Getting Ready for FOMC and BOE Decisions

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 1.3997– 14Mar high – Strong
• R1 1.3950 – Mid-Figure – Medium
• S1 1.3875 – 13Mar low – Medium
• S2 1.3782 – 8Mar low – Strong

GBPUSD – fundamental overview

There has been a lot of talk from the UK side about a transition deal getting done, and yet, there hasn’t been a lot of substance to back it all up, with many outstanding issues still needing to be resolved to move forward. This has opened some renewed downside pressure on the UK currency in recent trade. Meanwhile, the market will start to position ahead of this week’s anticipated FOMC and BOE meetings. We get UK earnings and inflation data in the lead up as well, which factor into price action as far as the influence this data can have on the BOE’s outlook. As far as today goes, an appearance from Fed Bostic and the start to the G20 meeting are the only notable standouts.

USDJPY – technical overview

A multi-month range trade was broken in February after the market sunk below 107.30. This has opened the door for deeper setbacks in the days ahead, possibly down towards the 102-103.00 area, an area that coincides with a measured move extension target and the 78.6% fib retrace off the 2016 low to high move. At this point, a daily close back above 107.91 would be required to take the immediate pressure off the downside.

• R2 106.75 – 13Mar high – Strong
• R1 106.42 – 15Mar high – Medium
• S1 105.79 – 15Mar low – Medium
• S2 105.25 – 2Mar/2018 low – Strong

USDJPY – fundamental overview

Political scandal has been more of a factor in Yen price action of late, with the pullback in the Nikkei driving Yen demand. There has been a bigger move against Abe in recent days, with opinion polls over the weekend showing support dropping off dramatically, resulting in record low approval ratings. Moving beyond the domestic, there has also been a growing tension as far as the global trade outlook is concerned, with US policies shaking things up. This has been yet another source of Yen demand on the traditional correlation with risk. The G20 meeting kicks off today and any headlines relating to trade will be watched closely. As far as the rest of today’s calendar goes, a speech from Fed Bostic is the only other notable standout.

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 1.1448 would delay the overall constructive tone.

• R2 1.1834 – 15Jan/2018 high – Strong
• R1 1.1750 – Mid-Figure – Medium
• S1 1.1632 – 7Mar low – Medium
• S2 1.1448 – 8Feb/2018 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. There were no surprises from Thursday’s SNB decision.

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 below 0.8000 strengthens this outlook and opens the door for a renewed wave of declines towards 0.7500. At this point, only a daily close back above 0.8000 would delay.

• R2 0.7886 – 15Mar high – Strong
• R1 0.7805 – 16Mar high – Medium
• S1 0.7700 – Figure – Medium
• S2 0.7628 – 14Dec low – Strong

AUDUSD – fundamental overview

The Australian Dollar has been very well offered into rallies, with the currency weighed back down on an escalation in tension as White drama heats up.  US protectionism, tariffs and soft Dollar policy are additional variables in the equation and ultimately, any signs of capitulation in risk assets, will be what drives this market, with the Australian Dollar at risk for additional declines. RBA policy has also been cautious of late, something that lends itself to limited Aussie gains. As far as today’s calendar goes, headlines out from the G20 meeting and a Fed Bostic speech are the only notable standouts.

USDCAD – technical overview

There are signs of basing after months of downside pressure, with the market racing back above critical resistance at 1.2921. A fresh higher low has been confirmed, with the market extending its 2018 run and now open for a push into a measured move extension objective around 1.3200. At this point, setbacks should be well supported above 1.2800.

• R2 1.3199– 28Jun high – Strong
• R1 1.3100 – 16Mar/2018 high – Medium
• S1 1.3000 – Psychological – Medium
• S2 1.2946 – 15Mar low – Strong

USDCAD – fundamental overview

The Canadian Dollar continues with its run of relative underperformance in 2018, with the currency extending decline in the previous week on the back of dovish comments from Bank of Canada Governor Poloz. Throw in a softer run of recent data and NAFTA uncertainty, and all of this will keep the Loonie from wanting to move higher. As far as today’s calendar goes, the G20 meeting kicks off and we also get a speech from Fed Bostic.

NZDUSD – technical overview

The market looks to be in the process of rolling over, with the daily chart showing a possible topping formation. Right now, it will take a clear break above 0.7400 to take the pressure off the downside. Until then, there is risk for continued weakness back towards 0.6900, with a break below 0.7178 to trigger the bearish formation and strengthen the outlook.

• R2 0.7355 – 13Mar high – Strong
• R1 0.7300 – Figure – Medium
• S1 0.7200 – Figure – Medium
• S2 0.7178 – 8Feb low – Strong

NZDUSD – fundamental overview

Overall, rallies are still expected to be well capped, particularly in light of the RBNZ’s adoption of a more dovish leaning outlook. This coupled with signs of rising inflation in the US and increased tension around fallout from White House exits and US administration protectionist measures, could easily offset any demand from alternative flows that might otherwise be supportive of the Kiwi rate. As far as today’s calendar goes, the focus will be on headlines out from the G20 meeting and a Fed Bostic speech.

US SPX 500 – technical overview

A severely overbought market is finally showing signs of relenting, 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 2805 – 78.6% of Jan-Feb move – Strong
• S1 2662 – 1Mar low – Medium
• S2 2624 – 12Feb 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 Fed’s more hawkish tone and subsequent jumps in hourly earnings, CPI, and core PCE are the types of things that could weigh more heavily on sentiment in the sessions ahead, if there is more evidence confirming this bias. Of course, the added wrench of White House drama including a revolving door of personnel and ramped up US protectionism, should only intensify the negative sentiment if things continue along this path. Later this week, we get an important FOMC decision.

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 some more chop followed by an eventual push above massive resistance in the form of the 2016 high at 1375. This will then open the door for a much larger recovery in the months ahead. In the interim, setbacks are expected to be well supported around 1300.

• R2 1375 – 2016 high – Very Strong
• R1 1341 – 26Feb high – Medium
• S1 1303 – 2Mar low – Strong
• S2 1300 – Psychological  – Strong

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 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 9,900 – 12Mar high – Medium
• S1 7,000 – Figure – Strong
• S2 6,000 – 6Feb/2018 low – Strong

Feature – fundamental overview

The crypto asset has come under pressure in 2018, with ramped up regulatory oversight and potential government crackdowns forcing many holders to exit positions. The market is also coming back to earth after a euphoric 2017 run that had bubble written all over. 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 has been a welcome development and will ramp up transaction speed, which has been behind some of the recovery off the 2018 low, though it seems the combination of a massive bubble, more regulatory oversight, a market that is still trying to convince of its proof of concept, and the threat of a reduction in global risk appetite, could all suggest even deeper setbacks ahead.