Yellen Confirms Fed’s Readiness to Act

GBPUSD – technical overview

Although the recent surge may suggest this market is getting ready to carve a more meaningful base, inability to establish a daily close above 1.4770 is keeping broader pressure on the downside. Ultimately, the establishment back above 1.4770 will now be required to force a meaningful shift in the structure and strengthen the case for the formation of a material base. Until then, the structure remains bearish, with scope another topside failure ahead of renewed declines towards initial key support at 1.4333.

• R2 1.4740 – 26May high – Strong
• R1 1.4689 – 27May high – Medium
• S1 1.4549– 23May high – Medium
• S2 1.4500 – Psychological – Medium

GBPUSD – fundamental overview

The Pound was one of the few currencies to outperform against the US Dollar over the past week, with the UK currency mostly supported on receding fears of Brexit in late June. However, rallies continue to be well capped with the market not wanting to get too ahead of itself ahead of the June 23rd referendum. Also seen weighing on the Pound into this latest surge has been the overwhelming shift in Fed sentiment, with the odds for a summer rate hike increasing significantly over the past couple of weeks. On Friday, the Fed Chair confirmed this sentiment, after saying it could be appropriate to raise rates over the coming months. Looking ahead, the economic calendar is empty, with both the UK and US out for long holiday weekends.

USDJPY – technical overview

The market has entered a healthy period of correction since stalling out a fresh multi-month lows ahead of the major psychological barrier at 105.00. There are now signs emerging of a more significant bullish structural shift. However, the market will need to establish back above the previous lower top at 111.89 to confirm this shift, while inability to do so will keep the pressure on the downside.

• R2 111.89 – 28Apr high – Strong
• R1 111.50 –Mid-Figure – Medium
• S1 110.36 – 30May low – Medium
• S2 109.42 – 26May low – Strong

USDJPY – fundamental overview

Importers, HFTs, leveraged names and macro funds have all been on the bid in USDJPY early Monday, with the major pair getting a boost on the combination of chatter over a potential two and a half year delay in the sales tax hike, and broad based US Dollar demand following Friday’s hawkish Yellen comments. Looking ahead, the economic calendar is exceptionally thin for the remainder of the day, with both the UK and US out for long holiday weekends.

EURCHF – technical overview

Setbacks continue to be very well supported, with the market putting in a series of higher lows and higher highs. Look for this most recent push back above 1.1100 to strengthen the constructive outlook and open the door for the next set of gains towards a retest of the 1.1200 yearly and multi-month high from February. Any setbacks should be well supported ahead of 1.0900, while ultimately, only below 1.0800 would compromise the structure.

• R2 1.1200 – 4Feb/2016 high – Strong
• R1 1.1130 – 20May high – Medium
• S1 1.1016 – 13May low – Medium
• S2 1.0955 – 29Apr low – Strong

EURCHF – fundamental overview

Certainly, the Franc has done a good job weakening over the past several days, though the price action continues to be suspect, with much of the weakness coming at a time when risk markets are more fragile and there is demand for safe haven currencies. This begs the question just how much this latest round of Swiss Franc weakness has come by natural forces and how much has come from SNB efforts to weaken the currency. The SNB remains committed to a policy of weakening the Franc, but it will be interesting to see how the central bank’s efforts fair in the event of another round of risk liquidation and this more hawkish leaning Federal Reserve.

AUDUSD – technical overview

Setbacks have extended well off the recent 2016 peak, with the market breaking back below the 200-Day SMA. At this point, the focus has shifted back on the downside, though there is risk for a decent corrective bounce or period of consolidation now that the longer-term moving average has been tested and broken. Still, any rallies should be well capped ahead of 0.7500 in favour of additional declines, potentially back towards the 2016 base at 0.6827.

• R2 0.7332 – 18May high – Strong
• R1 0.7244 – 26May high – Medium
• S1 0.7145 – 24May low – Medium
• S2 0.7109 – 29Feb low – Strong

AUDUSD – fundamental overview

Real money and leveraged names have been supporting this latest round of setbacks in the Australian Dollar, which remains under pressure on the back of this latest wave of broad based US Dollar demand. The hawkish shift in Fed sentiment, suggesting we could see a rate hike this summer, combined with a more dovishly aligned RBA, could continue to keep the commodity currency pressured going forward. Meanwhile, Monday’s higher USDCNY fixing and a disappointing Aussie new home sales reading have only provided yet another excuse to be selling the currency. Looking ahead, trade for the remainder of the daily will be exceptionally thin, with both the UK and US markets off on long holiday weekends.

USDCAD – technical overview

The market could finally be in the process of establishing a meaningful base following this latest impressive reversal out from multi-month lows below 1.2500. The recent break back above 1.3000 strengthens this outlook and opens the door for gains towards next key resistance in the 1.3219-1.3296 area further up. Any setbacks from here should ideally be supported ahead of 1.2772.

