How Much Can Yellen Help?

GBPUSD – technical overview

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 above 1.4350, with only a daily close below to put the immediate pressure back on the downside.

• R2 1.4668 – 4Feb high – Strong
• R1 1.4547 – 8Feb high – Medium
• S1 1.4352 – 8Feb low  – Strong
• S2 1.4228 – 1Feb low  – Medium

GBPUSD – fundamental overview

The Pound has managed to find decent support into Wednesday, with the UK currency benefitting from broad based US Dollar weakness against the major currencies on risk off flow and a scaling back of Fed rate hike expectations. Gains have been less impressive than the Euro, Yen and Franc, but this is understandable given the dovish shift in BOE sentiment, ongoing Brexit risk and this latest widening in the UK trade gap to record levels. Looking ahead, UK industrial and manufacturing production are due, along with the latest NIESR GDP estimates. The market will then look to the more anticipated event of the day, in the form of the Yellen semi-annual testimony.

USDJPY – technical overview

The latest breakdown below critical support in the form of the December 2014 low at 115.57 is a significant development and now opens the door for deeper setbacks, potentially all the way down into the 105.00s. While it would be premature to call for a retest of the 105.00s, the monthly chart is showing scope for a retracement back towards this area, which should not be ruled out. Overall, the broader, longer-term uptrend remains intact and this round of weakness is ultimately expected to be supported in favour of the next major higher low in favour of a bullish resumption. But for now, the pressure is firmly on the downside.

• R2 115.85 – 9Feb high – Strong
• R1 115.26 – 10Feb high – Medium
• S1 114.21 – 9Feb/2016 low – Medium
• S2 114.00 – Figure – Strong

USDJPY – fundamental overview

It has been an inauspicious start to this new era of Bank of Japan negative interest rate policy. An initial welcome Yen decline in the aftermath of the BOJ decision the other week has been completely negated and then some, with USDJPY dropping to fresh multi-month lows through psychological barriers at 115.00. 10 year JGB yields have dropped to negative for the first time on record and all of this happening with the Yen finding unwelcome bids. It has become quite clear the Yen has not lost its traditional correlation with safe haven flow and it is looking like it will take either a massive rebound in stocks or a fresh response from the BOJ to alter the Yen’s high flying trajectory. Looking ahead, direction in the major pair will be heavily influenced by the upcoming Fed Chair Yellen semi-annual testimony. If Yellen fails to tilt more to the dovish side, it will likely invite additional downside pressure in USDJPY.

EURCHF – technical overview

The latest round of setbacks from fresh multi-month highs at 1.1200 are viewed as corrective, with the broader outlook still highly constructive. Look for any additional weakness in the sessions ahead to be well supported above 1.0900 on a daily close basis, in favour of a higher low and the next major upside extension through 1.1200 and towards 1.1400 further up. Only a close below 1.0900 would delay the outlook.

• R2 1.1200 – 4Feb/2016 high – Strong
• R1 1.1097 – 8Feb high – Medium
• S1 1.0940 – Previous Resistance – Medium
• S2 1.0910 – 20Jan low – Strong

EURCHF – fundamental overview

Clearly, the SNB strategy of weakening the Franc has been highly effective these past several months. But now with risk liquidation flow intensifying and with the other traditional safe haven currencies rallying sharply to their detriment, the SNB battle is getting tougher. We have already seen EURCHF come under pressure off recent highs from the other week and should other central banks ramp up their own dovish rhetoric, this could make the Franc more attractive again. Also inviting additional safe haven Franc bids this time round is the fact that this week’s risk off flow has been less about China and more about the decline in European banks, hitting closer to home. The SNB has been committed to offsetting Franc inflows at every turn, and it will be interesting to see what this next turn brings.

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 0.7128 – 8Feb high – Strong
• R1 0.7096 – 9Feb high – Medium
• S1 0.7000 – Psychological – Medium
• S2 0.6973 – 9Feb low – Strong

AUDUSD – fundamental overview

Though ongoing risk liquidation flow is likely to continue to act as a weight on the correlated Australian Dollar, setbacks have been mitigated somewhat on Wednesday, following the releases of better than expected Aussie Westpac consumer confidence and HIA new home sales. The fact that the US Dollar has also stalled a bit in recent trade, given the expectation the Fed will scale back its rate hike timeline, is also helping to offset some of the downside from the risk off flow. Looking ahead, Wednesday will likely be all about Fed Chair Yellen’s semi-annual testimony.

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. At this point, only back above 1.4103 would suggests the correction has run its course, with the market poised for bullish resumption.

