Choppy, Directionless Trade into Tuesday

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. The recent reversal off a near 7-year low at 1.4080 has finally opened the door for a long overdue bounce that now has room to extend back to the 1.4600-1.4800 area before the market even considers a lower top and meaningful bearish resumption. Monday’s daily close above 1.4400 strengthens this outlook and should accelerate gains. Only a daily close below 1.4080 delays.

• R2 1.4560 – 12Jan high – Strong
• R1 1.4476 – 13Jan high – Medium
• S1 1.4300 – Figure  – Medium
• S2 1.4228 – 1Feb low  – Strong

GBPUSD – fundamental overview

The market has been able to temporarily shrug off the broader risk of lower OIL and Brexit, instead choosing to focus on short-term economic data. This has been a welcome development for a beaten down UK currency in desperate need of a healthy recovery from multi-year lows. Monday’s better than expected UK manufacturing PMIs were followed up by a disappointing US ISM manufacturing release and this along with dovish Fed Fischer comments citing more caution on policy, helped fuel Cable gains into the New York close above 1.4400. Still, there are plenty of offers reported into rallies, with dealers citing model fund and leveraged names looking to sell into the 1.4500-1.4600 area. Looking ahead, lack of first tier data on the economic calendars in the UK and US will leave direction contingent on broader macro flows on Tuesday. It is worth noting that well known Fed hawk Esther George, also a voting member in 2016, will be speaking late in the day.

USDJPY – technical overview

The recent recovery rally out from fresh multi-month lows at 115.97 has been intense. However, the major pair is now running into strong internal resistance in the 122.00 area and could be on the verge of stalling out in favour of a bearish resumption. Look for a lower top to carve out around 122.00 with only a close back above the figure to compromise the bearish outlook.

• R2 122.03 – 10Mar 2015 high – Strong
• R1 121.69 – 29Jan/2016 high – Medium
• S1 120.00 – Psychological – Medium
• S2 119.07 – 27Jan high – Strong

USDJPY – fundamental overview

Price action in the Yen is normalising into Tuesday, following an intense round of selling post last Friday’s surprising Bank of Japan decision to introduce negative interest rates. The dovish BOJ decision was accompanied by promises for additional easing and this in conjunction with record low JGB yields had opened a USDJPY push towards 122.00. Yet, even with the more dovish BOJ move, there remains risk for resurgence in Yen demand if global sentiment turns back down. Monday’s softer round of manufacturing data out of China and the US have certainly contributed to a mild downturn in risk into Tuesday, while a more dovish Fed Fischer late Monday has offset some of the dovishness from the BOJ decision, after Fischer conceded a more cautious tone would be required if global uncertainty and headwinds persisted.

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 – Medium
• R1 1.1166 – 29Jan/2016 high – Strong
• S1 1.1030 – 27Jan low – Medium
• S2 1.0985 – 26Jan low – Strong

EURCHF – fundamental overview

A major Swiss bank has been out talking recent price action in the EURCHF rate, saying much of the demand has been attributable to more aggressive SNB intervention at the start of 2016. The bank cites higher sight deposits and activity in the forwards market as evidence. 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 pushing higher, despite an intensification in risk liquidation flows in early 2016 and the latest ECB decision in which Draghi left the door open for additional accommodation in March.

AUDUSD – technical overview

The market has entered a period of correction out from the recent multi-year low at 0.6827. However, any additional upside should be limited to the 0.7200 area, with a lower top sought out ahead of a fresh downside extension and bearish continuation below 0.6827 and towards the next key barrier at 0.6500 further down. Ultimately, only back above 0.7385 would force a shift in the bearish structure.

• R2 0.7170 – 61.8% fib – Strong
• R1 0.7141 – 29Jan high – Medium
• S1 0.7042 – 1Feb low – Medium
• S2 0.7008 – 28Jan low – Strong

AUDUSD – fundamental overview

As was widely expected, the RBA left rates on hold at 2.00% early Tuesday. Though the central bank did slant slightly to the dovish side, citing ongoing subdued inflation as a reason to leave the door open for additional easing, there was also optimism in the statement, with the RBA citing improvement in business conditions and employment. Still, market participants used an early post announcement rally as an opportunity to sell into a market that is very much correlated to the worrying China outlook, and shaky global risk backdrop. Global equities have come back under some pressure over the past couple of sessions and this is adding to the bearish tone. Looking ahead, lack of meaningful first tier data for the remainder of the day will leave direction contingent on broader macro themes and flows.

