Not As Bad China Data May Just Be Good Enough

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. Look for a daily close back above 1.4325 to strengthen this outlook and take the immediate pressure off the downside.

• R2 1.4427 – 15Jan high – Strong
• R1 1.4323 – 18Jan high – Medium
• S1 1.4237 – 18Jan low  – Medium
• S2 1.4230 – May 2010 low  – Strong

GBPUSD – fundamental overview

A quiet start to the week has kept this market trading on risk sentiment, dovish BOE expectations and fear of Brexit, all of which have opened fresh +5 year lows. Monday’s comments from BOE Vlieghe that the central bank needs to be patient and he could even back a rate cut if the slowdown worsened, have added to bearish GBP bets. However, with the market looking stretched, dealers have been talking about profit taking on Cable shorts and position squaring ahead of today’s key economic data in the form of UK inflation. Both CPI and PPI readings are due and could play a major role in dictating direction in the Pound. Of course, anything on the soft side will open the door for deeper setbacks below the May 2010 base at 1.4230, while anything hotter could finally trigger an overdue bounce. Governor Carney will also be on the wires today and comments from the central banker will influence price action as well. Other data on the day includes the UK retail price index, US NAHB housing and TIC flows.

USDJPY – technical overview

Overall, the market remains pressured to the downside, with the recent 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 117.00 – Figure – Medium
• S2 116.51 – 15Jan low – Strong

USDJPY – fundamental overview

The major pair is tracking with a bid tone into Tuesday, and perhaps some of this demand can be attributed to comments from BOJ Governor Kuroda that the central bank is committed to easing until stable 2% inflation. Still, with risk sentiment improving following only sightly weaker China GDP, retail sales and industrial production, with the OIL price stabilising, and with global equities recovering, most of the renewed round of Yen selling is likely to be coming from these developments more than any Kuroda remarks echoing what has already been said. Looking ahead, risk sentiment flows will continue to influence direction, while data in the US will get some attention, with NAHB housing and TIC flows due.

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 0.6928 – 18Jan high – Medium
• S1 0.6827 – 15Jan low – Strong
• S2 0.6800 – Figure – Medium

AUDUSD – fundamental overview

Not much of a reaction to the slightly weaker than previous Aussie consumer confidence reading early Tuesday, with the market more focused on the fallout from the heavy round of China data. Initial Aussie selling in reaction to the slightly softer China GDP, retail sales and industrial production was well supported, with the market perhaps feeling more comfortable the data wasn’t as bad as the overall sentiment in markets in early 2016. This relief carried over for the remainder of Asia trade and into Europe, with Aussie continuing to build on gains off the near 7-year low from last Friday. Looking ahead, the economic calendar is rather light in the US session, with only NAHB housing and TIC flows standing out. As such, risk sentiment flows will continue to dictate direction. 

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. But 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

Plenty of talk leading up to tomorrow’s anticipated Bank of Canada decision of a potential rate cut from the central bank in response to the ongoing deterioration in OIL prices. Setbacks in the price of OIL have been intense, and the fall in the commodity is having a strong negative impact on the Canadian economy. Economic data out of Canada has also been on the weaker side of late, further supporting the case for additional easing. However, with many viewing the decline in OIL as transitory, this could keep the BoC from a rate cut. While the central bank is likely to adopt a dovish tone, it may prefer to sit back and wait some more before making any decisions on rate moves. Another consideration for the BoC is the rapid decline in the Canadian Dollar, something that would only intensify if the central bank were to move ahead with another cut. Looking at today’s calendar, we get Canada international securities transactions, US NAHB housing and TIC flows.

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 0.6480 – 18Jan high– Medium
• S1 0.6406 – 18Jan low – Medium
• S2 0.6381 – 15Jan low – Strong

NZDUSD – fundamental overview

The massive bout of risk liquidation flow in early 2016 has not been 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. However, we have seen some demand off recent lows following the not as bad round of China data, which featured slightly below forecast GDP, retail sales and industrial production. Looking ahead, the big focus for this pair over the next 24 hours will be on today’s GDT auction and the early Wednesday release of New Zealand CPI. Otherwise, broader risk sentiment flows will play a role, while second tier US data in the form of NAHB housing and TIC flows will fade into the background.

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. The market has however been finding some support ahead of the August lows, with a not as bad round of China data early Tuesday perhaps supporting a bit. China GDP, retail sales and industrial production all came in just below forecast. Looking ahead, the US economic calendar is rather light, with only NAHB housing and TIC flows of note.

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. On the other side, there are some investors who believe the US Dollar is starting to look overvalued and as such, any weakness ahead, could open the door for renewed GOLD demand on the inverse USD correlation. 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

Although Tuesday’s round of China data came in on the weaker side, investors were comforted by the fact that the data wasn’t much worse considering the market environment in early 2016. This has helped to support risk assets, which in turn, has helped to prop the Singapore Dollar off recent multi-year lows against the Buck. Still, the ongoing liquidation in risk assets on account of the Fed’s shift to policy normalisation and broader deterioration in China, are not supportive themes for the emerging market currency and could invite more weakness once any correction plays out. Singapore exports have suffered quite a bit, while GDP estimates are expected to be downgraded going forward. Looking ahead, a light Tuesday economic calendar, with only US NAHB housing and TIC flows due. Broader risk sentiment flows will continue to play a larger part in influencing direction.