Stacked Wednesday Capped Off with FOMC Decision

GBPUSD – technical overview

A recent bullish reversal week ends a sequence of consecutive weekly lower tops and suggests that an interim base could be in place at the +30 year low of 1.2797. Still, the overall downtrend remains well intact and any additional upside from here is likely to run in formidable resistance ahead of 1.3800. Key levels to watch above and below over the coming sessions come in at 1.3315 and 1.3065 respectively.

• R2 1.3291 – 22Jul high – Strong
• R1 1.3200 – Figure – Medium
• S1 1.3065 – 20Jul low – Medium
• S2 1.2972 – 12Jul low – Strong

GBPUSD – fundamental overview

The Pound continues to consolidate Brexit declines and hasn’t done a whole lot in recent trade. But gains have been well capped overall as the market continues to worry about the fallout, while contending with a run of positive economic data out of the US. On Tuesday, it seems the big story was the flipflop of outgoing BOE MPC member Martin Weale, with the normally hawkish central banker now arguing for more immediate stimulus. This adds to the likelihood for a BOE rate cut next month, which should continue to keep the Pound well capped. Looking ahead, today has plenty of room for volatility, with the market initially taking in UK GDP and US durable goods orders, before turning to the more highly anticipated FOMC policy decision.

USDJPY – technical overview

The latest topside failure suggests we could be seeing the end of a corrective rally in favour of the next major downside extension below 100.00. At this point, only a break back above 107.49 would negate this outlook and give reason for pause. A break below 103.90 will strengthen the outlook and accelerate declines.

• R2 107.49 – 21Jul high – Strong
• R1 106.72 – 26Jul high – Medium
• S1 104.62 – 27Jul low – Medium
• S2 103.99 – 26Jul low – Strong

USDJPY – fundamental overview

There has been a resurgence in Yen demand over the past few sessions, with the price action driven off pared back expectations for this Friday’s BOJ stimulus response, some risk off flow and position squaring ahead of today’s anticipated FOMC policy decision. As far as Friday’s BOJ goes, there have been so many rumours and chatter swirling, that it’s becoming impossible to keep up and it is already causing a ton of intraday volatility into Wednesday. Also making the rounds is talk of an increases in minimum wage, a cut in unemployment insurance premiums and a Yen 10-15k cash distribution to low-income individuals. But as the day pushes on, the focus will unquestionably shift to the tone of the Fed decision. It’s worth noting that US durable goods orders are also due today.

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 1.0778 compromises the constructive outlook.

• R2 1.0945 – 12Jul high – Strong
• R1 1.0923 – 13Jun high – Medium
• S1 1.0800 – Figure – Medium
• S2 1.0778 – 16Jun low – Strong

EURCHF – fundamental overview

It certainly looked like the SNB was on the bid in Tuesday trade, with nothing going on fundamentally that would have been supportive of positive EURCHF flow. In fact, the feel of Tuesday trade was more risk off than risk on, which would have had a weighing influence on the exchange rate. And so, the SNB was probably looking to build a bit of a cushion in anticipation of event risk volatility this week, with the Fed and BOJ ahead and plenty going on in the UK and Eurozone post Brexit. But there is no doubting the tough battle the SNB will have on its hands if risk assets start to come under pressure and US equities capitulate off record highs. The resulting safe haven flow could prove too much for the SNB to defend against, which could ultimately open another major pullback in the EURCHF rate.

AUDUSD – technical overview

The market has been struggling on rallies above 0.7600 and this suggests the rate could be looking to carve a lower top below the 2016 high at 0.7835, in favour of the next major downside extension. Look for a daily close below 0.7450 to strengthen this outlook and accelerate declines. Ultimately, only a daily close back above 0.7677 would negate the newly adopted bearish outlook and invite a retest of the 2016 highs.

• R2 0.7607 – 18Jul high – Strong
• R1 0.7566 – 27Jul high – Medium
• S1 0.7443 – 22Jul low – Medium
• S2 0.7408 –6Jul low – Strong

AUDUSD – fundamental overview

Th Australian Dollar has done a good job defying fundamentals in recent trade, with another round of solid US data, this time in the form of consumer confidence and new home sales, shrugged off. The currency has been bid up despite the healthy US readings, with the market looking to square up ahead of today’s US durable goods and the more highly anticipated FOMC event risk. But with inflation still softer overall and with the RBA to likely still be considering additional rate cuts, rallies continue to be well capped. Wednesday’s headline CPI release was mixed overall, though the trimmed mean reading came in firmer, which has resulted in a scaling back of rate cut odds in August from 57% to 46%. But the Australian Dollar is softer post data, seemingly reacting more to the subdued nature of the headline print. Perhaps the lower China Westpac-MNI consumer sentiment is also weighing on the Australian Dollar.

USDCAD – technical overview

Finally a major breakout in this pair, with the price clearing critical range resistance at 1.3189 on Monday. The break ends a period of multi-week basing off the 2016 low and opens the door for a fresh upside extension towards a measured move objective into the 1.3500-1.4000 area. Any setbacks from here should be very well supported ahead of 1.2800.