• R2 1.4103 – 3Feb high – Strong
• R1 1.3979 – 8Feb high – Medium
• S1 1.3841 – 8Feb low – Medium
• S2 1.3787 – 9Feb low – Strong

USDCAD – fundamental overview

Interestingly, the Canadian Dollar has held up rather well when you consider this latest slide in the price of OIL. The IEA was out warning the likelihood of coordinated OPEC and non-OPEC cuts was very low, while adding that it had a hard time seeing OIL higher if stock building continued. While it would be foolish to dismiss the Loonie’s strong correlation with OIL, there is a sense that other forces at play are starting to have a bigger influence. Clearly there has been a lot of pressure for the Fed to scale back its rate hike timeline, and this has opened the door for some broad based profit taking on long US Dollar positions, which in turn is helping to support the Canadian Dollar a bit. Still, if OIL extends declines to fresh multi-year lows in the sessions ahead, it will be difficult to see a situation where the Canadian Dollar doesn’t slide with it. Looking ahead, Wednesday will likely be all about Fed Chair Yellen’s semi-annual testimony.

NZDUSD – technical overview

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 0.6752 – 5Feb high– Strong
• R1 0.6669 – 9Feb high – Medium
• S1 0.6563 – 9Feb low – Strong
• S2 0.6508 – 3Feb low – Medium

NZDUSD – fundamental overview

The RBNZ has already expressed its discomfort with Kiwi at elevated levels and this has been backed up by the IMF this week after the fund said Kiwi may still be overvalued by about 10%, while adding the RBNZ should stand ready to ease further. All of this has weighed on the currency, with Kiwi taking another hit on Wednesday after some softer housing data. Still, setbacks have been somewhat mitigated by the fact that the Fed may be forced to scale back with its rate normalisation timeline. Looking ahead, Wednesday direction will likely be all about Fed Chair Yellen’s semi-annual testimony.

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 below 1811 and towards 1700. Only a daily close back above 1993 will take the pressure off the downside.

• R2 1947.00 – 1Feb high – Strong
• R1 1890.00 – 8Feb high – Medium
• S1 1828.00 –8Feb low – Medium
• S2 1811.00 – 20Jan low – Strong

US SPX 500 – fundamental overview

Intensified selling in bank stocks, chatter of sovereign wealth funds selling off overweight financial positions and JGB yields to negative, have all been adding to the exodus from the equity market this week, with setbacks likely to continue if participants feel central banks no longer can do much to support a faltering global economy. It is becoming increasingly apparent in 2016 that even if the Fed opts to scale back its rate hike timeline, this might not be as supportive as many had thought. The fact that central bank strategies are exhausted coupled with the threat of rising inflation in the US is not something that will get investors too excited going forward. Looking ahead, Wednesday will be about risk sentiment flow and positioning into the Fed Chair Yellen semi-annual testimony.

GOLD (SPOT) – technical overview

The market continues to show signs of a major structural shift, with the impressive recovery from the multi-year low in late 2015 at 1046 now extending above the critical October 2015 peak at 1192. From here, there is risk for additional upside into next medium-term resistance at 1232, though with daily studies looking extending, don’t rule out the possibility for a quick retracement back into the 1150 area before the market begins its next ascent. Ultimately, only back below 1100 negates the constructive outlook.

• R2 1233.00 – 18May high – Strong
• R1 1201.00 – 8Feb/2016 high – Medium
• S1 1164.00 – 8Feb low – Medium
• S2 1145.00 – 5Feb low – Strong

GOLD (SPOT) – fundamental overview

GOLD is finally shining again and is becoming increasingly attractive in the current market environment. The intense wave of risk liquidation has catapulted the metal on its status as a hedge against uncertianty. Meanwhile, the recent pickup in US wage growth is starting to sound some alarm bells over the prospect of rising inflation in a still struggling global economy that can’t handle higher rates. So right now, it’s looking like nowhere to go but GOLD.

Feature – technical overview

USDTRY has entered a period of consolidation after pulling back from the recent record high from 2015. Overall, the structure remains highly consecutive, with dips well supported for now into the 2.9000 area. Look for any additional setbacks to continue to be well supportive above 2.9000 on a daily close basis in favour of an eventual resumption of the uptrend and retest of the 3.0750 record high. Ultimately, only back below 2.7580 would negate the highly 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

The recovery in the Lira over the past several days off recent record lows is finally showing signs of potentially waning. Clearly the Lira wasn’t able to do anything with the better than expected Monday round of Turkish industrial production, as it was distracted by the more distressing macro flows. Also seen weighing on the Lira a bit is the reemergence of geopolitical risk in relation to Syria, after President Erdogan was out this past weekend expressing his readiness to join the war if asked. Overall, with global risk sentiment shaky, local inflation at elevated levels, and rate differentials favouring the US Dollar, any additional Lira gains should prove hard to come by in the days ahead. Looking ahead, Wednesday direction will likely be all about Fed Chair Yellen’s semi-annual testimony.