Will NFPs Extend or End US Dollar Decline?

GBPUSD – technical overview

An intense round of declines in early 2016 have stalled out, with the market differing to a period of healthy correction. The recent reversal off a near 7-year low at 1.4080 has opened the door for a bounce that has room to extend into the 1.4800-1.5000 area over the coming sessions before the market considers a lower top and meaningful bearish resumption. Look for any setbacks to be well supported ahead of 1.4350, with only a break back below to put the immediate pressure back on the downside.

• R2 1.4700 – Figure – Medium
• R1 1.4668 – 4Feb high – Strong
• S1 1.4500 – Figure  – Medium
• S2 1.4446 – 2Feb high  – Strong

GBPUSD – fundamental overview

The Pound was the only major currency that wasn’t able to close higher against the Buck on Thursday, with any demand from the broad based US Dollar selling getting offset by the revelation in the BOE Minutes that noted hawk Ian Mccaferty had unexpectedly defected back over to the majority, resulting in a unanimous 9-0 vote to leave rates on hold. Other than that, the market got the downgraded forecasts it was expecting from the BOE, but may have found some room for bids into dips after Carney held firm with his view that he believed the next move on rates would be up, not down. Also seen supporting dips was another round of soft US economic data highlighted by discouraging initial jobless claims and factory orders. Looking ahead, lack of economic data on the UK calendar will leave the market squarely focused on the monthly employment report out of the US, and to a lesser extent, the US trade balance.

USDJPY – technical overview

Rallies continue to be very well capped, with the latest rejection ahead of 122.00 opening a sharp reversal back to recent multi-month range lows. Look for a daily close below 116.00 to open the door for the next major downside extension into the 112.00 area in the days ahead. At this point, only back above 122.00 would force a shift in the outlook.

• R2 118.24 – 4Feb high – Strong
• R1 117.65 – 26Jan low – Medium
• S1 115.97 – 20Jan/2016 low – Strong
• S2 115.00 – Psychological – Strong

USDJPY – fundamental overview

The Yen continues to benefit doubly from the combination of broad based US Dollar selling and less confident equity market, with USDJPY back to within a stone’s throw of the recent multi-month base at 115.97 from January. Even another round of dovish rhetoric from BOJ Governor Kuroda didn’t do anything to stall Yen gains after Kuroda said the BOJ would do whatever it took to reach its 2% inflation target. Softer US initial jobless claims and factory orders helped to offset the dovish Kuroda comments and dealers are now talking major stops below 115.90. Looking ahead, the key focus in Friday trade will be on the monthly employment report out of the US. The US trade balance is also due.

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 1.0900, while only below 1.0715 negates the constructive outlook.

• R2 1.1250 – Mid-Figure – Medium
• R1 1.1200 – 4Feb/2016 high – Strong
• S1 1.1050 – Previous Resistance – Strong
• S2 1.0985 – 26Jan low – Medium

EURCHF – fundamental overview

SNB Zurbruegg was back on the wires on Thursday talking the highly overvalued Franc and lack of demand for the currency even in this safe haven environment. 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 to multi-month highs, despite an intensification in risk liquidation flow in early 2016 and more dovish ECB looking to expand its monetary easing.

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 0.7265 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 0.7265 – 78.6% Fib – Strong
• R1 0.7242 – 4Feb high – Medium
• S1 0.7129 – 2Feb high – Medium
• S2 0.7003 – 3Feb low – Strong

AUDUSD – fundamental overview

The Australian Dollar rally is showing signs of fizzling out into Friday, with the currency retreating on the back of a much softer Aussie retail sales print and RBA SOMP leaving the door open for additional easing. Still, dips have been somewhat supported with the SOMP not as dovish as it could have been. On the positive side, the RBA cited improvements in the jobs sector while making no material changes to its forecasts on growth and inflation. Looking ahead, it’s all about whether this broad based round of US Dollar selling continues on scaled back Fed rate hike expectations. Today’s highly anticipated monthly employment report out of the US will be the key release to watch for added clarity on this matter. The US trade balance is also due and should not be overlooked.

