A Desperate Plea for Fed Policy Reconsideration

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 March 2009. Next key support comes in the form of the February 2009 low at 1.4050. However, at this point, daily studies are highly oversold and there is risk for some form of a decent corrective bounce in the sessions ahead, potentially towards 1.4600-1.4800. But, it will take a daily close back above 1.4340 to strengthen this outlook and take the immediate pressure off the downside.

• R2 1.4340 – 19Jan high – Strong
• R1 1.4230 – Previous Support – Medium
• S1 1.4129 – 19Jan low  – Medium
• S2 1.4050 – Feb 2009 low  – Strong

GBPUSD – fundamental overview

The beaten down Pound got no help from Tuesday’s round of economic data, with the UK currency extending declines to fresh multi-year lows despite a hotter round of CPI. The primary catalyst behind the currency’s latest plunge came by way of Bank of England Governor Carney, who said “now is not yet the time to raise interest rates” given “the world is weaker and UK growth has slowed.” Carney went on to add that the collapse in OIL had put added downside pressure on inflation, which meant lower for longer rates. Looking ahead, the key focus for Wednesday will be on UK employment data, which could either inspire a well deserved relief rally or invite additional declines towards 1.4000. Other data out today includes US CPI and housing starts.

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 116.30 August base. Look for any rallies to be well capped ahead of 119.00, with only a break back above 120.65 to take the immediate pressure off the downside.

• R2 118.38 – 13Jan high – Strong
• R1 118.12 – 19Jan high – Medium
• S1 116.30 – 24Aug low – Strong
• S2 116.00 – Figure – Medium

USDJPY – fundamental overview

It’s all about global risk sentiment for this pair, with the market remaining under pressure on the back of declining global equities and sliding OIL. HFTs, macro names and leveraged accounts have all been reported on the offer into Wednesday, with these participants eyeing stops below the critical August low at 116.30. A break below 116.30 could then open a fresh drop to next major support in the form of the November 2014 low in the 112.60 area. On Tuesday, BOJ Govenor Kuroda was on the wires reaffirming the central bank’s commitment to easing until the 2% inflation objective was reached, though these comments have failed to invite any relevant support to the market. Favourable US Dollar yield differentials on diverging Fed policy has taken a major backset to risk liquidation flow and traditional, safe haven Yen correlations. Looking at the economic calendar for the remainder of the day, US CPI and housing starts are the only notable standouts.

EURCHF – technical overview

The market has entered a period of multi-week consolidation. But the broader 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 for the central bank 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 or consolidation before any meaningful bearish continuation. Still, a break back above 0.7050 would be required to take the immediate pressure off the downside.

• R2 0.7048 – 13Jan high – Strong
• R1 0.6957 – 19Jan high – Medium
• S1 0.6827 – 15Jan low – Strong
• S2 0.6800 – Figure – Medium

AUDUSD – fundamental overview

A downbeat Aussie Westpac consumer confidence reading has done nothing to help an already struggling Australian Dollar amidst all of the risk liquidation flow in markets at the moment. It has been a sea of red for global equities, with investors continuing to panic in the face of Fed policy normalisation, a deteriorating China outlook and ongoing slide in the price of OIL. The fact that this time round, central banks will no longer be able to aggressively lower rates to stimulate the global economy is a worrying prospect and one that could continue to weigh on correlated currencies like the Australian Dollar over the medium-term. Perhaps another steady Yuan fixing has helped to slow the pace of Aussie declines somewhat on Wednesday. Looking ahead, key standouts on the calendar feature the Bank of Canada rate decision, US CPI and US housing starts.

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 near 13 year high into the 1.4600s. However, with daily, weekly and monthly studies tracking in highly overbought territory, 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 1.4432 will be required to trigger a bearish reversal and take the immediate pressure off the topside.

• R2 1.4700 – Figure – Strong
• R1 1.4655 – 20Jan high – Medium
• S1 1.4486 – 18Jan low – Medium
• S2 1.4432 – 19Jan low – Strong

USDCAD – fundamental overview

The collapse in the Canadian Dollar is starting to get out of hand into Wednesday, where weakness in the currency could still intensify if the Bank of Canada decides to go ahead with a rate cut. The expectation in the weeks leading up to today’s decision was that the central bank would remain on hold, though with OIL showing no sign of a bottom and establishing fresh multi-year lows comfortably below the $30 mark, there have been increased calls for the Bank of Canada to respond with a rate cut later today. At this point, the market is split 50/50 split on the outcome, though it is clear Poloz and company will deliver a more dovish policy statement. Of course, ongoing liquidation in equities and a widespread fear over stability in financial markets have also been weighing on the risk correlated Loonie. The BoC event risk will be the big event of the day, though other data on the calendar should not be overlooked, which includes Canada manufacturing and wholesale sales, US CPI and US housing starts.

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 0.6430 strengthens the bearish outlook exposing a retest of the critical multi-year base from August 2015 at 0.6130. Only back above 0.6590 would take the immediate pressure off the downside.

• R2 0.6514 – 19Jan high– Strong
• R1 0.6450 – Mid-Figure– Medium
• S1 0.6350 – Mid-Figure – Medium
• S2 0.6289 – 29Sep low – Strong

NZDUSD – fundamental overview

The current backdrop in global financial markets is not inviting of risk, with investors heading for the exits at an intensified pace in early 2016. All of this has been weighing on the correlated New Zealand Dollar, which has been under pressure in almost every day this year. But we are also seeing relative weakness on Wednesday following another disappointing GDT print and shockingly soft New Zealand inflation readings. This will only add to bets for another rate cut from the RBNZ going forward and should invite more downside pressure towards the August 2015 multi-year low at 0.6130 in the days ahead. Looking at the calendar for the remainder of the day, the Bank of Canada decision and US CPI are the key standouts that could factor into price action.

US SPX 500 – technical overview

Signs of a critical structural shift 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 1955.00 – 13Jan high – Strong
• R1 1915.00 – 19Jan high – Medium
• S1 1834.00 –24Aug low – Strong
• S2 1800.00 – Psychological – Medium

US SPX 500 – fundamental overview

Investor resentment towards the Fed appears to be intensifying with each passing day in early 2016. The market did not want to see the Fed remove incentive to be long risk, and this has clearly been felt across the board, with the China outlook rapidly deteriorating, OIL prices continuing to slide and central banks forced to consider additional accommodation. All of this has resulted in a sharp drop back towards the August flash crash lows, with the market now looking to establish below the level in the sessions ahead. While the Fed may be forced to reconsider its stance, which could slow the pace of declines, most of its tools have already been exhausted and there is not a lot lower the Fed can go.This means things could still get a lot uglier before they get better. Looking ahead, US CPI and housing starts are the key standouts on today’s calendar.

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 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

Some economists are now calling for an MAS policy shift, with the deterioration in global sentiment and concurrent slide in the price of OIL having a major softening impact on Singapore inflation. Singapore exports have also suffered quite a bit, while GDP estimates are expected to be downgraded going forward. Overall, 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 in the weeks ahead. For today, the focus on the economic calendar will be on US CPI and housing starts. Perhaps a softer US inflation reading will increase speculation of the Fed reconsidering its stance and scaling back, which could be a welcome development for the battered emerging markets.