Market Feeling Good Into Mid-Week

GBPUSD – technical overview

The market is showing signs of attempting to base out after putting in fresh +30 year lows in the previous week. However, the price action this week is still confined to the previous weekly range and it will take a break and daily close back above the previous weekly high at 1.3341 to take the immediate pressure off the downside.

• R2 1.3533 – 29Jun high – Strong
• R1 1.3341 – 4Jul high – Strong
• S1 1.3120– 27Jun low – Medium
• S2 1.3047 – 7Jul high – Strong

GBPUSD – fundamental overview

This week has been about short covering in the Pound, with the UK currency continuing its recovery in Tuesday trade. The confirmation of Theresa May as conservative leader had already calmed the market somewhat on Monday, and then on Tuesday the market got some more news, with talk of a debate on second referendum in parliament after over 4 million petitions were signed. BOE Carney also helped to calm the market, saying the lower exchange rate should help to lower the UK’s current account drag. Looking ahead, there is no economic data of note out of the UK on Wednesday and the market will continue to digest headlines relating to UK politics and Brexit while also preparing for Thursday’s BOE policy decision.

USDJPY – technical overview

Signs of the possibility for a meaningful bullish reversal, though at this point the latest upside break would need to establish back above the 106.81 lower top to take the immediate pressure off the downside. Inability to break back above 106.81 will suggest the move is only corrective in nature ahead of a resumption of the current downtrend.

• R2 106.81 – 24Jun high – Strong
• R1 105.15 – 78.6% Fib – Medium
• S1 103.40 –1Jul high – Medium
• S2 102.45 – 12Jul low – Strong

USDJPY – fundamental overview

Another day of unwinding of Yen longs, with the Japanese currency hit hard on the back of this latest wave of risk on flow fueling US equities to fresh record highs. Reduced risk associated with Brexit and confirmation from Japan economy minister Ishihara the Japanese government would complete its stimulus package by the end of the month were seen as the primary drivers behind this latest Yen decline. Looking ahead, US import prices and the Fed Beige Book are the only notable standouts on Wednesday’s calendar and it likely the market will continue to take its cues for broader sentiment.

EURCHF – technical overview

Dips continue to be very well supported despite a recent intense decline into the 1.0600’s. From here, there is risk for a more meaningful bounce that extends back to the range highs in the 1.1130 to 1.1200 area. Only a daily close below 1.0800 compromises the constructive outlook.

• R2 1.1013 – 24Jun high – Strong
• R1 1.0950 – Mid-Figure – Medium
• S1 1.0864 – 12Jul low – Medium
• S2 1.0794 – 6Jul low – Strong

EURCHF – fundamental overview

The SNB is feeling more relieved in recent trade, with the cross rate initially having been well supported on SNB intervention post Brexit, but now benefitting greatly from a resurgence in risk appetite as Brexit risk recedes. The SNB remains committed to stepping in to defend against unwanted Franc appreciation, but could have a difficult time down the road if risk liquidation intensifies.

AUDUSD – technical overview

A recent topside failure above 0.7600 suggests the market could be looking to carve a lower top below the 2016 high at 0.7835, in favour of the next major downside extension. But a break below 0.7145 will be required to strengthen this outlook, opening the door for an acceleration towards the 2016 low at 0.6827 further down. A daily close above 0.7647 would however negate the bearish outlook and invite a retest of the 2016 highs.

• R2 0.7719 – 3May high – Strong
• R1 0.7658 – 12Jul high – Medium
• S1 0.7573 – 8Jul high – Medium
• S2 0.7522 –11Jul low – Strong

AUDUSD – fundamental overview

The outlook for the Australian Dollar is significantly improved this week. A wave of risk on trade, confirmation of a Turnbull government and this latest upbeat Aussie NAB business survey have all been helping to drive relative outperformance after the currency had suffered an opposite fate in the previous week from political uncertainty and rating agency downgrades. Early Tuesday, business confidence and business conditions saw healthy improvements, while the employment and capex components in the data also improved. This takes some of the wind out of the sails of doves expecting an imminent cut from the RBA, which could very well continue to leave policy unchanged. Wednesday’s Aussie Westpac consumer confidence was a disappointment. but hasn’t really factored into trade. Looking ahead, China trade and the Fed Beige Book are the notable standouts on the calendar.

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. A higher low looks to be carving at 1.2655 with a break back above 1.3189 to confirm the higher low and basing outlook, opening an acceleration of gains towards 1.3500 further up. Only back below 1.2655 negates.