USDCAD – technical overview

The market has entered a period of intense correction following the recent surge to a near 13 year high at 1.4690. This most recent setback below 1.3800 opens the door for a deeper drop towards 1.3500, which coincides with medium-term rising trend line support.

• R2 1.3908 – 1Feb low – Strong
• R1 1.3797 – 4Feb high – Medium
• S1 1.3639 – 4Feb/2016 low – Medium
• S2 1.3500 – Trend-Line – Strong

USDCAD – fundamental overview

The broad based selling in the US Dollar this week on softer US data and scaled back Fed rate hike expectations, coupled with OIL’s ability to remain supported off recent multi-year lows, have done a good job extending the impressive Canadian Dollar recovery. We haven’t had any material data out of Canada this week, though this will change today, with the market taking in a batch of Canada releases including the all important monthly Canada employment report, Canada trade and Canada Ivey PMIs. Of course, market participants will also have to contend with the critical release of US NFPs. Not to be forgotten is the US trade balance.

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 0.6800 in favour of a fresh lower top and the next downside extension towards the 2015 multi-year low at 0.6130. Only back above 0.6900 would force a shift in the structure.

• R2 0.6770 – Measured Move– Strong
• R1 0.6748 – 4Feb high – Medium
• S1 0.6641 – 4Feb low – Medium
• S2 0.6559 – 21Jan high – Strong

NZDUSD – fundamental overview

While the New Zealand Dollar has managed to benefit quite a bit from this latest wave of broad based US Dollar selling, the high flying Kiwi could have a tough go from current levels. Kiwi is actually the strongest of the developed currencies over the past week of trade, with the stabilisation in risk sentiment, recovery in commodities prices, surprising drop in New Zealand unemployment, softer US data and dovish comments, all contributing to the gains. However, the administration won’t be too excited about the stronger exchange rate given its negative impact on the local economy, and we have already heard from the RBNZ Assistant Governor on Thursday, with the central banker saying a lower Kiwi will help dairy prices and the exchange rate is not sustainable at current levels. There is also a sense that risk correlated assets could come back under pressure at any moment, something that would weigh more heavily on Kiwi. Looking ahead, all eyes on the monthly employment report out of the US.

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 1947.00 – 1Feb high – Medium
• S1 1872.00 –3Feb low – Medium
• S2 1811.00 – 20Jan low – Strong

US SPX 500 – fundamental overview

Stocks have found only mild comfort from 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, BOJ that has moved to negative interest rates and RBA leaving the door open for more easing. 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. Dovish comments from Fed’s Fischer and Dudley, ECB Draghi and BOJ Kuroda have all failed to inspire the type of rally the market has grown accustom to in recent years when such dovish comments are made. Looking ahead, it’s all about the monthly employment report out of the US, though anything on the strong side may not be what equities are looking for.

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 1090, with only a close back below 1070 to compromise the newly adopted bullish outlook.

• R2 1192.00 – 15Oct high – Strong
• R1 1157.00 – 4Feb/2016 high – Medium
• S1 1122.00 – 2Feb low – Medium
• S2 1108.00 – 29Jan low – Strong

GOLD (SPOT) – fundamental overview

GOLD is finding formidable demand into 2016, given deteriorating global sentiment and uncertainty in the air. 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 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 to the possibility of a more pronounced decline towards 2.8500. Still, overall, the broader uptrend remains firmly intact and only below 2.7580 would compromise the constructive outlook.

• R2 3.0345 – 26Jan high – Strong
• R1 2.9770 –1Feb high – Medium
• S1 2.9000 – Psychological – Medium
• S2 2.8700 – 7Dec low – Strong

Feature – fundamental overview

Russian claims that Turkey may be planning to invade Syria have opened some renewed weakness in the Lira after the USDTRY traded down into a key support zone around 2.9000. The Lira had managed to extend gains this week on the back of the broad based US Dollar selling and not as hot local inflation with Turkish CPI avoiding a dreaded double digit print. Still, with global risk sentiment shaky, local inflation at elevated levels, and yield differentials favouring the US Dollar, any additional Lira gains should prove hard to come by in the days ahead. The emerging market currency will continue to keep on eye on broader sentiment flow while also looking ahead to today’s anticipated US employment report.