Are Central Bank Gestures Losing Appeal?

GBPUSD – technical overview

The intense declines in early 2016 are finally showing signs of stalling out, with the market in desperate need of a healthy correction. Last Thursday’s bullish outside day off a near 7-year low at 1.4080 was the catalyst to trigger this overdue bounce that now has room to extend back to the 1.4600-1.4800 area before the market even considers a lower top and meaningful bearish resumption.

• R2 1.4427 – 15Jan high – Strong
• R1 1.4407 – 28Jan high – Medium
• S1 1.4230 – 27Jan low  – Medium
• S2 1.4173 – 26Jan low  – Strong

GBPUSD – fundamental overview

Thursday’s UK GDP came in broadly as expected and although the year over year print was slightly softer, the market was relieved the data was not worse given all the negatives out of the UK in recent weeks. This actually helped to support the Pound, while the subsequent release of a discouraging US durable goods orders gave the UK currency a nice added boost, with Cable extending its recovery from recent multi-year lows at 1.4080. Also seen propping the Pound was a Reuters report the EU may offer the UK an ’emergence brake’ in an effort to curb immigration to the UK from EU states. Looking ahead, the UK calendar is empty, with the key focus on a batch of US data featuring GDP, Chicago PMIs, and Michigan confidence. On the official circuit, Fed Williams is slated to give a forecast speech late in the day.

USDJPY – technical overview

Although the market was able to recently take out the August 2015 base at 116.30 , inability to establish below the level suggests the major pair could be looking to base out in favour of a push back to the topside. Look for a daily close above 120.65 to strengthen this outlook and potentially accelerate gains. Still, while the market holds below 120.65 on a daily close basis, the overall pressure remains on the downside and risk remains for a lower top and drop back below last week’s critical low at 115.97.

• R2 122.00 – 5Jan high – Strong
• R1 121.41 – 29Jan high – Strong
• S1 119.07 – 27Jan high – Medium
• S2 118.50 – 29Jan low – Strong

USDJPY – fundamental overview

The Bank of Japan certainly caught the market off guard today. Although the BOJ left its QQE asset purchase program intact, as reflected in the 8-1 vote, the central bank announced an unexpected move to negative interest rates of -0.1% on financial institutions’ excess reserves held by the BOJ. This along with a slashing of inflation forecasts, further delaying the BOJ’s 2% inflation objective timeline, and some ugly Japan industrial production numbers, opened a massive wave of USDJPY upside, before the sharp intraday rally finally found some offers ahead of 122.00. Looking ahead, the market will continue to try and make sense of the latest BOJ decision, while also taking in a healthy batch of US data featuring GDP, Chicago PMIs, and Michigan confidence. On the official circuit, Fed Williams is slated to give a forecast speech late in the day.

EURCHF – technical overview

A period of multi-week consolidation has finally been broken, with the market clearing critical range resistance at 1.1050 to signal a bullish continuation. Given the fact that the previous consolidation range was about 350 points, the push above 1.1050 opens a measured move upside extension of the equivalent size, projecting gains towards 1.1400. Any setbacks should be very well supported ahead of 1.0800, while only below 1.0715 negates the constructive outlook.

• R2 1.1200 – Figure – Strong
• R1 1.1133 – 29Jan high – Medium
• S1 1.1030 – 27Jan low – Medium
• S2 1.0985 – 26Jan low – Strong

EURCHF – fundamental overview

The combination of negative interest rates and the SNB’s willingness to intervene in the market have proven to be productive tools in making the Franc less attractive, effectively altering its status in the currency market. Certainly recent price action would agree, with the EURCHF rate clearing the September peak at 1.1050, despite an intensification in risk liquidation flows in early 2016 and the latest ECB decision in which Draghi left the door open for additional accommodation in March. SNB Zurbruegg was back on the wires this week expressing optimism over the outlook for the Swiss economy, even in the face of domestic growth pressures. On the data front, Switzerland takes in the KOF leading indicator on Friday.

