A Different Feel in 2016

GBPUSD – technical overview

An intense round of declines in early 2016 have stalled out, with the market differing to a period of healthy correction. The recent reversal off a near 7-year low at 1.4080 has opened the door for a bounce that has room to extend back to the 1.4600-1.4800 area before the market considers a lower top and meaningful bearish resumption. Monday’s daily close above 1.4400 strengthens this outlook and should accelerate gains. Only a daily close below 1.4080 delays.

• R2 1.4560 – 12Jan high – Strong
• R1 1.4476 – 13Jan high – Medium
• S1 1.4326 – 2Feb low  – Medium
• S2 1.4228 – 1Feb low  – Strong

GBPUSD – fundamental overview

Although the Pound was marginally lower against the Buck on Tuesday, the UK currency still stands out as an outperformer over the past week. Tuesday setbacks on a softer UK construction PMI print were easily offset by the broad wave of risk liquidation flow and reports the EU may be willing to compromise on PM Cameron’s demands, which include the UK not needing to be politically integrated with the EU. Looking ahead, UK official reserves and services PMIs are due ahead of US ADP employment and ISM non-manufacuring later in the day. The market will also begin to position ahead of tomorrow’s anticipated Bank of England event risk.

USDJPY – technical overview

The intense recovery rally out from fresh multi-month lows at 115.97 has finally stalled out, with the market well capped by solid internal resistance around 122.00. While the market holds below 122.00, the overall pressure remains on the downside, with a lower top now potentially in place at 121.69 in favour of the next major downside extension back below 115.97.

• R2 121.69 – 29Jan/2016 high – Strong
• R1 120.68 – 1Feb low – Medium
• S1 119.07 – 27Jan high – Medium
• S2 118.50 – 29Jan low – Strong

USDJPY – fundamental overview

The Yen is back to outperforming this week, with the currency unable to ignore the intense wave of renewed risk liquidation flow. All of this follows a sharp Yen decline in the previous week, after the Bank of Japan surprised the market and came out with a more dovish policy decision, introducing negative rates. Perhaps Yen gains will be tempered after Governor Kuroda was out reiterating the central bank’s commitment to do whatever it takes to reach the 2% inflation target, adding that the BOJ would be willing to move deeper into NIRP if warranted. Looking ahead, risk sentiment flow will continue to dictate price action, while the market will also pay close attention to US ADP employment and ISM non-manufacturing.

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 1.1050 – Previous Resistance – Strong
• S2 1.0985 – 26Jan low – Medium

EURCHF – fundamental overview

A major Swiss bank has been out talking recent price action in the EURCHF rate, saying much of the demand has been attributable to more aggressive SNB intervention at the start of 2016. The bank cites higher sight deposits and activity in the forwards market as evidence. 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 pushing higher, 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 Jordan was back on the wires reaffirming the central bank’s commitment to weaken the Franc, while reminding markets the Franc is still ‘significantly overvalued’ at current levels.

AUDUSD – technical overview

The market has entered a period of correction out from the recent multi-year low at 0.6827. However, any additional upside should be limited to the 0.7200 area, with a lower top sought out ahead of a fresh downside extension and bearish continuation below 0.6827 and towards the next key barrier at 0.6500 further down. Ultimately, only back above 0.7385 would force a shift in the bearish structure.

• R2 0.7141 – 29Jan high – Strong
• R1 0.7100 – Figure – Medium
• S1 0.7000 – Psychological – Medium
• S2 0.6919 – 26Jan low – Strong

AUDUSD – fundamental overview

Tuesday’s dovish tilt to the RBA rate decision, in which the central bank left the door open for additional easing, is resonating even more with market participants into Wednesday, as a wave of risk off flow stokes fear of further deterioration in global markets. On the data front, Aussie building approvals came in quite healthy, though this was more than offset by a concerning trade number, which produced a much wider than expected deficit. Aussie has also been finding additional offers today on the back of selling activity in the AUDNZD rate following a robust New Zealand employment report. Looking ahead, risk flows and US economic data in the form of ADP employment and ISM non-manufacturing will be the key things to watch in Wednesday trade.

