Will the Fed Accommodate Investor Demand?

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 1.4400 – Figure – Medium
• S1 1.4300 – Figure  – Medium
• S2 1.4205 – 22Jan low  – Strong

GBPUSD – fundamental overview

Nothing on the UK front has been Sterling supportive over the past 24 hours, with the recovery in the Pound driven off broader external flows and position squaring into today’s FOMC event risk. On Tuesday, Governor Carney highlighted risks to a Brexit while reiterating recent sentiment that conditions for a rate hike were not yet in place. But it seems market participants were more content to look past all of this, booking profit and squaring up on extended GBP shorts, with the recovery in OIL and improved risk sentiment also supporting. Looking ahead, we get UK Nationwide house prices and BBA mortgage approvals, along with US New home sales. But we aren’t likely to see any meaningful volatility until after the Fed.

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

Increased speculation the Bank of Japan may look to expand quantitative easing later this week has been helping to support the USDJPY market, though a good portion of the support can also be attributed to a healthy recovery in risk assets. The only notable standout on the economic calendar ahead of the FOMC decision is US new home sales, and this won’t have any meaningful influence on price action. As such, we aren’t likely to see any real volatility in this major pair until after the Fed. But with the Fed later today and the BOJ on Friday, things could get quite active into the latter half of the week.

EURCHF – technical overview

A period of multi-week consolidation has finally been broken, with the market clearing critical range resistance at 1.1050 to signal a bullish continuation. Given the fact that the previous consolidation range was about 350 points, the push above 1.1050 opens a measured move upside extension of the equivalent size, projecting gains towards 1.1400. Any setbacks should be very well supported ahead of 1.0800, while only below 1.0715 negates the constructive outlook.

• R2 1.1200 – Figure – Strong
• R1 1.1100 – Figure – Medium
• S1 1.0985 – 26Jan low – Medium
• S2 1.0909 – 20Jan low – Strong

EURCHF – fundamental overview

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 clearing the September peak at 1.1050, despite an intensification in risk liquidation flows in early 2016. Looking ahead, we get the Swiss UBS consumption indicator, though this market will be more focused on broader risk flows and volatility around the FOMC policy decision.

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 0.6918 – 26Jan low – Medium
• S2 0.6875 – 21Jan low – Strong

AUDUSD – fundamental overview

A firmer than expected round of Aussie inflation data on Wednesday has been helping to support the Australian Dollar, which has managed to build on the positive momentum from a Tuesday session, which saw the currency higher on a recovery in risk assets and the price of OIL. Odds for an RBA rate cut in February have now been cut back to under 10%, though the market is pricing some easing later in the year, with inflation still rather benign, China deteriorating and the housing market cooling off. Looking ahead, it’s all about today’s FOMC rate decision, and this will be the primary driver of direction over the next 24 hours. US new home sales are due earlier in the day but are unlikely to influence.

USDCAD – technical overview

Technical studies have finally unwound 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 1.4326 – 26Jan high – Strong
• R1 1.4228 – 21Jan low – Medium
• S1 1.4045 – 26Jan low – Medium
• S2 1.4000 – Psychological – Strong

USDCAD – fundamental overview

News of OPEC talks with rival Russia to coordinate a scaling back in the production of OIL in order to rein in a massive supply glut, helped to rally the price of OIL on Tuesday, which in turn contributed to an extension in the recent Canadian Dollar recovery off near 13 year lows against the Buck. Improved risk sentiment was yet another contributing factor to Loonie gains, though the Canadian Dollar is now comfortable consolidating these gains ahead of today’s FOMC rate decision. The Canada economic calendar is empty and the only other data scheduled comes in the form of US new home sales.

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 0.6559 – 21Jan high– Strong
• R1 0.6517 – 27Jan high– Medium
• S1 0.6425 – 26Jan low – Medium
• S2 0.6347 – 20Jan low – Strong

NZDUSD – fundamental overview

Plenty of volatility expected in the New Zealand Dollar over the next 24 hours, with this currency taking in both the FOMC and RBNZ decisions. The RBNZ is widely expected to leaves rates on hold this time round, with the central bank happy to take a breather following a series of cuts in 2015. But with the global backdrop still concerning, dairy prices struggling to recover and inflation even softer than the RBNZ had anticipated, it’s likely the central bank will come out with a dovish tone. We have already seen some early Wednesday underperformance in the New Zealand Dollar on cross related selling against the Australian Dollar on the back of the hotter Aussie inflation print. Looking out to later this year, there is an expectation the RBNZ will do another rate cut.

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 1858.00 –26Jan low – Medium
• S2 1811.00 – 20Jan low – Strong

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 in the latter half of 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 – 26Jan 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 demand 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

No surprises from the CBRT’s quarterly inflation report, with the central bank reiterating its commitment to use all necessary tools to keep inflation in check. But while the global backdrop remains shaky, the Fed continues with it policy normalisation and OIL prices remain under pressure, there is very little the central bank can do to prevent a further decline in the Turkish Lira, which currently sits just off record lows against the Buck. Clearly, this latest wave of risk on price action and recovery in OIL is helping the Lira a bit, though the picture could change if the Fed stays the course later today.