Packed Calendar Week to Usher in Volatility Surge

GBPUSD – technical overview

The market has eased off quite a bit since topping out at a fresh 2017 high in September, with the price dropping back into the 1.3000 area thus far. However, while there is risk for another drop, setbacks should be limited below the psychological barrier, with the greater risk for the formation of that next meaningful higher low ahead of a continuation of the newly formed uptrend in 2017. Look for a daily close back above 1.3338 to confirm the constructive outlook and accelerate gains. Ultimately, only back below 1.2775 would delay the outlook.

• R2 1.3279– 26Oct high – Strong
• R1 1.3200 – Figure – Medium
• S1 1.3070 – 27Oct low – Medium
• S2 1.3027 – 6Oct low – Strong

GBPUSD – fundamental overview

The Pound ended the previous week under pressure despite a UK GDP reading that pushed up this week’s odds for a Bank of England rate hike into the 90% area. The fallout was mostly from broad based US Dollar demand and Euro weakness in the aftermath of the surprise dovish ECB decision. Looking ahead, absence of first tier UK data on the Monday calendar will leave the focus on Brexit negotiation headlines, month end flow, macro themes and US personal income, spending and core PCE.

USDJPY – technical overview

The major pair has been confined to a range trade for much of 2017, with rallies well capped ahead of 115.00 and dips well supported below 108.00. The market has been in rally mode over the past several days, taking the rate back into the range highs. At this point, look for the market to adhere to the range and stall out yet again for the start to a drop back towards the range lows. A daily close back below 113.00 would strengthen this outlook.

• R2 114.50 – 11Jul high – Strong
• R1 114.00 – Figure – Medium
• S1 113.24 – 23Oct low – Medium
• S2 112.30 – 19Oct low – Strong

USDJPY – fundamental overview

Friday’s upbeat US docket, helped to propel the major pair into major resistance in the 114.50 area, after US GDP and personal consumption readings coming better than expected. The other big factor was another push to record highs in the US equity market, with the sentiment flow fueling the correlated major pair. But offers have come in on technical related selling and worry about US tax reform, the increased likelihood for a dovish Fed Chair and possible White House indictments relating to the Russia probe investigation. As far as today goes, the market will continue to keep its eye on risk sentiment, while also paying attention to month end flow, broader macro risk and some US data that includes personal income, spending and core PCE.

EURCHF – technical overview

A period of multi-day consolidation has been broken, with the market pushing up to a fresh 2017 high. The bullish break could now get the uptrend thinking about a test of that major barrier at 1.2000 further up. In the interim, look for any setbacks to be very well supported ahead of 1.1400, while only back below 1.1260 would delay the overall constructive tone.

• R2 1.1800 – Figure – Medium
• R1 1.1713 – 26Oct/2017 high – Medium
• S1 1.1485 – 17Oct low – Medium
• S2 1.1390 – 2Oct low – Strong

EURCHF – fundamental overview

The SNB will need to be careful right now as its strategy to weaken the Franc could face headwinds from both the US equity market and the ECB. The record run in the US stock market has been a big boost to the SNB’s strategy with elevated sentiment encouraging Franc weakness. But any signs of capitulation on that front, will likely invite a very large wave of demand for the Franc, which will put the SNB in a more challenging position to weaken the Franc. The Franc has dropped to another yearly low against the Euro last week on what looked to be ramped up SNB activity. This would make even more sense after the ECB delivered a very dovish, Euro bearish monetary policy decision last week. And so, we speculate the SNB was active buying EURCHF in an attempt to build some cushion ahead of what could be a period of intense Franc demand ahead.

AUDUSD – technical overview

Despite rallying to a fresh +2 year high in September, the market has been unable to hold onto gains, quickly reversing course and trading back below 0.8000. There is now risk for the formation of a more meaningful top opening the door for the next downside extension towards 0.7500. Look for rallies to be well capped ahead of 0.7800, with only a close back above the psychological barrier to put the pressure back on the topside. Last week’s break below 0.7734 has strengthened the bearish outlook.

