Market Back to Doubting Fed Timeline

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 exposing a drop back towards a retest of the+30 year base from October 2016 at 1.1841. Ultimately, rallies should continue to be very well capped into the 1.2500 area, with only a break above 1.2775 to compromise the overall bearish outlook.

• R2 1.2308 – 2Mar high – Strong
• R1 1.2253 – 7Mar high– Medium
• S1 1.2135 – 9Mar low – Medium
• S2 1.2100 – Figure – Medium

GBPUSD – fundamental overview

Last Friday’s round of UK data wasn’t anything to write home about and most of this latest run up in the UK currency has come on the back of a buy the fact reaction to the US jobs report. The market had already priced in a rate hike from the Fed this week and with the data only confirming this already priced event, this left the possibility open for the Fed to perhaps still let down expectations for a total of 3 hikes this year. Of course, there are other things the Pound needs to be worrying about which should keep the currency well capped, with the possibility for an imminent trigger of Article 50 at the top of that list. As far as today’s docket goes, absence of UK data leaves the US labor market conditions index reading as the only notable release for the day.

USDJPY – technical overview

An impressive recovery for the major pair in recent days, with the market pushing back up into critical resistance in the form of a multi-day consolidation peak from January at 115.62. Still, while the market holds below 115.62 on a daily close basis, risk remains for another topside failure and drop back down towards the 111.60 range base. If however the market establishes above 115.62, this opens the door for a bullish continuation.

• R2 116.00 – Figure – Medium
• R1 115.62 – 19Jan high – Strong
• S1 114.31 – 9Mar low – Medium
• S2 113.56 – 6Mar low – Strong

USDJPY – fundamental overview

Broad based declines in the US Dollar post Friday’s US employment report were seen capping USDJPY ahead of critical resistance at 115.60. The selloff in the Buck came on a sell the fact reaction to the data, with the market having already priced everything it had needed to as far as this week’s Fed decision went and not inclined to be wanting to buy more US Dollars at this stage, with the Fed outlook for the remainder of the year still in question. Risk assets didn’t do much on Friday, though any downside pressure on this front, could also fuel additional USDJPY downside in the days ahead. As far as today’s calendar goes, the only notable standout comes in the form of a US labour market conditions index reading.

EURCHF – technical overview

The latest surge through resistance at 1.0760 could threaten a broader downtrend and suggest we are in the process of seeing a bullish structural shift. However, a daily close above 1.0800 would be required to confirm, while inability to do so keeps the downtrend intact opening the door for a drop back towards and below the 2016 base at 1.0624.

• R2 1.0900 – 8Dec high – Strong
• R1 1.0833 – 9Nov high – Medium
• S1 1.0690 – 8Mar 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 isn’t able to weaken all that much. There have been some signs of the SNB perhaps making a little headway on reports of a boost in SNB reserves, but we will need to see if this latest push through 1.0800 holds up. Certianly the news of the ECB possibly considering higher rates before ending QE has helped to bolseter the EURCHF rate.

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 0.7633 – 7Mar high – Strong
• R1 0.7600 – Figure – Medium
• S1 0.7534 – 13Mar low – Medium
• S2 0.7492 – 9Mar low – Strong

AUDUSD – fundamental overview

The Australian Dollar has come intense pressure of late, with the currency hit on several external factors. On one side, we’ve seen a bunch of negative China stories in the previous week, with downgraded China growth, a surprising China deficit and cooler China CPI all weighing. On the other side, the ongoing strength of US data is further bolstering the Fed rate hike timeline, pushing yield differentials out of Aussie’s favor. Meanwhile, weakness in commodities is not helping the correlated Aussie’s cause and all of this could suggest deeper setbacks on the cards. For the moment however, the Australian Dollar is finding some support in the aftermath of a US employment report that was only slightly stronger than forecast and not enough to inspire additional US Dollar demand. This has opened a broad based sell US Dollar on the fact reaction. As far as today’s calendar goes, the only notable standout comes in the form of a US labour market conditions index reading.

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 and towards 1.4000 further up.

• R2 1.3599 – 28Dec high – Strong
• R1 1.3535 – 9Mar high – Medium
• S1 1.3398 – 8Mar low – Medium
• S2 1.3324 – 2Mar low – Strong

USDCAD – fundamental overview

It’s actually somewhat surprising the Canadian Dollar isn’t a lot higher into Monday. Friday’s Canada employment report was a monster report, with the not only the headline prints coming in well above forecast but the full time employment change blowing away expectation. Full time came in at a whopping 105.1k up from 15.8k previous. Meanwhile, US employment data came in only slightly better than forecast and even this wasn’t interpreted as a stronger report with the market already pricing in a healthy US reading. And so the combination of a sell US Dollars on the fact reaction from the US jobs report and the blowout Canada data opened a rally in the Loonie that felt like it should have been much more. Of course, one weight on the Loonie offsetting all of this was the ongoing decline in the price of OIL, something the Canadian Dollar is highly correlated with. Looking ahead, as far as today’s calendar goes, the only notable standout comes in the form of a US labour market conditions index reading.

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 0.7046 – 6Mar high – Strong
• R1 0.6978 – 8Mar high – Medium
• S1 0.6890 – 9Mar low – Strong
• S2 0.6862 – 26Dec 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, ramped up Fed rate hike odds and weakness in commodities are some of the major drivers behind the Kiwi bearishness. Of course, an overall ongoing bid for equities has been helping to slow the pace of Kiwi declines. But ultimately, if US economic data continues to support a push in yield differentials further in the US Dollar’s favour, additional downside appears to be on the cards. Certainly last week’s discouraging GDT auction has only added to this latest round Kiwi weakness. Still, the market is finding some demand into the early week on the back of a buy the fact reaction to the US jobs report which wasn’t strong enough to isnpire a fresh wave of Kiwi selling just yet. But dealers report fresh offers into rallies from macro type accounts. Looking ahead, as far as today’s calendar goes, the only notable standout comes in the form of a US labour market conditions index reading.

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 will 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 the fact 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. This was reflected in the reaction to the Friday jobs report which although solid, left investors to interpret the data as not being solid enough to guarantee the Fed will follow through with more hikes this year beyond March.

GOLD (SPOT) – technical overview

The market has been very well supported since basing out around 1120 in 2016. A recent break above 1260 strengthens the outlook, opening the door for the next major upside extension towards a measured move into the 1300 area. Look for the latest setbacks to be very well supported around 1200, with only a break back below 1180 to compromise the constructive outlook.

• R2 1264.00 – 27Feb high – Strong
• R1 1236.85 – 6Mar high – Medium
• S1 1195.05 – 10Mar low – Medium
• S2 1180.60 – 27Jan 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. Dealers talk of large bids in the 1180-1200 area.

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(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 19.4300 – 7Mar low – Medium
• S2 19.2610 – 4Nov high – Strong

Feature – fundamental overview

The Peso had been benefiting from a healthy wave of positive developments including higher Mexico rates, subsequent Banxico actions to curb Peso weakness, reduction in speculative Peso shorts and more conciliatory talk out of the White House. 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 could be vulnerable at elevated levels is another serious variable that could undermine any recovery in the Peso and emerging market FX. Looking out, the market is pricing 100 bps of tightening in Mexico by year end, taking the benchmark to 7.25%.