Markets Hoping for More Dovish CB Decisions

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. Last 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 1.4427 – 15Jan high – Strong
• R1 1.4363 – 22Jan high – Medium
• S1 1.4205 – 22Jan low  – Medium
• S2 1.4080 – 21Jan low  – Strong

GBPUSD – fundamental overview

Not a great retail sales showing out of the UK on Friday, with the reading posting its worst year over year print in over 6 years. However, the combination of offsetting UK public finance data, recovery in OIL prices, resurgence in risk appetite and a technically overextended Pound, all contributed to a modest recovery in the UK currency out from last Thursday’s near 7 year low of 1.4080 against the Buck. Looking ahead, UK CBI and Dallas Fed manufacturing are the only notable standouts on today’s calendar, though the market will also start to think about Wednesday’s event risk in the form of the FOMC rate decision.

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 daily close above 119.00 to strengthen this outlook and potentially accelerate gains. Still, while the market holds below 120.65, the overall pressure remains on the downside and risk remains for a lower top and drop back below last week’s critical low at 115.97.

• R2 119.70 – 5Jan high – Strong
• R1 118.88 – 22Jan high – Medium
• S1 117.54 – 22Jan low – Strong
• S2 115.97 – 20Jan low – Medium

USDJPY – fundamental overview

BOJ Governor Kuroda has pretty much eliminated risk for additional easing later this Friday, after the central banker downplayed any negative impacts on the local economy from the latest wave of risk off trade and global turmoil. Still, the market is expecting some dovishness from the BOJ as lower OIL and subdued wage growth undermine the central bank’s effort to reach its 2% inflation objective. Perhaps the latest discouraging trade data out of Japan will also influence the BOJ, with even exports to the US dropping off. But for now, it’s the resurgence in risk appetite following an intense wave of liquidation in early 2016 that is helping to support the major pair. Looking ahead, only Dallas Fed manufacturing stands out on today’s calendar, though the market will have a lot to think about, with the FOMC decision due Wednesday.

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 1.0990 – 22Jan high – Medium
• S1 1.0910 – 20Jan low – Medium
• S2 1.0828 – 6Jan low – Strong

EURCHF – fundamental overview

The SNB continues to use any appearances as opportunities to to talk down the Franc. Swiss central bankers maintain their strong view that despite weakness in the Franc over the past year, the currency is still overvalued. 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, effectively altering its status in the currency market. 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 0.6957 – 19Jan high – Medium
• S2 0.6875 – 21Jan low – Strong

AUDUSD – fundamental overview

While the Australian Dollar has been benefitting from a resurgence in risk appetite and recovery in global equities and OIL, Monday’s deterioration in NAB business conditions and business confidence, has taken some of the wind out of the sails of this Aussie recovery. Setbacks have however been supported on another steady Yuan fixing. Looking ahead, with the economic calendar exceptionally thin for the remainder of the day, price action will be heavily influenced by risk flow. The only notable release on the calendar comes in the form of second tier Dallas Fed manufacturing. Market participants will also start to position ahead of Wednesday’s FOMC rate decision.

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 1.4300 – 22Jan high – Strong
• R1 1.4200 – Figure – Medium
• S1 1.4051 – 7Jan low – Medium
• S2 1.4000 – Psychological – Medium

USDCAD – fundamental overview

Any weakness from Friday’s slightly softer Canada inflation readings were more than offset by an impressive retail sales print, rebound in OIL and recovery in risk sentiment. All of this has helped the Canadian Dollar enjoy a long overdue period of strength after getting beaten down to near 13 year lows against the Buck in the previous week. Looking ahead, with the Canada economic calendar empty on Monday, the focus will be on broader sentiment flows and the price of OIL. Dallas Fed manufacturing is unlikely to have any influence, though the market will also start to think about Wednesday’s all important FOMC rate decision.

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 0.6590 – 13Jan high– Strong
• R1 0.6559 – 21Jan high– Medium
• S1 0.6462 – 25Jan low – Medium
• S2 0.6347 – 20Jan low – Strong

NZDUSD – fundamental overview

Although it is probably still too early in the year for the RBNZ to make a move for additional easing, the market will have every reason to expect an added layer of dovishness from the central bank when it meets early Thursday. The combination of risk liquidation, China deterioration, softer GDT and subdued inflation, are all headwinds for the New Zealand economy that will require the RBNZ to err on the side of accommodation. For the moment, we are seeing a bit of a Kiwi bounce, as the move coincides with a mild resurgence in risk appetite and OIL prices. Looking ahead, the economic calendar is exceptionally thin on Monday, with only Dallas Fed manufacturing standing out. Otherwise, it will continue to be about risk flow and positioning ahead of Wednesday’s FOMC and Thursday’s RBNZ.

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

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. The market will now be looking for more easing gestures from the Fed, RBNZ and BOJ this week. 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

USDTRY is showing signs of exhaustion after stalling shy of the December record peak at 3.0750. A drop back below 2.9825 will strengthen the corrective outlook and open the door for a more pronounced decline back into the 2.9000 area. Still, overall, the broader uptrend remains firmly intact and only below 2.7580 would compromise the constructive outlook.

• R2 3.0750 – 24Sep/Record – Strong
• R1 3.0360 –20Jan high – Medium
• S1 2.9825 – 8Jan low – Medium
• S2 2.9025 – 21Dec low – Strong

Feature – fundamental overview

Fitch’s criticism of the CBRT has not been a help to a very weak Lira, with the rating agency highlighting the fact that the central bank’s strategy exposes it to credibility weakness. The Lira’s decline to record lows over the past few months is putting upwards pressure on inflation, which could compromise the CBRT’s 7.5% inflation objective. Though the Lira has benefitted from a 10% recovery in the price of OIL and a resurgence in global risk appetite, the emerging market currency gains have been less than impressive considering. Dealers report plenty of fresh USDJPY demand on dips into the 2.9500-2.9700 area.