• R2 0.7785 – 25Oct high – Strong
• R1 0.7720 – 26Oct high – Medium
• S1 0.7626– 27Oct low – Medium
• S2 0.7572 – 5Jul low – Strong

AUDUSD – fundamental overview

A quiet start to the week for the Australian Dollar, which had recently been under pressure from broad based US Dollar demand and softer Aussie inflation data in the previous week, increasing the likelihood the RBA would remain on hold for a longer period of time. Into Monday, a slide in China stocks and iron ore prices hasn’t weighed as much, with the selling from these flows offset by AUDNZD related demand and bearish USD developments out of the US that include renewed tax reform concern, increased odds Powell will be the next Fed Chair and possible White House indictments relating to the the Russia probe. Looking ahead, the market will continue to keep its eye on risk sentiment, while also paying attention to month end flow, broader macro risk and some US data that includes personal income, spending and core PCE.

USDCAD – technical overview

Clear signs of basing in this pair, with the recovery from plus two year lows back in September extending through an important resistance point in the form of the August peak. This sets the stage for additional upside in the days and weeks ahead, with the immediate focus now on a retest of the psychological barrier at 1.3000. In the interim, any setbacks should now be well supported ahead of 1.2500.

• R2 1.3000 – Psychological – Strong
• R1 1.2917 – 27Oct high – Medium
• S1 1.2782– 26Oct low– Medium
• S2 1.2693 – 24Oct high – Strong

USDCAD – fundamental overview

As much as the risk was flagged from our end, the market was still caught off guard by last week’s dovish shift at the Bank of Canada meeting. The Canadian Dollar has since been hit hard, extending a run of recent declines that have come since economic data has deteriorated in the aftermath of the central bank’s aggressive move of consecutive rate hikes in 2017. The BoC warned it would remain cautious when considering future rate hikes while also citing concern over the stronger currency. Another looming threat to the Canadian Dollar at the moment is the NAFTA uncertainty and possibility the agreement will be terminated as per President Trump’s threats. Market odds for a December BoC hike have since declined and are now sitting down around 40%% from what had been about 80% in early September. Meanwhile, the US Dollar was able to extend its run on Friday before finally running into profit taking, after US GDP and personal consumption data exceeded expectation. Looking ahead, absence of first tier data on the Canada calendar will leave the market focus on broader macro themes and US data that includes personal income, spending and core PCE.

NZDUSD – technical overview

Medium term studies have turned down sharply after the market pushed up to a plus two year high through 0.7500 in late July. A recent break below 0.7000 has now opened a more meaningful reversal looking to retest the 2017 low at 0.6818. Any rallies should now be very well capped ahead of 0.7200 ahead of the next downside extension that would target 0.6500.

• R2 0.7036 – 20Oct high – Strong
• R1 0.7004 – 24Oct high – Medium
• S1 0.6818 – 21May/today/2017 low – Strong
• S2 0.6800 – Figure – Strong

NZDUSD – fundamental overview

The New Zealand Dollar continues to struggle in the aftermath of a surprise election result that saw the emergence of Labour. Overall, the currency had already been under pressure in the lead up to the election, with economic data heading the wrong way and the market pricing a less hawkish RBNZ path forward. The PM elect was on the wires last week shaking things up some more after outlining the intention to ‘review and reform’ the Reserve Bank Act. We have seen some bids after retesting the 2017 low from May, with the market perhaps finding support on uncertainty surrounding US tax reform and possible White House indictments from the Russia probe. But, on Monday, NZ FinMin Robertson’s comment that the RBA mandat may be expanded to include an employment objective, has weighed, given the implication that this change will keep the RBNZ lower for longer. Looking ahead, absence of first tier data on the Canada calendar will leave the market focus on broader macro themes and US data that includes personal income, spending and core PCE.

