USD Sold on March Fact, But Upside Risk Remains

GBPUSD – technical overview

The market has come back under pressure since stalling out several days back ahead of critical resistance in the form of the December 2016 peak at 1.2775. The recent close below 1.2347 ends a period of choppy consolidation and likely opens the door for an acceleration of declines back towards the 1.2000 area, just over the major +30 year base from October 2016 at 1.1841. Ultimately, rallies should continue to be very well capped with only a break above 1.2775 to compromise the overall bearish outlook.

• R2 1.2405 – 1Mar high – Strong
• R1 1.2347 – Previous Support– Medium
• S1 1.2215 – 3Mar low – Strong
• S2 1.2200 – Figure – Medium

GBPUSD – fundamental overview

Despite benefiting from broad based US Dollar weakness on Friday as the market squared up US Dollar longs after the market deemed all of the US Dollar bullishness had been priced for a March hike, the Pound is expected to remain well offered into rallies for the time being. PM May is likely to overturn the House of Lords decision which could heighten risk of a hard Brexit and the market won’t want to get ahead of itself here. Looking ahead, US factory orders are the only notable standout, though we do get speeches from BOE Hogg and Fed Kashkari.

USDJPY – technical overview

Despite this latest bounce, the short-term pressure remains on the downside in light of a recent break of multi-session consolidation that projects weakness below 110.00 in the days ahead. At this point, it would take a push back above 115.62 to officially alleviate short-term downside pressure and as such, any rallies are expected to stall out ahead of 115.00.

• R2 114.96 – 15Feb high – Strong
• R1 114.75 – 3Mar high – Medium
• S1 113.68 – 2Mar low – Medium
• S2 112.75 – 1Mar low – Strong

USDJPY – fundamental overview

The major pair continues to find strong offers towards 115.00 despite a wave of US Dollar buying on the back of a near certain Fed rate hike in March. On Friday, the Yen was stronger along with the rest of currencies as the market squared up US Dollar longs after all of this March pricing had been accounted for. But into Monday, the Yen is finding additional bids on the back of some risk off trade. Lower growth expectations out of China could be impacting risk markets, with the selloff in equities fueling Yen demand on the traditional correlation. Looking ahead, only US factory orders stand out on today’s calendar. 

EURCHF – technical overview

A recent close below 1.0800 which had been defined as the bottom of a multi-week range has strengthened the bearish outlook, opening the door for additional declines below the 2016 low at 1.0624 and towards psychological barriers at 1.0500 further down. A bearish consolidation on the daily chart is strengthening the bearish outlook. At this point, a daily close back above 1.0763 would be required to take the immediate pressure off the downside.

• R2 1.0763 – 30Dec high – Strong
• R1 1.0715 – 3Mar high – Medium
• S1 1.0632 – 21Feb low – Medium
• S2 1.0624 – 24Jun/2016 low – Strong

EURCHF – fundamental overview

The SNB is in a quiet battle with the market, forced to contend with an ongoing wave of demand for the Swiss Franc in a less certain global environment, especially with the weapon of monetary policy worn down. The central bank has been committed to its mandate of ensuring the Franc does not appreciate further. But despite all efforts, the Franc continues to want to appreciate. It seems the central bank’s strategy has been to sell Francs when risk comes off and to do nothing when risk is back on and natural flows should be CHF bearish. But the trouble is, even with global equities elevated, arguably reflecting global appetite for risk, the Franc is barely depreciating, if at all. This is an added concern with the SNB’s holding of US equities at record highs. Of course, the reemergence of Eurozone political risk only further contributes to SNB stress, with the Franc finding even more demand on the back of these developments. So if equities start to come off and demand for the Franc ramps up, this SNB headache could turn into a migraine. Dealers continue to cite strong offers above 1.0700.

AUDUSD – technical overview

The impressive rally in 2017 has finally stalled out into significant medium-term resistance ahead of 0.7800. The latest break back below 0.7600 strengthens the prospect for some form of a top and could open the door for a deeper drop back towards the 0.7100 area in the days ahead. Intraday rallies should now be very well capped ahead of 0.7700, while ultimately, only back above 0.7779 would compromise the outlook.

• R2 0.7700 – 1Mar high – Strong
• R1 0.7637 – 1Mar low– Medium
• S1 0.7543 – 3Mar low – Medium
• S2 0.7430 – 12Jan low – Strong

AUDUSD – fundamental overview

The Australian Dollar has an important RBA decision on Tuesday that it will need to be thinking about. Into the event, we have been seeing a shift in sentiment, with the currency coming under quite a bit of pressure, mostly on the back of ramped up Fed rate hike expectations. But into the new week, we are also seeing risk off flow factor in, with the correlated Aussie feeling the pressure of the downturn in equities markets. News that China has downgraded growth expectations could be contributing to this flow. On the data front, Aussie retail sales came in as expected though Aussie job ads were weak. Looking ahead, only US factory orders stand out on the calendar for the remainder of the day.

USDCAD – technical overview

The market remains very well supported on dips, with the latest bounce out from 1.3000 warning of a more significant bullish resumption. Any setbacks should now be very well supported into the 1.3200 area in favour of an eventual push back through the multi-day peak at 1.3599 further up.