USDCAD – technical overview

Despite the recent round of intense declines, the market remains locked within a well defined uptrend and is in the process of looking for the next higher low ahead of a bullish resumption. Look for setbacks to be well supported above 1.3800 on a close basis in favour of the next major upside extension through the recent near 13 year high at 1.4690 and towards 1.5000 further up. Only a close below 1.3800 would delay.

• R2 1.4326 – 26Jan high – Strong
• R1 1.4157 – 27Jan high – Medium
• S1 1.4000 – Psychological – Medium
• S2 1.3908 – 1Feb low – Strong

USDCAD – fundamental overview

With little on the Canada economic calendar into the midweek, the Loonie has had little choice but to trade off price action in the OIL market, which is already a primary driver of direction. The Loonie had benefitted from a nice recovery rally off near 13 year lows against the Buck, though with this price action mostly attributed to an overdue technical correction, traders have been happy to step back in and sell the Canadian Dollar into this latest rally. The renewed slide in the price of OIL has been driving this latest weakness, while the fresh wave of risk liquidation is not helping matters. Looking ahead, the market will continue to focus on OIL and broader risk flow, while also taking in US ADP employment and US ISM non-manufacturing.

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 0.6500 – Psychological – Medium
• S2 0.6449 – 1Feb low – Strong

NZDUSD – fundamental overview

The market was looking for a New Zealand unemployment rate of 6.1% on Wednesday. Instead, it got a shockingly low print of 5.3%, the lowest reading in 7 years. This number has been driving Kiwi outperformance in Wednesday trade, with the data offsetting negative flows from risk liquidation, a disappointing GDT auction and more dovish comments from RBNZ Wheeler. However, whenever economic data deviates so much from expectation, there are usually a lot of questions that go with it, and in this case, with the New Zealand participation rate dropping and a lot of the drop in the unemployment rate attributed to part time jobs, this could once again expose the New Zealand Dollar when the dust settles. While Wheeler dismissed the need for lower rates in response to depressed OIL prices, the central banker still conceded risks to the economy were tilted to the downside which could warrant lower rates if the global outlook worsened. Looking ahead, we get US ADP and ISM non-manufacturing.

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 1947.00 – 1Feb high – Medium
• S1 1858.00 –26Jan low – Medium
• S2 1811.00 – 20Jan low – Strong

US SPX 500 – fundamental overview

Stocks have found little comfort from 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, BOJ that has moved to negative interest rates and RBA leaving the door open for more easing. 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. Interestingly, dovish comments from Fed Fischer this week have failed to inspire fresh bids. It seems the market has been more focused on the weight of more disappointing China data and renewed downside pressure in OIL. Perhaps hawkish voting member George is also ruffling feathers, after dismissing risk off trade, while supporting additional Fed rate hikes.

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 1090, with only a close back below 1070 to compromise the newly adopted bullish outlook.

• R2 1138.00 – 3Nov high – Strong
• R1 1131.00 – 2Feb high – Medium
• S1 1108.00 – 29Jan low – Medium
• S2 1092.00 – 21Jan 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, weakness on this front is also inspiring 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 to the possibility of 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 3.0345 – 26Jan high – Strong
• R1 2.9773 –1Feb high – Medium
• S1 2.9435 – 1Feb low – Medium
• S2 2.9115 – 4Jan/2016 low – Strong

Feature – fundamental overview

Although the Lira is back under pressure into Wednesday, setbacks have been less aggressive than those of its emerging market peers, with the currency perhaps benefitting a bit from the pullback in OIL. Lower OIL prices are a positive for the OIL importing economy, and this has been helping a bit. But overall, the threat of rising inflation in an economy that does not have the luxury of raising rates (already at suffocating levels), in conjunction with broader risk liquidation flow in 2016, should keep the Lira well offered into additional rallies. Turkish CPI will be digested on Wednesday and if the number comes in above forecast, it will only intensify fears over the CBRT’s ability to get a handle on the struggling economy, ultimately opening a move back towards and through the recent record lows against the Buck.