Razor Thin Monday Trade

GBPUSD – technical overview

The market has entered a corrective phase since pushing to a 2018 high at around 1.4350 and rallies should be well capped ahead of the 2018 high for additional corrective activity. There is still scope for additional declines into the 1.3400-1.3600 area, though setbacks should then be very well supported in favour of that next meaningful higher low and bullish continuation.

• R2 1.4200– Figure – Medium
• R1 1.4145 – 16Feb high – Medium
• S1 1.3994 – 15Feb low – Medium
• S2 1.3925 – 13Feb high – Strong

GBPUSD – fundamental overview

UK Rightmove house prices came in above the previous prints, though the second tier data isn’t having much of an influence in a light holiday Monday, with China and the US out for holidays. The highlight of the day in the UK, will likely come from a Bank of England Governor Carney speech. There has been some demand for the Pound into Monday after a constructive meet between Merkel and May.

USDJPY – technical overview

The major pair has just taken out the 2017 low, with the break a significant one, as it also compromises a range that has been in play for many months. This could now open the door for an accelerated decline in the days ahead, down towards the 102-103s, an area that coincides with a measured move extension target and the 78.6% fib retrace off the 2016 low to high move.

• R2 108.90 – 12Feb high – Strong
• R1 107.00 – Figure – Medium
• S1 105.56 – 16Feb low – Strong
• S2 105.00 – Psychological – Medium

USDJPY – fundamental overview

The Yen has managed to shrug off warnings of recent Yen strength being one sided, with the government closely watching FX developments and prepared to act. But this isn’t a line that we haven’t heard before, which does a good job explaining the lack of movement on the news. Meanwhile, Japan trade has come out better than expected, but again, no reaction here. Of course, with China and the US out for holiday, it’s understandable to see the market as quiet as it is. Overall, the Yen has been well bid in early 2018, mostly on the back of a soft US Dollar campaign. Though we have seen a recovery in recent sessions, there has also been a clear downturn in global risk sentiment in recent weeks, which could invite additional Yen demand on the traditional correlation. Stops were taken out below the 107.30 area 2017 low last week, with the market dropping to a fresh multi-month low into the 105s thus far.

EURCHF – technical overview

Despite this latest round of setbacks, overall, the market continues to trend higher, recently extending gains to a fresh multi-month high. The bullish price action has the market thinking about a retest of that major barrier at 1.2000 further up. In the interim, look for the current round setbacks to be very well supported, while only back below 1.1260 would delay the overall constructive tone.

• R2 1.1834 – 15Jan/2018 high – Strong
• R1 1.1640 – 5Feb high – Medium
• S1 1.1450 – 8Feb 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 the US equity market in 2018. The record run in the US stock market has been a big boost to the SNB’s strategy with elevated sentiment encouraging Franc weakness. Of course, the SNB is no stranger to this risk, given a balance sheet with massive exposure to US equities. But any signs of capitulation on that front into this new year, 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.  And so, we speculate the SNB continues to be active buying EURCHF in an attempt to build some cushion ahead of what could be a period of intense Franc demand ahead. Recent outperformance in the Swiss Franc despite flows which should have otherwise been supportive of a higher EURCHF, could already be offering up a red flag.

AUDUSD – technical overview

The market has been in the process of rolling over after failing to sustain a break above the 2017 high. The recent daily close back below 0.8000 strengthens this outlook and opens the door for a renewed wave of declines back towards 0.7500. At this point, the latest bounce is classified as corrective and only a daily close back above 0.8000 would delay.

• R2 0.8000 – Psychological – Strong
• R1 0.7989 – 16Feb high – Medium
• S1 0.7893 – 15Feb low – Medium
• S2 0.7877 – 13Feb high – Strong

AUDUSD – fundamental overview

The Australian Dollar managed to shrug off last week’s downbeat Aussie employment report that showed a huge drop in full-time jobs. Overall, the supportive price action is more a function of broad based US Dollar weakness than anything else. But this could soon come to an end. Risk sentiment is showing signs of deteriorating in 2018, while softer Aussie data has left room for the RBA to take a more cautious approach as reflected in its February decision. Soft US Dollar policy has been a drag but signs of rising inflation in the US could soon more than offset, especially if global risk sentiment deteriorates. Looking ahead, Monday trade will be super thin. China was out on holiday and the US will be closed as well for the President’s Day holiday.

USDCAD – technical overview

Despite a recent round of setbacks, there are signs of basing in this pair. This sets the stage for additional upside, with the next focus on a retest of the psychological barrier at 1.3000. In the interim, any setbacks should now be well supported above 1.2250.

