Technical Rally or Something More?

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 1.4219 to strengthen this outlook and take the immediate pressure off the downside.

• R2 1.4340 – 19Jan high – Strong
• R1 1.4219 – 20Jan high – Medium
• S1 1.4125 – 20Jan low  – Medium
• S2 1.4050 – Feb 2009 low  – Strong

GBPUSD – fundamental overview

Although the Pound is trading near multi-year lows from Wednesday, weighed down by Governor Carney comments that “now is not yet the time to raise interest rates,” the UK currency has managed to find some demand off the lows. Wednesday’s UK employment data came in better than expected overall, despite still subdued wage growth. This in conjunction with softer US CPI and a recovery in risk assets and OIL, have continued to invite some welcome relief. Looking ahead, no first tier data out of the UK on Thursday and the focus on the calendar will be on the ECB rate decision, US initial jobless claims, the Philly Fed and crude oil inventory data.

USDJPY – technical overview

Overall, the market remains pressured to the downside, with the recent break below 118.00 exposing a deeper drop through the critical 116.30 August base. A daily close below 116.30 will increase bearish momentum and open the door for the next major downside extension towards the November 2014 base at 114.47. In the interim, 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 117.68 – 20Jan high – Medium
• S1 116.30 – Previous August Base – Strong
• S2 115.97 – 20Jan low – Medium

USDJPY – fundamental overview

Anticipation for next week’s BOJ policy meeting is starting to build, with participants once again trying to figure out if the central bank will step up easing efforts. Some confusion on this issue into Thursday after initial reports the BOJ would in fact be ready to increase easing, were then contradicted by Abe aide, Masahiko Shibayama, who said it was still too early for the BOJ to commit to further easing. Controversy also swirling around the government today, with allegations thrown at economic minister Amari, accused of illegally accepting money. The major pair had been supported into early Asia on a late Wednesday stock market recovery and subsequent China liquidity injection, but has found solid offers into rallies as risk sentiment fades yet again. Looking ahead, the key standouts on the calendar come in the form of the ECB rate decision, US initial jobless claims, and the Philly Fed.

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 0.6958 – 21Jan high – Medium
• S1 0.6827 – 15Jan low – Strong
• S2 0.6800 – Figure – Medium

AUDUSD – fundamental overview

A recovery in equities and OIL late Wednesday, along with another liquidity injection from China, helped to bolster sentiment somewhat, though ahead of the European open, the market is finding solid offers. This has weighed on the Aussie rally, with the currency giving back all of its early gains. For the time being, Aussie direction will continue to be influenced by the direction of global risk sentiment, and as things stand in early 2016, this could very well open the door for deeper setbacks to fresh multi-year lows. Dealers cite buy stops above 0.6960, which will need to be taken out to take the immediate pressure off the downside. Looking ahead, the focus will be on the ECB rate decision, US initial jobless claims and the Philly Fed.

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 of 1.4690. However, with daily, weekly and monthly studies tracking in highly overbought territory, the risk for any meaningful upside beyond 1.4690 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 1.4690 – 20Jan high – Strong
• R1 1.4550 – Mid-Figure – Medium
• S1 1.4432 – 19Jan low – Strong
• S2 1.4343 – 15Jan low – Medium

USDCAD – fundamental overview

Finally, a welcome recovery in the Canadian Dollar after the Loonie collapsed to a fresh +12 year low on Wednesday. The market had been pricing in a good chance of a Bank of Canada rate cut, and this in conjunction with the ongoing weakness in OIL prices, were responsible for the latest round of weakness. However, the Bank of Canada’s decision to leave rates unchanged caught many off guard and immediately resulted in a sharp pullback in USDCAD. Some choppy trade ensued on the back of equity market liquidation, though with this market finally finding its own support, the Canadian Dollar was able to hang onto gains into Thursday. From here, it will be back to focusing on OIL and equities. Both of these markets are well extended and due for decent recoveries. Should we see this play out, more Canadian Dollar gains are to be expected. Looking ahead, the focus will be on the ECB rate decision, US initial jobless claims, the Philly Fed and crude oil inventories.

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 0.6477 – 21Jan high– Medium
• S1 0.6400 – Figure – Medium
• S2 0.6347 – 20Jan low – Strong

NZDUSD – fundamental overview

An early Thursday recovery in the New Zealand Dollar has been met with initial resistance, and the market has come back under pressure. Stability in financial markets late Wednesday, followed by news of another China liquidity injection, had been enough to inspire demand off the lows, though overall, with risk sentiment still shaky, gains are proving hard to come by. Throw in another disappointing GDT auction and much softer than expected round of New Zealand inflation data this week, and the bearish price action is making sense. Market participants are now pricing in additional rate cuts from the RBNZ in the months ahead. Dealers do however cite buy stops above 0.6515 and if this level is cleared, it could take some of the intense pressure off the downside. Looking ahead, the focus will be on the ECB rate decision, US initial jobless claims and the Philly Fed.

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 the critical August base at 1834 strengthening the outlook. From here, any rallies are expected to be well capped below previous support at 1993, in favour of the next major downside extension towards 1700. Only a daily close back above 1993 will take the pressure off the downside.

• R2 1955.00 – 13Jan high – Strong
• R1 1915.00 – 19Jan high – Medium
• S1 1811.00 –20Jan 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 in December, 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 through the August flash crash lows, with the market now considering the possibility of establishing below the level in the sessions ahead. And 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. Technical buying, softer US CPI, and a China liquidity injection have been helping to support for now, though the market would need to push back above 2000 to take the pressure off the downside.

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 1071.00 – 14Jan 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

Softer US CPI, a recovery off the lows in equities and a China $60 billion liquidity injection, have all helped to keep the Singapore Dollar from breaking to yet another fresh mutli-year low. But 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 the ECB rate decision, US initial jobless claims, the Philly Fed and some OIL inventory data.