• R2 1.3500 – Psychological – Strong
• R1 1.3438 – 3Mar high – Medium
• S1 1.3324 – 2Mar low – Medium
• S2 1.3285 – 1Mar low – Strong

USDCAD – fundamental overview

The Canadian Dollar has been a victim of hawkish interest rate expectations in the United States, lower OIL prices and a Bank of Canada that has expressed concern over the outlook for the Canadian economy. Meanwhile, the small pullback in risk markets over the past few sessions is only adding to the weakness in the Loonie, which correlates somewhat with the negative sentiment. Looking ahead, US factory orders is the only notable standout on today’s economic calendar.

NZDUSD – technical overview

The overall pressure remains on the downside with the market expected to be very well capped on rallies. The weekly chart is reflective of this fact as it looks like we’re seeing the formation of a major top off the 2016 high. As such, expect the market to continue to roll over in the days ahead, with setbacks projected towards medium-term support in the 0.6600s. Only back above 0.7400 compromises the outlook.

• R2 0.7151 – 2Mar high – Strong
• R1 0.7066 – 3Mar high – Medium
• S1 0.7000 – Psychological – Medium
• S2 0.6949 – 9Jan low – Strong

NZDUSD – fundamental overview

There has been a notable shift in sentiment towards the New Zealand Dollar in recent days. Softer local data, a more dovish RBNZ, a rotation into AUDNZD and ramped up Fed rate hike odds are some of the major drivers behind the Kiwi bearishness. Of course, an ongoing bid for equities and rallying commodities have been helping to slow Kiwi declines. But ultimately, if the US Dollar pushes back to focusing on Trump reflation and hawkish Fed policy, and if US equities falter, we could very well see a more intense liquidation of Kiwi longs. Looking ahead, the big risk for today comes later on with RBNZ Governor Wheeler slated to speak and capable of talking down Kiwi some more. US factory orders is the only notable standout on the economic calendar.

US SPX 500 – technical overview

The latest break to yet another record high following a healthy period of consolidation, has opened the door for the next big push through 2400. While technicals are severely stretched and there are definitive signs of exhaustion on the horizon, given the intensity of this uptrend, a break back below 2350 would be required at a minimum to alleviate immediate topside pressure.

• R2 2450.00 – Psychological – Strong
• R1 2402.00 – 1Mar/Record high – Medium
• S1 2350.00 – 24Feb low – Medium
• S2 2304.00 – 26Jan high– Strong

US SPX 500 – fundamental overview

US equities haven’t been bothered by anything over the past several years, with even rate rises from the Fed doing nothing to dissuade equity investors. Instead, the focus has been on a still exceptionally low rate environment supportive of higher stocks and Trump policies that will fuel additional upside in the market. Many market participants have dismissed the idea that the reversal of Fed policy would have negative impact on stocks, citing recent price action as a testament to this fact. But the reality is that the reversal of policy is still likely to weigh heavily on the market if the market sees that the Fed is committed to holding to its rate hike projections. The market hasn’t believed the Fed will hike at a consistent pace, given that the only consistency investors have seen is the Fed’s consistency to back away from hawkish guidance. So one or two hikes here and there with the expectation the Fed will continue to underdeliver continues to be supportive of stocks. But if the market actually starts to believe the Fed may stick with projections, we could see a more significant reaction to the downside. A lot o that shift could come in the days ahead, especially if the Fed follow through this month.

GOLD (SPOT) – technical overview

The market has been very well supported since basing out around 1120 in 2016. This latest break to 1260 confirms a fresh higher low at 1216 and opens the next major upside extension towards a measured move into the 1300 area. Only back below 1216 would delay the constructive outlook, while ultimately, below 1180 would be required to negate.

• R2 1300.00 – Measured Move – Strong
• R1 1264.10 – 27Feb high – Medium
• S1 1222.95 – 3Mar low – Medium
• S2 1216.80 – 15Feb low  – Strong

GOLD (SPOT) – fundamental overview

Solid demand from medium and longer-term players continues to emerge on dips, with these players more concerned about the limitations of exhausted monetary policy, extended global equities, political uncertainty and systemic risk. All of this should 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

USDMXN has been in the process of correcting out from recent record highs earlier this year. The market has now dropped back into critical support in the 19.00-20.00 area and is expected to be well supported around this area (61.8% fib retrace, 200-Day SMA) in favour of a resumption of the uptrend and push back through the record high just over 22.00. Ultimately, only back below 19.00 would give reason for pause and open the possibility for a more meaningful structural shift.

• R2 20.5480 – 17Feb high – Strong
• R1 20.1625 – 1Mar high – Medium
• S1 19.5500 – 200-Day SMA – Strong
• S2 19.0000 – 78.6% Fib – Strong

Feature – fundamental overview

The Peso has been getting a lot of help of late. A unanimously decided Banxico rate hike and subsequent Banxico actions, reduction in Peso shorts and more conciliatory talk out of the White House have already been helping to rally the currency out from record lows against the Buck. And now these latest comments from the US Commerce Secretary Ross are giving the Peso an additional boost after the official suggested the Peso could recover quite a bit if the US and Mexico make a sensible trade agreement. Still, the Peso is far from out of the woods, with Trump uncertainty running high and the Fed on it policy normalisation path. Of course, the fact that global equities look like they could come off the rails is yet another serious variable that could undermine any recovery in the Peso and emerging market FX. Looking out, the market is pricing more than 75bps of Banxico hikes in 2017.