AUDUSD – technical overview

Inability for the  market to extend declines below last week’s multi-year low at 0.6827 suggests the Australian Dollar is looking to establish some kind of interim base in favour of a corrective recovery. Still, the broader downtrend remains firmly intact and any additional upside in the sessions ahead are expected to be well capped below a key 61.8% fib retrace at 0.7170 in favour of a lower top and bearish resumption.

• R2 0.7170 – 71.8% fib retrace – Strong
• R1 0.7150 – Mid-Figure – Medium
• S1 0.6992 – 27Jan low – Medium
• S2 0.6918 – 26Jan low – Strong

AUDUSD – fundamental overview

Risk liquidation flows have stabilised over the past week and this has been a welcome development for the correlated Australian Dollar. This in conjunction with better bid commodities and a highly disappointing US durable goods print have opened fresh multi-session highs, with AUDUSD racing back above 0.7100 and well off the recent multi-year lows from the other week at 0.6827. China equities are also higher, while it’s quite possible investors are finding added comfort in the more accommodative BOJ decision earlier today, as it sends a message central banks are still willing to expand stimulus. Looking ahead, the key focus will be on a batch of US data featuring GDP, Chicago PMIs, and Michigan confidence. On the official circuit, Fed Williams is slated to give a forecast speech late in the day.

USDCAD – technical overview

Technical studies have finally unwound from violently overbought readings, with the market trading back down to previous resistance turned support in the 1.4000 area. But overall, the broader uptrend remains firmly intact and any additional setbacks are expected to be very well supported above 1.3800 in favour of the next higher low and fresh upside extension back through the near 13 year high at 1.4690 from the other week. Only a daily close below 1.3800 would compromise the current structure.

• R2 1.4157 – 27Jan high – Strong
• R1 1.4123 – 28Jan high – Medium
• S1 1.3948 – 28Jan low – Medium
• S2 1.3814 – 4Jan low – Strong

USDCAD – fundamental overview

The Canadian Dollar has managed to extend its welcome recovery, with the currency finding its most recent round of bids from another positive close in OIL and a highly disappointing round of US data. On Thursday, talk the Russian OIL minister was ready to meet with other energy ministers and chatter Saudi Arabia was considering a 5% production cut, opened a nice rally in OIL prices, while the much weaker US durable goods print fueled broad based profit taking on USD longs. Looking ahead, more volatility is expected on Friday, with Canada GDP due alongside US GDP and additional US data, which includes Chicago PMIs, and Michigan confidence. On the official circuit, Fed Williams is slated to give a forecast speech late in the day. Dealers report plenty of demand ahead of 1.3800.

NZDUSD – technical overview

Setbacks have been well supported on dips into the 0.6350 area and the market has entered a period of correction following an intense wave of declines in early 2016. Still, overall, the broader downtrend remains intact and any rallies should be well capped below 0.6700 in favour of a fresh lower top and the next downside extension towards the 2015 multi-year low at 0.6130.

• R2 0.6590 – 13Jan high– Strong
• R1 0.6559 – 21Jan high – Medium
• S1 0.6418 – 28Jan low – Medium
• S2 0.6347 – 20Jan low – Strong

NZDUSD – fundamental overview

Kiwi has been bid up from the late Wednesday RBNZ lows on the back of broader flows, with a recovery in risk sentiment and softer US data supporting. Thursday’s disappointing US durable goods triggered a massive wave of profit taking on long US Dollar exposure, while a better bid China equity market and surprise accommodation move from the BOJ, have added to the Kiwi bid. However, any additional upside is expected to be met with formidable offers after earlier this week, the RBNZ conceded inflation would take longer to get to target, and additional easing could be required in the coming months. Another weight on Kiwi this week has been the latest Fonterra announcement that the dairy giant would be cutting its milk price forecast. Looking ahead, the key focus will be on a batch of US data featuring GDP, Chicago PMIs, and Michigan confidence. On the official circuit, Fed Williams is slated to give a forecast speech late in the day.