• R2 1.3189 – 24May high – Strong
• R1 1.3140 – 11Jul high – Medium
• S1 1.2981 – 12Jul low – Medium
• S2 1.2877 – 7Jul low – Strong

USDCAD – fundamental overview

The ongoing rally in risk correlated FX and this latest recovery in the price of OIL have helped to invite renewed demand for the Loonie into an important Wednesday for the Canadian currency. Later today, the market will take in the Bank of Canada policy decision in which the central bank is expected to leave rates on hold. However, it will be the tone of the statement and BoC Poloz presser that will likely move markets as the central banker offers additional insight into the state of the economy in the aftermath of the Alberta wildfires, Brexit risk and a bubbling housing markets in Toronto and Vancouver.

NZDUSD – technical overview

The market has just pushed to a fresh 2016 high which could open the door for additional upside in the sessions ahead. However, it’s worth noting the longer-term downtrend is still well intact and as such, the impressive 2016 run could soon be at risk of stalling out in favour of the next major downside extension. For now, a break back below 0.7080 would be required at a minimum to alleviate immediate tossed pressure.

• R2 0.7350 – Mid-Figure – Medium
• R1 0.7324 – 12Jul/2016 high – Medium
• S1 0.7212 – 8Jul low– Medium
• S2 0.7080 – 6Jul low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar continues to find bids on the back of this latest resurgence in risk appetite as Brexit fears recede and US equities push to record highs. Still, it seems as though the market is well aware of the dangers associated with a stronger currency and doesn’t want to get too ahead of itself. Even the latest food price data which came in hotter has failed to inspire a push to fresh 2016 highs. Looking ahead, US import prices and the Fed Beige Book are the only notable releases.

US SPX 500 – technical overview

The market has stormed back to retest and break the record high from 2015 and there is scope from here for additional upside to fresh highs in the sessions ahead. Still overall, the prospect for the formation of a longer-term top is very much alive and any signs of exhaustion and a rolling back over below 2100 in the sessions ahead will strengthen this outlook and invite renewed downside pressure.

• R2 2200.00 – Psychological – Strong
• R1 2156.00 – 12Jul/2016 Record – Medium
• S1 2094.00 –8Jul low – Medium
• S2 2073.00 – 6Jul low– Strong

US SPX 500 – fundamental overview

The market continues with its surge to fresh record highs with the latest gains coming from reduced Brexit fear and a recovery in the price of OIL. But overall, it’s this across the board commitment from governments and central banks to continue to stimulate the global economy that has been fueling the ongoing bid tone in US equities. The latest Abe election victory has guaranteed more stimulus from the BOJ, while the Brexit vote has set the stage for easing from the Bank of England. Investors still don’t seem to be bothered in any way that these policy gestures are lacking substance given already exhausted monetary policy. For now, this idea of easy money and lower for longer continues to support the market. And yet, if not for the exhausted monetary policy, the market should be more concerned about Q2 earnings showing the fourth straight quarter of year over year growth dropping.

GOLD (SPOT) – technical overview

The recent break above the 2015 peak at 1307 strengthens the case for a longer term base with the market confirming a medium-term higher low in the 1200 area, opening the door for the next major upside extension towards a measured move at 1400. Any setbacks should be very well supported ahead of 1300, with only a break below 1250 to compromise the outlook.

• R2 1400.00 – Measured Move – Strong
• R1 1375.20 – 6Jul/2016 high – Medium
• S1 1305.55 – 28Jun low – Medium
• S2 1250.30 – 24Jun low – Strong

GOLD (SPOT) – fundamental overview

GOLD has been very well supported in 2016, with the yellow metal finding solid demand from medium and longer-term players on the back of fears over the limitations of exhausted monetary policy and extended global equities. All of this will almost certainly continue to keep the commodity in demand, with many market participants fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving head.

Feature – technical overview

USDMXN has recently broken to a fresh record high, with the market trading up to as high as 19.5190 thus far. From here, look for any setbacks to be very well supported ahead of 18.0800 in favour of the next major upside extension through 19.5190 and towards major psychological barriers at 20.000 further up. Only a daily close back below 18.0780 would take the immediate pressure off the topside.

• R2 19.5190 – 24Jun/Record High – Strong
• R1 18.9435 – 6Jul high – Strong
• S1 18.2620 –12Jul low – Medium
• S2 18.0780 – 8Jun low – Strong

Feature – fundamental overview

The Banxico will have a tough decision on its hands at its upcoming meetings, with the local economy struggling while the Peso remains under a good amount of pressure external risk as well. At its last meeting the central bank opted to make an aggressive move, hiking rates 50bps in an effort to slow the depreciation in the Peso which had recently traded to record lows against the Buck. And so, the market will be very curious to see what comes of Thursday’s Banxico Minutes. Will the central bank show willingness to be as aggressive at upcoming meetings or will it show more reservation with the local economy strained by higher rates and a currency that could very well trade lower no matter what the rate outlook if global sentiment takes a turn for the worse? It’s worth noting the TIIE swaps curve is pricing another 60bps of hikes by year end.