Some of the Old Medicine

GBPUSD – technical overview

The intense declines in early 2016 are finally showing signs of stalling out, with the market in desperate need of a healthy correction. Thursday’s bullish outside day price action off a near 7-year low at 1.4080 could be the catalyst to trigger this overdue bounce that could easily extend back to the 1.4600-1.4800 area before the market even considers a lower top and bearish resumption.

• R2 1.4340 – 19Jan high – Strong
• R1 1.4300 – Figure – Medium
• S1 1.4125 – 20Jan low  – Medium
• S2 1.4080 – 21Jan low  – Strong

GBPUSD – fundamental overview

A beaten down UK currency, trading to a fresh multi-year low at 1.4080 on Thursday, is finally showing signs of recovery post dovish Governor Carney comments. There have been a number of factors that have hurt the Pound in early 2016, which on top of a more dovish BOE, include Brexit risk and lower OIL. But now that the market has absorbed the brunt of this, shorts are starting to book profits and square up. Euro outflows from dovish Draghi comments have also benefitted the UK currency, while Thursday’s broad recovery in risk sentiment and OIL have opened more demand. Perhaps there were warnings of recovery earlier this week on the better than expected UK employment, despite softer wage growth, and the market will now look ahead to today’s UK retail sales for additional directional insight. BOE Cunfliffe is also slated to make an appearance. US data shouldn’t factor much, with only second-tier releases due, in the form of manufacturing PMIs, existing home sales and leading indicators.

USDJPY – technical overview

Although the market was able to take out the August 2015 base at 116.30, inability to establish a daily close below the level suggests the major pair could be looking to base out in favour of a push back to the topside. Look for a break and close above 118.84 to strengthen this outlook and potentially accelerate gains. Still, while the market holds below 118.84, the overall pressure remains on the downside and risk remains for a drop back below this week’s critical low at 115.97.

• R2 118.84 – 8Jan high – Strong
• R1 118.38 – 13Jan high – Medium
• S1 117.00 – Previous August Base – Strong
• S2 116.47 – 21Jan low – Medium

USDJPY – fundamental overview

Perhaps a miss in Japanese manufacturing PMIs is helping to support the major pair a bit, though overall, this market has managed to recover from multi-month lows on the back of a resurgence in risk appetite. Whichever direction risk goes in this final day of trade for the week, will more than likely have a direct influence on USDJPY’s closing levels. The market is now starting to think more about next week’s Bank of Japan decision, with many wondering whether the latest downturn in the global economy and added softening of inflation will encourage the BOJ to signal additional stimulus. But for today, the only notable economic data comes in the form of second-tier releases out of the US, which include manufacturing PMIs, existing home sales and leading indicators.

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. A 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 in early 2016.

AUDUSD – technical overview

Inability for the  market to extend declines below last week’s multi-year low at 0.6827 suggests the Australian Dollar is looking to establish some kind of interim base in favour of a corrective recovery. Still, the broader downtrend remains firmly intact and any rallies in the sessions ahead are expected to be well capped below 0.7200 in favour of a lower top and bearish resumption.

• R2 0.7097 – 17Dec low – Strong
• R1 0.7048 – 13Jan high – Medium
• S1 0.6925 – 20Jan high – Medium
• S2 0.6875 – 21Jan low – Strong

AUDUSD – fundamental overview

Not a lot from the Australian economic calendar this past week, with the local currency trading mostly on broader macro flows. The Australian Dollar has done a good job of recovering into the end of the week, despite attempts earlier in the week to take out last Friday’s fresh multi-year low. Certainly Thursday’s sentiment improvement has been a major driver of the recovery, with the rebound in stocks and OIL both sending more reassuring messages to the global economy and risk correlated assets. Looking ahead, only second-tier economic data out of the US, in the form of manufacturing PMIs, existing home sales and leading indicators.

