Markets Still Processing Central Bank Actions

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. The recent reversal off a near 7-year low at 1.4080 has finally opened the door for a long 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. A break above 1.4413 will strengthen this outlook and accelerate gains. Only a daily close below 1.4080 delays.

• R2 1.4413 – 29Jan high – Strong
• R1 1.4367 – 26Jan high – Medium
• S1 1.4149 – 29Jan low  – Medium
• S2 1.4080 – 21Jan/2016 low  – Strong

GBPUSD – fundamental overview

All of the dovishness surrounding the Bank of England these past several weeks has been amplified following the latest Bank of Japan surprise decision to move to negative interest rate policy. The BOE has been forced to scale back its rate hike timeline on softer UK data, subdued inflation and Brexit risk, and this latest BOJ decision lends further support to the idea the BOE will follow suit and err on the side of accommodation as well when it next meets. The market is now actually pricing a 20-25% of a BOE rate cut over the next twelve months. Looking ahead, the UK economic calendar is empty and the focus will be on a batch of US data which features US personal income, spending and consumption, ISM manufacturing and construction spending.

USDJPY – technical overview

The recent recovery rally out from fresh multi-month lows at 115.97 has been intense. However, the major pair is now running into strong internal resistance in the 122.00 area and could be on the verge of stalling out in favour of a bearish resumption. Look for a lower top to carve out around 122.00 with only a close back above the figure to compromise the bearish outlook.

• R2 122.03 – 10Mar 2015 high – Strong
• R1 121.69 – 29Jan/2016 high – Medium
• S1 120.00 – Psychological – Medium
• S2 119.07 – 27Jan high – Strong

USDJPY – fundamental overview

The Bank of Japan’s surprising decision to add accommodation by way of negative interest rates resulted in a 2.4% decline in the Yen on Friday, with the market aggressively liquidating long Yen exposure in the aftermath. Promises for additional easing ahead and record low JGB yields could continue to keep the Yen under pressure going forward, though with broader risk sentiment still shaky, the Yen is still finding some safe haven demand. The early Monday release of disappointing China PMIs has been sourced as some of the driver behind this latest Yen demand. Looking ahead, the focus for the remainder of the day will be on a batch of US data which features US personal income, spending and consumption, ISM manufacturing and construction spending.

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 – Medium
• R1 1.1166 – 29Jan/2016 high – Strong
• 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 last week expressing optimism over the outlook for the Swiss economy, even in the face of domestic growth pressures. On the data front, Switzerland sight deposits and manufacturing PMIs are due.

AUDUSD – technical overview

Inability for the  market to extend declines below the recent 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 0.7141 – 29Jan high – Strong
• R1 0.7100 – Figure – Medium
• S1 0.7008 – 28Jan low – Medium
• S2 0.6918 – 26Jan low – Strong

AUDUSD – fundamental overview

The Australian Dollar has come under pressure off recent highs. Friday’s positive US GDP print had opened renewed selling, while the surprisingly dovish BOJ decision has also weighed on an expectation for added pressure on the RBA to tilt more to the dovish side with its Tuesday decision. Still, there is risk RBA doves will be let down, with the Australian economy performing rather well of late, while the RBA will be pleased with the lower Australian Dollar. For now, chances for a rate cut tomorrow stand at a tiny 6%, while 33bps of cuts are being priced over the next 12 months. Adding to downside pressure on Monday has been this latest disappointing China PMI print. Looking at the calendar for the remainder of the day, the focus will be on a batch of US data which features US personal income, spending and consumption, ISM manufacturing and construction spending.

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 1.3800-1.4000 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 January. Only a daily close below 1.3800 would compromise the current structure.

• R2 1.4157 – 27Jan high – Strong
• R1 1.4109 – 29Jan high – Medium
• S1 1.3948 – 28Jan low – Medium
• S2 1.3814 – 4Jan/2016 low – Strong

USDCAD – fundamental overview

An impressive recovery in the price of OIL over the past week has directly correlated with a welcome rebound in the Canadian Dollar, with the Loonie emerging as the strongest amongst the developed currencies in this time frame. Friday’s as expected Canada GDP print has also helped to keep the Canadian Dollar supported. Still, with the Fed not yet scaling back with its policy timeline, with OIL prices at risk of falling back yet again and with global sentiment shaky, there is risk any additional Canadian Dollar gains will be limited. The early Monday release of softer China PMIs is already weighing a bit into the new week. Looking ahead, Canada manufacturing PMIs are due along with a batch of US data featuring US personal income, spending and consumption, ISM manufacturing and construction spending.

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/2016 low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has been in the process of consolidating declines in the aftermath of last week’s dovish RBNZ rate decision, though the risk currency has also managed to find interim support on a recovery in correlated assets. The wave of accommodative gestures from central banks around the globe has been well received by investors looking for added incentive to be long stocks on cheap money and this is helping offset Kiwi setbacks from the dovish RBNZ. Friday’s positive US GDP print and today’s softer China PMIs have however been weighing a bit into the early week. Looking at the calendar for the remainder of the day, the focus will be on a batch of US data which features US personal income, spending and consumption, ISM manufacturing and construction spending. As far as swap markets are concerned, the market is pricing a 44% chance for an RBNZ cut in March.

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 1993.00 – 14Dec low – Strong
• R1 1955.00 – 13Jan 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 at the calendar for the remainder of the day, the focus will be on a batch of US data which features US personal income, spending and consumption, ISM manufacturing and construction spending.

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. Longer term macro players have also 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 2.9520 – 29Jan low – Medium
• S2 2.9115 – 4Jan/2016 low – Strong

Feature – fundamental overview

While a good portion of the world is looking for a recovery in OIL, this certainly isn’t the case for Turkey, a major importer of the commodity. At the moment, the rebound in 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. We are already seeing renewed TRY weakness on softer Friday Turkish trade and discouraging Monday China PMIs.