the $1170-1180 area and talk of buy-stops above $1115.

Feature – technical overview

USDSGD looks to be wanting to end a period of multi-week consolidation, following this latest break of the range to a fresh multi-year high. A weekly close above 1.4450 is required to confirm the bullish shift and open the next major upside extension towards 1.5000 over the coming weeks. However, inability to hold above 1.4450 could warn of exhaustion and the potential for a bearish reversal back into the range.

• R2 1.4500 – Psychological – Strong
• R1 1.4444 –11Jan high – Medium
• S1 1.4273 – 8Jan low – Strong
• S2 1.4150 – 4Jan low – Medium

Feature – fundamental overview

A steady Yuan fixing rate and chatter of potential MAS intervention have been helping to keep a beaten down Singapore Dollar from trading to yet another multi-year low against the Buck. Still, the ongoing liquidation in risk assets on account of the Fed’s shift to policy normalisation and concurrent deterioration in China, are not supportive themes for the emerging market Asia currency and could invite more weakness in the days ahead. Singapore exports have suffered quite a bit, while GDP estimates are expected to be downgraded going forward. Looking ahead, a light Monday economic calendar will leave price action trading off broader risk sentiment.