USDCAD – technical overview

Parabolic price action usually has a way of producing dramatic blowoff tops and with the market surging to near 13-year highs at 1.4690, the risk for sharp reversal was imminent. Technical studies have finally begun to unwind from violently overbought readings and there is scope for a deeper correction towards previous resistance turned support in the form of the psychological barrier at 1.4000. Still, overall, the broader uptrend remains firmly intact and setbacks are expected to be very well supported around 1.4000 in favour of a higher low and fresh upside extension. Only a daily close below 1.3800 would compromise the current structure.

• R2 1.4432 – 19Jan low – Strong
• R1 1.4400 – Figure – Medium
• S1 1.4228 – 21Jan low – Medium
• S2 1.4177 – 12Jan low – Medium

USDCAD – fundamental overview

Wednesday’s Bank of Canada rate hold and less dovish than expected decision, was followed up on Thursday by a recovery in OIL and stocks. All of this has been a welcome development for a beaten down Canadian Dollar trading to near 13-year lows against the Buck pre-Bank of Canada. Economic data out of Canada over the past several days has been more impressive, and if OIL and stocks hold up and we get a decent showing from today’s Canada retail sales and CPI, this could inspire additional profit taking on Loonie shorts, exposing critical USDCAD support in the 1.4000 area. Other data out on Friday includes second-tier US releases in the form of manufacturing PMIs, existing home sales and leading indicators.  

NZDUSD – technical overview

Setbacks have been well supported on dips into the 0.6350 area and the market has entered a period of correction following an intense wave of declines in early 2016. Still, overall, the broader downtrend remains intact and any rallies should be well capped into 0.6700 in favour of a fresh lower top and the next downside extension towards the 2015 multi-year low at 0.6130.

• R2 0.6678 – 8Jan high– Strong
• R1 0.6590 – 13Jan high– Medium
• S1 0.6450 – Mid-Figure – Medium
• S2 0.6411 – 21Jan low – Strong

NZDUSD – fundamental overview

Thursday’s resurgence in risk appetite and recovery in the price of OIL has been a big help to risk correlated currencies, with the New Zealand Dollar mounting an impressive rally from recent lows. Clearly, if this price action persists into the Friday close, there is scope for additional Kiwi upside. Still, there are problems on the local front that should invite offers into strength, with another disappointing GDT auction and much softer CPI leaving the door wide open for additional RBNZ easing this year. Looking ahead, only second-tier economic data out of the US, in the form of manufacturing PMIs, existing home sales and leading indicators.

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

Perhaps this latest recovery in risk assets will end a streak of 12 consecutive weeks of outflows from emerging market funds. We are finally seeing a bit of light for equities following a brutal start to 2016 in which investors have grown exceptionally uncomfortable with the prospect of higher rates from the Fed amidst a still struggling global economy. China has done its best to help the cause, through a number of liquidity injections, while Draghi has also stepped in, signaling the possibility for additional stimulus in March. Clearly these are the types of messages investors are looking for, as they are not ready to give up on a strategy that incentivizes investment in risk on account of excessive monetary policy accommodation. Still, with central banks so extended and not having much left in the tank, it begs the question of how meaningful any stock market recovery can really be in the current environment.

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 on a break of 1112 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 are reporting sizable buy-stops above $1115.

Feature – technical overview

USDSGD is showing signs of exhaustion following a recent break to a fresh multi-year high at 1.4444. A drop back below 1.4273 will strengthen this outlook and open the door for a more pronounced correction back into the 1.4000-1.4100 area. Still, overall, the broader uptrend remains firmly intact and only below 1.3923 would compromise the constructive outlook.

• 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

Emerging market FX will be glad to see an end to an early 2016 rout in markets. There have been signs of recovery in recent trade, with the markets once again responding to central bank stimulus gestures. The PBOC has been pumping the market with liquidity injections,, while ECB Draghi has just signaled the potential for additional stimulus in March. All of this has been helping a beaten down Singapore Dollar, which will receive and added boost if we get a break of a sequence of 12 consecutive weeks of emerging market outflows. Risk sentiment flow will continue to dictate direction into the Friday close, with second-tier US data unlikely to factor.