US SPX 500 – technical overview

The market continues to shrug off overextended technical readings, with any setbacks quickly supported for fresh record highs. At the same time, it’s worth noting that the market broke out in August after a 75 point consolidation, which projected a measured move to 2565. And now that this 2565 measured move objective has been met and slightly exceeded, it could warn of some form of a reversal to come, though we would need to see a daily close back below 2544 at a minimum to take the immediate pressure off the topside. Until then, the record run continues into unchartered territory, with the focus on the next major barrier at 2600.

• R2 2600.00 – Psychological – Strong
• R1 2583.00 – 27Oct/Record high – Medium
• S1 2543.00 – 25Oct low – Medium
• S2 2487.00 – 25Sep low – Strong

US SPX 500 – fundamental overview

The US equity market continues to be well supported on dips, pushing further into record high territory. It seems the combination of blind momentum, expectation of favourable US tax policy and the odds for a dovish leaning Fed appointee (Posell) are helping to keep the move going. But at the same time, there’s a nervous tension out there as the VIX sits at unnervingly depressed levels. The fact that Fed policy is normalising, however slow, could start to resonate a little more, with stimulus efforts exhausted, balance sheet reduction coming into play and another rate hike still on the cards this year. But for now, it’s more of the same. At this point, it will take a breakdown in this market back below 2500 to turn heads. The market hasn’t really been too worried about the possibility for indictments at the White House relating to the Russia probe.

GOLD (SPOT) – technical overview

Setbacks have been well supported over the past several months, with the market continuing to put in higher lows and higher highs, opening a recent push to a fresh 2017 high up around 1357. And so, look for this most recent dip to round out that next higher low around 1260 in favour of a bullish continuation towards a retest of the 2016 peak at 1375 further up. Ultimately, only a drop back below 1200 would negate the outlook.

• R2 1334.35 – 15Sep high – Strong
• R1 1316.10 – 20Sep high – Medium
• S1 1260.70 – 6Oct low – Medium
• S2 1251.45 – 8Aug 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 exhausted monetary policy, extended global equities, political uncertainty, systemic risk and geopolitical threats. All of this should continue to keep the commodity well supported, with many market participants also fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax. Certainly the US Dollar under pressure in 2017 has added to the metal’s bid tone as well, but there is a growing sense that even in a scenario where the US Dollar is bid for an extended period, GOLD will hold up on risk off macro implications. Dealers are now reporting demand in size ahead of 1260.

Feature – technical overview

USDZAR has been breaking out of a period of multi-month consolidation, with the price surging to fresh 2017 highs beyond 14.00, suggesting the run could have a lot more to go. The next major level of resistance comes in at 14.76, the high from August 2016. Setbacks should be well supported from here ahead of 13.65.

• R2 14.76 – August 2016 high – Strong
• R1 14.36 – 27Oct high – Medium
• S1 14.00 – Psychological – Medium
• S2 13.65 – 23Oct low – Strong

Feature – fundamental overview

The South African economy is in greater need for flexibility on rates on the basis of a near zero growth and a negative output gap, though rising inflation is forcing the SARB to think about going in the opposite direction.  Meanwhile, the Rand remains exposed to ongoing tension on the political front which will persist into year-end on account of the upcoming ANC leadership election. Last Wednesday’s Budget Statement dealt the emerging market currency another big blow, with the Rand sinking to a fresh 2017 low on the revelation of sharp revisions to debt and deficit projections, highlighting risk for further downgrade. And into Monday, the focus is on calls for a new economic plan to revive the economy and pressure on President Zuma forcing a denial that he failed to file tax returns for at least five years of his term. The only supportive Rand driver at the moment has come from the record run in US equities, which is a positive for risk correlated emerging market currencies. However even here the Rand should be sitting uneasy as the prospect for a capitulation is looking increasingly realistic on overbought technicals and an unstable backdrop around the globe.