US SPX 500 – technical overview

Signs of a critical structural shift following an impressive multi-year rally to a fresh record high in 2015. The market has finally stalled out at 2137, with the recent break back below the critical August base at 1834 strengthening the outlook. From here, any rallies are expected to be well capped below previous support at 1993, in favour of the next major downside extension towards 1700. Only a daily close back above 1993 will take the pressure off the downside.

• R2 1955.00 – 13Jan high – Strong
• R1 1917.00 – 27Jan high – Medium
• S1 1858.00 –26Jan low – Medium
• S2 1811.00 – 20Jan low – Strong

US SPX 500 – fundamental overview

Stocks are trying to find comfort in this latest wave of accommodative gestures from central banks around the globe. PBOC liquidity injections have been followed up by a more dovish ECB Draghi, Fed that has highlighted its concern for the global markets, RBNZ signaling a rate cut ahead and BOJ that has moved to negative interest rates. However, there is a growing concern that as much as these gestures are supportive in nature, with central banks already so extended, any additional tools to artificially  support the global economy could be less effective than they have been over the past several years. This is a reality that could weigh more heavily on investor sentiment in 2016, especially with the Fed already setting out on its path to policy normalisation. Looking ahead, we get a healthy  batch of US data featuring GDP, Chicago PMIs, and Michigan confidence. On the official circuit, Fed Williams is slated to give a forecast speech late in the day.

GOLD (SPOT) – technical overview

The latest surge through previous resistance at 1112 is a significant development and suggests the market is in the process of a bullish structural shift. Look for a meaningful base to now be in place down at 1046, with fresh upside projected towards the 1200 area over the coming days. Any setbacks should be well supported above 1070, with only a close back below this level to compromise the newly adopted bullish outlook.

• R2 1138.00 – 3Nov high – Strong
• R1 1128.00 – 27Jan high – Medium
• S1 1092.00 – 21Jan low – Medium
• S2 1071.00 – 14Jan low – Strong

GOLD (SPOT) – fundamental overview

Despite favourable US Dollar fundamentals as the Fed finally sets out on its path to policy normalisation, GOLD is finding formidable demand into 2016, given deteriorating global sentiment and uncertainty in the air, most recently brought on by a worrisome China outlook and a collapse in the price of OIL. Longer term macro players have been accumulating the metal as a hedge against an overinflated equity market that could be on the verge of a more significant decline. On the other side, there are some investors who believe the US Dollar is starting to look overvalued and as such, any weakness ahead, could open the door for renewed GOLD demand on the inverse USD correlation.

Feature – technical overview

USDTRY is showing signs of exhaustion after stalling shy of the December record peak at 3.0750. The latest drop back below 2.9825 strengthens the corrective outlook and now opens the door for a more pronounced decline towards 2.9000. Still, overall, the broader uptrend remains firmly intact and only below 2.7580 would compromise the constructive outlook.

• R2 3.0750 – 24Sep/Record – Strong
• R1 3.0345 –26Jan high – Medium
• S1 2.9500 – Psychological – Medium
• S2 2.9025 – 21Dec low – Strong

Feature – fundamental overview

While a good portion of the world is looking for some form of a recovery in OIL prices, this certainly isn’t the case for Turkey, a major importer of the commodity. At the moment, the rebound in the price of OIL hasn’t done anything to hurt the modest recovery in the Lira from recent record low levels, though if this persists, it could very well open renewed downside pressure on the EM currency. Moreover, the CBRT has a huge inflation problem on its hands and it is unlikely the central bank will be able to prevent inflation from running higher in the months ahead, which will add to the downside pressure in the beaten down Lira. Raising rates is not a comfortable option for the CBRT, trying to do what it can to help a struggling local economy. And so, all of this in conjunction with broader risk liquidation fears in 2016, could open additional record lows in the Lira. Dealers cite plenty of fresh USDTRY demand towards 2.9000.