• R2 1.2689– 9Feb high – Strong
• R1 1.2600 – Figure – Medium
• S1 1.2451 – 16Feb low – Medium
• S2 1.2398 – 5Feb low – Strong

USDCAD – fundamental overview

Overall, Canada’s recovery is already somewhat fragile, and this coupled with an unstable macro picture and plenty of uncertainty around the fate of NAFTA, should be keeping the Canadian Dollar pressured, especially after the Bank of Canada opted to go ahead with another rate hike last month, which will only add to the strain if the global sentiment picture deteriorates even further. Looking ahead, Monday is expected to be super quiet. It’s Family Day in Canada and the US is closed for the President’s Day holiday.

NZDUSD – technical overview

An impressive run is showing signs of struggling into formidable internal resistance. Overall, despite the latest bounce, the risk is tilted to the downside and it will take a clear establishment back above 0.7500 to delay the bearish outlook and risk for another reversal. A daily close below 0.7364 will strengthen the case for the bearish outlook.

• R2 0.7500 – Psychological – Strong
• R1 0.7438 – 16Feb/2018 high – Strong
• S1 0.7364 – 15Feb low – Strong
• S2 0.7300 – Figure – Medium

NZDUSD – fundamental overview

The New Zealand Dollar has been bid back up on the back of broad based US Dollar declines. However, earlier this month,the RBNZ took on a more dovish outlook and this coupled with signs of rising inflation in the US and the possibility for equity market capitulation, could easily offset any of the recent demand, ushering in a wave of Kiwi underperformance. Looking ahead, Monday trade will be super thin. China was out on holiday and the US will be closed as well for the President’s Day holiday.

US SPX 500 – technical overview

A severely overbought market has finally at long last relented, allowing for stretched readings to unwind. There’s plenty of room for these setbacks to extend following the break back below the 2675 area January low, with the market at risk for a further intensification of declines. Any rallies should now be very well capped ahead of 2800.

• R2 2882 – 29Jan/Record high – Strong
• R1 2765 – 5Feb high – Strong
• S1 2624 – 12Feb low – Medium
• S2 2534 – 6Feb low – Strong

US SPX 500 – fundamental overview

Investor immunity to downside risk is not looking as strong these days and there’s a clear tension out there as the VIX starts to rise from 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 the Fed finally following through with forward guidance. Certainly, the more hawkish tone from the latest otherwise uneventful Fed meeting and subsequent jump in hourly earnings and CPI, are the types of things that could weigh more heavily on sentiment in the sessions ahead. The stock market is closed today for the President’s Day holiday.

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. Look for the current run to break through and establish above massive resistance in the form of the 2016 high at 1375, with the push to suggest a major bottom has formed, opening the door for a much larger recovery in the months ahead. Any setbacks should now be well supported ahead of 1300.

• R2 1375 – 2016 high – Very Strong
• R1 1367 – 25Jan high – Medium
• S1 1306 – 4Jan low – Strong
• S2 1294 – 29Dec low  – Medium

GOLD (SPOT) – fundamental overview

Solid demand from medium and longer-term players persists, 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 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. The 2016 high at 1375 is a massive level that if broken and closed above, could be something that triggers a widespread panic and rush to accumulate more of the hard asset.

Feature – technical overview

Bitcoin has come under intense pressure since topping out at a record high just shy of 20,000 in December. The market has now exceeded a measured move downside objective that had targeted a drop to $7,000, with deeper setbacks now on the cards for a move to retest the September 2017 peak around $5,000. At this point, it will take a daily close back above $13,000 at a minimum, to take the pressure off the downside.

• R2 13,000 – 20Jan high – Strong
• R1 10,000 – Psychological – Medium
• S1 6,000 – 6Feb/2018 low – Strong
• S2 4,970 – September 2017 high – Strong

Feature – fundamental overview

The crypto asset has come under intense pressure in 2018, with ramped up regulatory oversight and potential government crackdowns forcing many holders to exit positions. The market has also been on a euphoric ride, with the run gaining too much momentum as latecomers looked to get in on the action, often a sign of a bubbling asset. Bitcoin has struggled on the transaction side as well, with transactions per second a major drawback, along with a mining community that has been less willing to process transactions due to the lower fees. The Lightning network is expected to ramp up transaction speed, which could be a big help to Bitcoin, though it seems the combination of a massive bubble, more regulatory oversight and a market that is still trying to convince of its proof of concept, could all suggest even deeper setbacks ahead. We have seen some demand out from the 2018 low, but at this point, it would be premature to chalk it up to anything more than a corrective bounce.