What to Make of the Stock Drop?

GBPUSD – technical overview

The market remains confined to an intense downtrend and is in the process of consolidating just off the recent +30-year low from July. Any rallies are classified as corrective ahead of what should be the next major break below 1.2800 and towards 1.2500. Only back above 1.3533 will take the immediate pressure off the downside and force a shift in the structure.

• R2 1.3445 – 6Sep high – Strong
• R1 1.3376 – 8Sep high – Medium
• S1 1.3200 – Figure – Medium
• S2 1.3129 – 1Sep low – Strong

GBPUSD – fundamental overview

The recovery in the Pound has come to an end in recent days, with the currency initially hit on softer UK manufacturing production, then knocked some more following a less dovish ECB and finally dragged one more time on Friday on the back of a major liquidation in risk assets. Looking ahead, the calendar is exceptionally thin and the only major focus will be on risk sentiment and a slate of Fed speakers including Lockhart, Kashkari and Brainard.

USDJPY – technical overview

Although we’ve seen an impressive bounce in recent trade, overall, the pressure remains on the downside with a lower top sought out ahead of 107.49 in favour of the next major downside extension below the recent yearly and multi-month low at 98.99. At this point, only a break back above 105.00 would delay this outlook and give reason for pause. Below 99.00 exposes the next major support level in the 95.00 area.

• R2 104.32 – 2Sep high – Strong
• R1 103.06 – 9Sep high – Medium
• S1 101.97 – 9Sep low – Medium
• S2 101.20 – 7Sep low – Strong

USDJPY – fundamental overview

The major pair is currently caught between diverging flows and is unsure which way to commit. On the one hand, dovish comments from Japan PM advisor Honda and more hawkish speak from Fed Rosengren have been supportive of the major pair on yield differentials. But on the other hand, this latest sharp downturn in risk sentiment has opened renewed demand for the Yen on its correlation with flight to safety bids. Looking ahead, the calendar is exceptionally thin and the only major focus will be on risk sentiment and a slate of Fed speakers including Lockhart, Kashkari and Brainard.

EURCHF – technical overview

Not much doing here over the past several days, with the market confined to a range trade, roughly between 1.0800 and 1.1000. At this point, a daily close above 1.1000 or back below 1.0800 will be required for clearer directional insight. Until then, look for dips to be supported and rallies well capped.

• R2 1.1014 – 24Jun high – Strong
• R1 1.1001 – 1Sep high – Medium
• S1 1.0870 – 24Aug low – Medium
• S2 1.0778 – 16Jun low – Strong

EURCHF – fundamental overview

SNB smoothing activity to prop the EURCHF rate has been helping to elevate the cross, but at the same time, any upside moves haven’t been sustainable with the cross rate continuing to get sold aggressively into rallies towards 1.1000. Overall, this is a market going nowhere right now and it seems stops need to get taken out below 1.0750 or above 1.1000 for clearer insight. US stocks have been supporting EURCHF but are now looking extended which could invite additional Franc demand if the market continues to roll over from record highs in the sessions ahead.

AUDUSD – technical overview

The market has struggled on rallies above 0.7700 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 break back below 0.7421 to strengthen this outlook and accelerate declines towards 0.7000 in the days ahead. Ultimately, only back above 0.7758 will negate the bearish outlook and invite a retest of the 2016 highs.

• R2 0.7657 – 9Sep high – Strong
• R1 0.7600 – Figure – Medium
• S1 0.7491 –31Aug low – Medium
• S2 0.7421 –27Jul low – Strong

AUDUSD – fundamental overview

The Australian Dollar is moving with risk themes in Monday trade. The deterioration in sentiment has weighed on the correlated currency, while a concurrent pullback in the price of iron oil, to its lowest levels since late June is also having a negative impact. Aussie credit card purchases were also softer and though the data is to first tier, it certainly hasn’t helped Aussie’s cause. Looking ahead, the market will continue to keep an eye on global equities while also preparing for a Fed Brainard speech late in the day.

USDCAD – technical overview

This market looks to be in the process of carving out a longer-term base off the 1.2461, 2016 low. Look for any additional weakness to be supported ahead of 1.2655 in favour of the next major upside extension towards a measured move objective into the 1.3500-1.4000 area. Ultimately, only back below 1.2655 would delay the constructive outlook.