• R2 1.3189 – 24May high – Strong
• R1 1.3100 – Figure – Medium
• S1 1.2967 – 27May low – Medium
• S2 1.2911 – 26May low – Strong

USDCAD – fundamental overview

Although the Canadian Dollar has come off in recent trade, the Loonie has still managed to outperform against its commodity currency cousins, with the currency benefitting from a renewed appetite for OIL and last week’s less dovish Bank of Canada policy decision. Still, the broad based wave of US Dollar strength has not been lost on this pair, with the Buck pushing up as it gains momentum from this latest wave of hawkish Fed speak, backed up on Friday by the Fed Chair herself. Looking ahead, second tier Canada data is unlikely to factor into trade on an otherwise light day, with the US market closed for the long weekend.

NZDUSD – technical overview

Despite recent gains to fresh 2016 highs, the market remains confined to a broader downtrend with rallies expected to continue to be well capped. The latest topside failure and impressive bearish reversal strengthens this outlook, opening a deeper drop towards next key support at 0.6546, which guards against the 2016 low at 0.6347 further down. Any rallies should now be well capped ahead of 0.6900.

• R2 0.6807 – 23May high – Strong
• R1 0.6759 – 27May high – Medium
• S1 0.6668 – 28Mar low – Strong
• S2 0.6600 – Figure – Medium

NZDUSD – fundamental overview

Last week’s lower than expected Fonterra milk payout forecasts, and government downgrade of CPI forecasts has opened a fresh wave of offers in the New Zealand Dollar, with the developments increasing odds the RBNZ will need to cut rtes when it next meets. Kiwi has also taken a hit on the back of this latest wave of broad based US Dollar demand as the possibility for a summer Fed hike increases. On Friday, the Fed Chair backed up recent hawkish Fed speak, saying a rate hike could be appropriate over the coming months. Looking ahead, trade for the remainder of the daily will be exceptionally thin, with both the UK and US markets off on long holiday weekends.

US SPX 500 – technical overview

The prospect for the formation of an imminent top has faded, with the price rallying back above critical psychological resistance at 2100. If the market can now break back above the 2016 peak at 2112, this will open the door for a direct retest of the record high from 2015 at 2037. However, inability to establish a daily close above 2112, could warn of another topside failure and bearish reversal.

• R2 2133.00 – 20Jul 2015/Record – Very Strong
• R1 2112.00 – 20Apr/2016 high – Strong
• S1 2090.00 –27May low – Strong
• S2 2076.00 – 25May low– Medium

US SPX 500 – fundamental overview

The stock market is once again looking vulnerable at lofty heights, with 2016 rallies continuing to feel like they have very little behind them. The fact that monetary policy is exhausted on a global scale is not something that should be a comfort to investors. Moreover, investors should certainly not be comforted by this latest shift in Fed sentiment, with the central bank signaling a clear willingness to move on rates in the months ahead if data permits. This should remove incentive to be long stocks, leaving the door open for a more intensified liquidation as the Fed moves further towards policy normalization. US markets are closed Monday for the Memorial Day holiday.

GOLD (SPOT) – technical overview

The market has undergone an intense round of setbacks since stalling out just shy of the 2015 peak above 1300. Still, while the price holds above 1191 on a daily close basis, the overall structure remains constructive, with scope for the formation of the next medium term base ahead of a resumption of gains back through 1300 and towards 1400 further up.

• R2 1252.40 – 24May high – Strong
• R1 1234.50 – 26May high – Medium
• S1 1200.00 – Psychological – Medium
• S2 1191.70 – Previous Resistance – Strong

GOLD (SPOT) – fundamental overview

GOLD has taken quite a hit over the past several days but ultimately is expected to be very well supported into the current dip, with the yellow metal finding solid demand in 2016 on the back of fears over the limitations of exhausted monetary policy and extended global equities. Whether the US Dollar is bid is becoming less relevant, with risk sentiment likely to be the primary driver going forward. Renewed weakness on this front will almost certainly keep the commodity supported ahead of $1180 and invite fresh upside in the sessions ahead.

Feature – technical overview

USDTRY remains exceptionally well supported on dips, with the latest round of setbacks propped ahead of 2.9200. From here, look for a higher low at 2.9250 in favour of the next major upside extension through 3.0120 and back towards a retest of the 2016 high from January at 3.0610. Ultimately, only a break back below 2.9250 would delay the constructive outlook.

• R2 3.0610 – 20Jan 2016 high – Very Strong
• R1 3.0120 – 24May high – Strong
• S1 2.9250 – 26May low – Strong
• S2 2.8960 – 5May low – Strong

Feature – fundamental overview

The Lira is coming off a week where the currency had initially been very well supported on news that Mehmet Simsek had maintained his position of Deputy Prime Minister in the Turkish Cabinet. However the force of broader macro flow and US Dollar demand could not be ignored into the latter half of the week, with the US Dollar bid up on hawkish Fed sentiment, backed up by the Fed Chair’s Friday comment that a rate hike could be appropriate over the coming months. Looking ahead, Monday is expected to be an exceptionally thin day of trade with both the UK and US markets off on holiday.