USDCAD – technical overview

Technical studies have finally unwound from violently overbought readings, with the market trading back down to previous resistance turned support in the 1.3800-1.4000 area. But overall, the broader uptrend remains firmly intact and any additional setbacks are expected to be very well supported above 1.3800 in favour of the next higher low and fresh upside extension back through the near 13 year high at 1.4690 from January. Only a daily close below 1.3800 would compromise the current structure.

• R2 1.4109 – 29Jan high – Strong
• R1 1.4062 – 1Feb high – Medium
• S1 1.3908 – 1Feb low – Medium
• S2 1.3814 – 4Jan/2016 low – Strong

USDCAD – fundamental overview

Interestingly, a bit of a breaking away between the correlation of OIL and the Canadian Dollar. Despite a notable pullback in the price of OIL on Monday, the Canadian Dollar managed to close higher on the day, with the Loonie seemingly paying closer attention to softer US ISM manufacturing and dovish comments from Fed Fischer who said a more cautious tone would be required if global uncertainty and headwinds persisted. Perhaps the pullback in OIL was less of a concern for Canadian Dollar traders given the commodity’s recovery out from the mid-January multi-year low. But of course, if OIL downside pressure persists, renewed selling in the Canadian Dollar is to be expected. Looking ahead, lack of first tier data on the Canada and US calendars will leave the market trading on broader flows. Late in the day, we get a speech from noted Fed hawk and 2016 voting member Esther George.

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 below 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 0.6418 – 28Jan low – Medium
• S2 0.6347 – 20Jan/2016 low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has been well bid over the past several sessions, with the risk correlated currency managing to build on gains following a round of softer US ISM manufacturing and dovish comments from Fed Fischer. The Fed Vice Chair said a more cautious tone would be required if global uncertainty and headwinds persisted. This has triggered broad based selling in the Buck, which has been supportive of Kiwi into Tuesday. Still, market participants won’t be forgetting last week’s dovish RBNZ decision and with plenty of risk ahead for Kiwi over the next 24 hours, don’t expect this market to make any meaningful gains from current levels. While there is no first tier data for the remainder of the day, we get the latest GDT auction results later on, followed by Wednesday’s New Zealand employment data and anticipated RBNZ Wheeler speech.

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 1993.00 – 14Dec low – Strong
• R1 1955.00 – 13Jan high – Medium
• S1 1858.00 –26Jan low – Medium
• S2 1811.00 – 20Jan low – Strong

US SPX 500 – fundamental overview

Stocks are trying to find comfort in this latest wave of accommodative gestures from central banks around the globe. PBOC liquidity injections have been followed up by a more dovish ECB Draghi, Fed that has highlighted its concern for the global markets, RBNZ signaling a rate cut ahead and BOJ that has moved to negative interest rates. However, there is a growing concern that as much as these gestures are supportive in nature, with central banks already so extended, any additional tools to artificially  support the global economy could be less effective than they have been over the past several years. Interestingly, Monday’s softer round of US data and dovish Fed Fischer comments have failed to inspire fresh bids, despite the implication of a more accommodative, equity supportive Fed. It seems the market has been more focused on the weight of more disappointing China data and renewed downside pressure in OIL.

GOLD (SPOT) – technical overview

The latest surge through previous resistance at 1112 is 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 1130.00 – 2Feb high – Medium
• S1 1108.00 – 29Jan low – Medium
• S2 1092.00 – 21Jan 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. Longer term macro players have also 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, weakness on this front is also inspiring 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. The latest drop back below 2.9825 strengthens the corrective outlook and now opens the door for a more pronounced decline towards 2.9000. 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 3.0345 –26Jan high – Medium
• S1 2.9300 – Figure – Medium
• S2 2.9115 – 4Jan/2016 low – Strong

Feature – fundamental overview

The Lira managed to shrug off softer Turkey manufacturing PMIs on Monday, with the currency extending its mild recovery from recent record lows, benefitting from the offsetting flows from below forecast US ISM manufacturing and a dovish Fed Fischer who said a more cautious tone would be required if global uncertainty and headwinds persisted. But overall, the threat of rising inflation in an economy that does not have the luxury of raising rates (already at suffocating levels), in conjunction with broader risk liquidation fears in 2016, should keep the Lira well offered into additional rallies. Dealers cite plenty of fresh USDTRY demand towards 2.9000.