• R2 1.3296 – 24Mar high – Strong
• R1 1.3245 – 26Jul high – Medium
• S1 1.3121 – 25Jul low – Medium
• S2 1.3057 – 22Jul low – Strong

USDCAD – fundamental overview

The Bank of Canada has expressed deep concern over the possibility for a collapse in the housing market, with both Vancouver and Toronto showing signs of bubbling. We have since seen a reaction from the government, with the OFSI to conduct stress tests to see how Canadian banks would weather up to a 50% decline in these markets. As a means to curb some of this heated property market, British Columbia has already announced it will be adding 15% tax on foreign nationals and overseas corporations buying residential property in the Vancouver area. Into Wednesday, the Canadian Dollar has recovered from recent declines, though ultimately the Loonie remains under pressure on fear of the local housing market and this ongoing weakness in the price of OIL. Looking ahead, US durable goods orders and the FOMC policy decision will be the main focus on the day.

NZDUSD – technical overview

Rallies to fresh 2016 highs above 0.7300 have been well capped, with the market looking to adhere to the broader downtrend. The recent break below 0.7080 strengthens the bearish outlook and should now accelerate declines back towards critical medium-term support further down at 0.6675. At this point, only back above 0.7325 negates.

• R2 0.7116 – 19Jul high – Strong
• R1 0.7086 – 26Jul high – Medium
• S1 0.6952 – 21Jul low – Medium
• S2 0.6893 – 7Jun low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar put in a nice performance on Tuesday despite softer Kiwi trade data and increased expectations for more cuts from the RBNZ in the months ahead. Interestingly, US economic data was also quite solid, with both new home sales and consumer confidence impressing. And yet, the risk correlated currency was still bid, seemingly on some profit taking and position squaring of shorts into today’s highly anticipated FOMC policy decision. But any upside should be limited, with the Fed expected to adopt a more hawkish tone given the recent run of data and stabilisation of Brexit risk. Also out on Wednesday are US durable goods orders.

US SPX 500 – technical overview

The market has stormed back to fresh record highs and there is scope from here for additional upside in the sessions ahead towards next key psychological barriers at 2200. 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. But initially, we would need to see a daily close below 2150 to take the immediate pressure off the topside.

• R2 2200.00 – Psychological – Strong
• R1 2179.00 – 25Jul/Record – Medium
• S1 2149.00 –14Jul low – Medium
• S2 2136.00 – 12Jul low– Strong

US SPX 500 – fundamental overview

Stocks have pulled back a tiny bit from Monday’s record high, with most of the price action attributed to OIL weakness. But overall, it seems US equities are taking advantage of the current backdrop of improving US economic data and an expectation the Fed still won’t show it is in any rush to move on rates. The combination of these two variables makes for a Goldilocks environment where investors will continue to try and drive the market to fresh record highs. Still, it seems with monetary policy exhausted, the Fed in a tougher spot – forced to be thinking about higher rates following a very solid run of economic data, and the possibility for another asset price bubble, there is a big question mark around how much longer this artificial support can hold up. And so, if the Fed leans more hawkish today, it could actually weigh on the stock market.

GOLD (SPOT) – technical overview

The recent break above the previous 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 1375.20 – 6Jul/2016 high – Strong
• R1 1337.70 – 20Jul high – Medium
• S1 1303.90 – 1May low – Strong
• S2 1250.30 – 24Jun low – Strong

GOLD (SPOT) – fundamental overview

Despite recent setbacks, 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 climax. Moreover, rising geopolitical risk is also inviting hard asset demand. For today, the market will be focused on the tone of the FOMC decision. Anything leaning more hawkish could prop the metal as it acts as a disincentive to be long risk assets and warns investors that we have reached the end of an extended period of artificial support propping the global economy.

Feature – technical overview

USDTRY has finally broken up to another fresh record high after a period of multi-month consolidation. The latest break through the previous peak from 2015 now opens the door for a measured move upside extension towards 3.3500 in the days ahead. At this point, a break back below 2.8390 would be required to take the immediate pressure off the topside.

• R2 3.3500 – Measured Move – Strong
• R1 3.0970 – 20Jul/Record – Medium
• S1 2.9660 –19Jul low – Medium
• S2 2.9260 – 18Jul low – Strong

Feature – fundamental overview

The CBRT’s quarterly inflation report has revealed the central bank is comfortable that recent liquidity measures have limited volatility, while also expecting inflation to trend lower over the medium-term. All of this confirms the likelihood the central bank isn’t all that concerned with this latest run of TRY depreciation to record lows against the Buck, which leaves the door open for additional Lira downside amidst all the uncertainty surrounding the Turkish outlook in the aftermath of the failed coup attempt. Looking ahead, the key focus on Wednesday will be on the FOMC policy decision, with the outcome to likely have a major impact on risk assets and in turn on the correlated emerging market currency.