US Dollar Slides, Major BOE Event Risk Ahead

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 into the 1.4800-1.5000 area over the coming sessions before the market considers a lower top and meaningful bearish resumption. Look for any setbacks to be well supported ahead of 1.4350, with only a break back below to put the immediate pressure back on the downside.

• R2 1.4700 – Figure – Medium
• R1 1.4649 – 3Feb high – Strong
• S1 1.4500 – Figure  – Medium
• S2 1.4446 – 2Feb high  – Strong

GBPUSD – fundamental overview

The Pound was already feeling better about solid UK services PMIs and diminished Brexit risk, before taking off in Wednesday’s North American session on the back of an intense wave of broad based US Dollar declines. The combination of a discouraging ISM services print and dovish comments from Fed Dudley were enough to convince the market the Fed was seriously considering scaling back its rate hike timeline in 2016. Plenty more volatility ahead for the Pound on Thursday, with the market set to take in major event risk in the form of the Bank of England policy decision, Minutes and Quarterly Inflation Report. While no policy change is expected, participants will hone in on the tone of the policy decision and just how dovish Governor Carney sounds this time round. Also out on Thursday are US initial jobless claims and factory orders.

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 119.07 – 27Jan high – Strong
• R1 118.50 – Mid-Figure – Medium
• S1 117.05 – 3Feb low – Strong
• S2 116.47 – 21Jan low – Strong

USDJPY – fundamental overview

The latest series of downbeat US ISM services and dovish speak from Fed Dudley further contributed to the sharp pullback in this market from last week’s post-BOJ surge. Increasing speculation the Fed will now look to scale back its rate hike timeline in 2016 has been offsetting any Yen bearishness from the BOJ decision, while ongoing shaky risk sentiment has helped to fuel additional Yen demand. Setbacks in USDJPY were supported a bit ahead of the 115.97 2016 low from January, with a late Wednesday recovery in stocks helping, though with the market having fully retraced the post-BOJ USDJPY rally, and with plenty of uncertainty still out there, it seems the risks are tilted to the downside and favour a retest and break below 115.97 in the sessions ahead. Looking at today’s calendar, US initial jobless claims and factory orders are the only standouts, with the market expected to start to position ahead of tomorrow’s anticipated monthly employment report out of the US.

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 1.0900, 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

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 this week 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 0.7265 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 0.7265 – 78.6% Fib – Strong
• R1 0.7200 – Figure – Medium
• S1 0.7100 – Figure – Medium
• S2 0.7003 – 3Feb low – Strong

AUDUSD – fundamental overview

This week’s RBA decision in which the central bank left the door open for additional rate cuts, feels like a long time ago already, with the US Dollar getting hit had across the board on Wednesday, fueling an impressive Aussie rally. Softer US ISM services data, a dovish Fed Dudley and rebound in commodities and equities were all seen as drivers behind the Aussie gains. The Australia Dollar has managed to extend gains into Thursday following an upbeat Aussie business confidence reading. Still overall, with capital outflows from China a major concern and with risk sentiment capable of turning back down at any moment, Aussie bulls will likely start to get cautious around current levels. Looking ahead, US initial jobless claims and factory orders are due, though the market will be looking past Thursday’s calendar to Friday’s RBA SOMP and US NFPs.

USDCAD – technical overview

The market has entered a period of intense correction following the recent surge to a near 13 year high at 1.4690. This most recent setback below 1.3800 opens the door for a deeper drop into the 1.3500s, which coincides with medium-term rising trend line support.

• R2 1.3908 – 1Feb low – Strong
• R1 1.3800 – Figure – Medium
• S1 1.3720 – 4Feb/2016 low – Medium
• S2 1.3623 – 11Dec low – Strong

USDCAD – fundamental overview

A welcome reversal of fortune for the Canadian Dollar over the past several days, with a once beaten down currency at near 13 year lows against the Buck, now managing to post fresh 2016 highs. The gains come on the heels of a round of broad based US Dollar selling from softer US ISM services and dovish comments from Fed Dudley. But without question, the Loonie has been generating additional bids on the back of a healthy rebound in the price of OIL. Reports Iraq, Oman, Venezuela and other OIL producers are now open to talks with Russia regarding production cuts, have helped to lift OIL back above $30 and in turn, have lifted the Loonie. Looking ahead, lack of any data on the Canada economic calendar, will leave this market focused on broader risk sentiment and OIL flow, along with some US data featuring initial jobless claims and factory orders.

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 0.6800 in favour of a fresh lower top and the next downside extension towards the 2015 multi-year low at 0.6130. Only back above 0.6900 would force a shift in the structure.

• R2 0.6770 – Measured Move– Strong
• R1 0.6698 – 3Feb high – Medium
• S1 0.6600 – Figure – Medium
• S2 0.6559 – 21Feb high – Strong

NZDUSD – fundamental overview

While the New Zealand Dollar has managed to benefit quite a bit from this latest wave of broad based US Dollar selling, the high flying Kiwi could have a tough go from current levels. Kiwi is actually the strongest of the developed currencies over the past week of trade, with the stabilisation in risk sentiment, recovery in commodities prices, surprising drop in New Zealand unemployment, softer US ISM services data and dovish Fed Dudley, all contributing to the gains. However, the administration won’t be too excited about the stronger exchange rate given its negative impact on the local economy, and we have already heard from the RBNZ Assistant Governor on Thursday, with the central banker saying a lower Kiwi will help dairy prices and the exchange rate is not sustainable at current levels. There is also a sense that risk correlated assets could come back under pressure at any moment, something that would weigh more heavily on Kiwi. US initial jobless claims and factory orders ahead.

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 1872.00 –3Feb low – Medium
• S2 1811.00 – 20Jan low – Strong

US SPX 500 – fundamental overview

Stocks have found only mild 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’s Fischer and Dudley this week have even failed to inspire the type of rally the market has grown accustom to in recent years when such dovish comments are made. Looking ahead, US initial jobless claims are due, though Friday’s NFPs will be the bigger event to watch.

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 1150.00 – 30Oct high – Strong
• R1 1145.00 – 3Feb/2016 high – Medium
• S1 1108.00 – 29Jan low – Medium
• S2 1092.00 – 21Jan low – Strong

GOLD (SPOT) – fundamental overview

GOLD is finding formidable demand into 2016, given deteriorating global sentiment and uncertainty in the air. 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, 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 into the 2.8500-2.9000 area. 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 2.9770 –1Feb high – Medium
• S1 2.9000 – Psychological – Medium
• S2 2.8700 – 7Dec low – Strong

Feature – fundamental overview

Although the latest inflation data out of Turkey came on the higher end, the fact that it managed to avoid a double digit print, was enough to calm investor fear of a more accelerated decline in the Lira. This in conjunction with broad based US Dollar declines, on the back of softer US ISM services and dovish comments from Fed Dudley, have helped to extend the Lira recovery from recent record lows. Still, with global risk sentiment shaky, local inflation at elevated levels, and yield differentials favouring the US Dollar, any additional Lira gains should prove hard to come by in the days ahead. The emerging market currency will continue to keep on eye on broader sentiment flow while also looking ahead to Friday’s anticipated US employment report.