Risk Rally Runs Out of Steam

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 has room to 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

Ongoing Brexit risk, weakness in OIL and a dovish repricing of BOE rate expectations, continue to keep the Pound very well offered into rallies. Monday’s pullback in risk has not helped the UK currency’s cause, with the major pair retreating from recovery highs. Lack of economic data on the UK calendar will leave this market focused on BOE Governor Carney testimony, which could open the door for additional weakness. If the central banker continues to talk of lower for longer, there will be risk for a potential drop back towards last week’s must-year low at 1.4080. Other data on the day features US housing, PMIs, consumer confidence and Richmond Fed manufacturing. Otherwise, market participants will continue to position ahead of tomorrow’s 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

The market is trying to figure out what the BOJ will do when it decides on policy later this week. Governor Kuroda has been sending mixed messages, warning the central bank will not hesitate to ease further to reach its 2% inflation target, while at the same time, downplaying any negative impacts on the local economy from the latest wave of risk off trade and global turmoil in early 2016. But even if the BOJ holds off from expanding policy, the market will be expecting some dovishness, as lower OIL and subdued wage growth undermine the central bank’s objectives. In the interim, it’s risk sentiment and tomorrow’s FOMC decision that will dictate most of the flow. Monday’s pullback in risk assets and decline in OIL has opened renewed downside pressure on the major pair. Looking at today’s calendar, we get a batch of US data featuring US housing, PMIs, consumer confidence and Richmond Fed manufacturing.

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 1.1007 – 25Jan high – Medium
• S1 1.0909 – 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 productive 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 the September peak at 1.1050, despite an intensification in risk liquidation flows in early 2016. On Tuesday, the market takes in Swiss trade data.

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 0.7046 – 22Jan high – Medium
• S1 0.6900 – Figure – Medium
• S2 0.6875 – 21Jan low – Strong

AUDUSD – fundamental overview

The Australian Dollar has come back under pressure into Tuesday, with Monday’s pullback in stocks and OIL weighing on the commodity currency. With little in the way of any meaningful economic data on Tuesday, the market is expected to continue to trade on risk flow. Second tier US data in the form of US housing, PMIs, consumer confidence and Richmond Fed manufacturing are unlikely to factor too much. Aussie will then look ahead to some economic data and event risk on Wednesday, with Aussie CPI and the FOMC rate decision due. At the moment, the market is only pricing a 20% chance for an RBA rate cut in February, though this could change if CPI comes in softer and the Fed expresses concern over the downturn in markets in early 2016.

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 1.4350 – Mid-Figure – Medium
• S1 1.4115 – 22Jan low – Strong
• S2 1.4051 – 7Jan low – Medium

USDCAD – fundamental overview

Last Friday’s impressive Canada retail sales has long been forgotten, with a sharp reversal in OIL and weakness in global equities opening renewed downside pressure in the Loonie. There is very little in the way of any meaningful economic data for Tuesday, with only second tier US releases in the form of US housing, PMIs, consumer confidence and Richmond Fed manufacturing. As such, look for the direction in OIL and equities to continue to dictate trade, while the market will also start to position ahead of tomorrow’s anticipated 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 0.6411 – 21Jan low – Medium
• S2 0.6347 – 20Jan low – Strong

NZDUSD – fundamental overview

The key focus for the New Zealand Dollar this week will be on the FOMC and RBNZ policy decisions. The market will be looking to see if either central bank expresses any added dovishness in light of the risk liquidation flow in early 2016. Certainly on the RBNZ side, there is good risk for added dovishness given the risk off price action, lower OIL and slide in the dairy sector. We have also seen a downturn in already subdued Kiwi inflation readings, which could very well further contribute to a more accommodative RBNZ outlook. In the interim, the focus will be on risk flows and second tier US data later today, featuring US housing, PMIs, consumer confidence and Richmond Fed manufacturing.

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 1911.00 – 25Jan high – Medium
• S1 1811.00 –20Jan low – Strong
• S2 1800.00 – Psychological – Medium

US SPX 500 – fundamental overview

Equities continue to be well capped in 2016, on the prospect of higher rates from the Fed amidst a still struggling global economy. China has done its best to support the market 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 if it wants to have any hope for stabilisation. 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 towards the 1200 area over the coming days. Any setbacks should be well supported above 1070, with only a close back below this level to compromise the newly adopted bullish outlook.

• R2 1138.00 – 3Nov high – Strong
• R1 1123.00 – 4Nov high – Medium
• S1 1092.00 – 21Jan low – Medium
• S2 1071.00 – 14Jan low – 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.

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

Last Friday’s CBRT Governor Basci comments that there would be no need for aggressive action on interest rates, have not been a welcome development for an already beaten down Lira. Moreover, with OIL prices still at depressed levels and risk liquidation a major theme in early 2016, it will be difficult to see a situation where the Lira avoids dropping to fresh record lows against the Buck. The key focus over the coming sessions will be on the FOMC rate decision. If the Fed scales back and sounds a little more dovish in light of the early 2016 risk slide, this will be of benefit to the Lira. If however the Fed maintains its outlook and downplays the turmoil of the past few weeks, look out for fresh Lira declines.