• R2 1.3148 – 1Sep high – Strong
• R1 1.3100 – Figure – Medium
• S1 1.3000 – Psychological – Medium
• S2 1.2911 – 9Sep low– Strong

USDCAD – fundamental overview

Friday’s Canada employment report came in better than expected but did nothing to support the Canadian Dollar. It seems the drop in OIL prices and broad based demand for the US Dollar on risk liquidation flow were enough to offset the impact from the stronger jobs. Moreover, it’s possible that market participants weren’t even all that impressed with the jobs data given that the average for this series over the past couple of months is still pretty discouraging. Looking ahead, the market will continue to keep an eye on global equities and the price of OIL, while also preparing for a Fed Brainard speech late in the day.

NZDUSD – technical overview

Finally signs of a potential top after the market stalled out at 2016 highs ahead of major psychological barriers at 0.7500. Daily studies had already traded up into overbought territory warning of the reversal and this latest bearish reversal strengthens the toppish outlook. Look for a break and close back below 0.7200 to confirm the structural shift and accelerate declines.

• R2 0.7413 – 9Sep high – Strong
• R1 0.7384 – 8Sep low  – Medium
• S1 0.7299 – 6Sep low – Medium
• S2 0.7268 – 2Sep low – Strong

NZDUSD – fundamental overview

The New Zealand PM hasn’t shown any concern with the elevated Kiwi rate in his latest comments, which could be supporting Kiwi a bit in Monday trade. Key has said the improving dairy outlook is boosting the local currency and the New Zealand Dollar is reflecting the strength of the New Zealand economy. Still, overall, this is a currency very much tied to risk sentiment and with the market liquidating risk assets at the moment, the currency remains vulnerable. Looking ahead, the calendar is exceptionally thin and the only major focus will be on risk sentiment and a slate of Fed speakers including Lockhart, Kashkari and Brainard.

US SPX 500 – technical overview

Signs of a potential top after the market put in a violent bearish reversal day on Friday, taking out critical support at 2147. This now opens the door for a more meaningful period of weakness exposing a more pronounced decline towards the June base at 1990. Look for any rallies to now be well capped ahead of 2180, with only a break back above this level to compromise the newly adopted bearish outlook.

• R2 2156.00 – 1Sep low – Strong
• R1 2147.00 – 2Aug low – Medium
• S1 2100.00 – Psychological – Medium
• S2 2073.00 – 6Jul low– Strong

US SPX 500 – fundamental overview

It all feels like it’s starting to come to a head for the US and global equity market. In recent weeks, we have been hearing a lot about the limitations of monetary policy. We’ve also seen a notable shift in the overall tone out from Fed officials, with things moving over to the hawkish side, even in the face of some softer US data. And yet, the fact that there hasn’t been any major indication or confirmation of real hawkishness, with the Fed seen holding off in September is more worrying to investors, given that stocks are still off sharply. Last week’s less dovish ECB meeting could also be sending a message to investors that we are living in a different world where accommodation to support risk isn’t going to be there anymore. Looking ahead, the calendar is exceptionally thin and the only major focus will be on risk sentiment and a slate of Fed speakers that includes an appearance from the dovish voting member Brainard.

GOLD (SPOT) – technical overview

The structure remains highly constructive with dips continuing to be very well supported. A recent round of setbacks were propped ahead of the 100-Day SMA and it looks like a fresh higher low could be in place around 1300 in favour of the next major upside extension beyond the current 2016 peak at 1375 and towards 1450-1500 further up.

• R2 1358.10 – 16Aug high – Strong
• R1 1352.70 – 6Sep high – Medium
• S1 1324.90 – 12Sep low – Medium
• S2 1302.50 – 1Sep low – Strong

GOLD (SPOT) – fundamental overview

Overall, 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.

Feature – technical overview

USDZAR has come under a good deal of pressure in recent months, trading down to a fresh 2016 low around 13.2000. However, it now appears as though the market is finally ready to turn back up in favour of a resumption of the broader uptrend. In the interim, look for any setbacks to be well supported ahead of 13.2000, with fresh upside seen towards 15.0000 in the sessions ahead. Only back below 13.2000 gives reason for pause.

• R2 15.0000 – Psychological – Strong
• R1 14.7540 – 1Sep high – Strong
• S1 13.8330 – 8Sep low – Medium
• S2 13.2000 – 10Aug/2016 low – Strong

Feature – fundamental overview

The Rand’s fate has been tied to the fate of global risk sentiment and with global equities starting to come under pressure, this could be warning of a resumption in Rand declines over the coming days. For the moment, it seems the possibility of central banks no longer willing to accommodate at every turn is a reality that investors are dealing with that ultimately is not a welcome development for higher yield, risk correlated currencies. If the US Dollar and other safe haven currencies start to gain momentum while equities fall off, the Rand could really come under a lot of pressure ahead. Looking ahead, much of today’s price action will hinge on what dovish Fed voting member Brainard has to say.