Markets Position Ahead of Key Fed Decision

GBPUSD – technical overview

The market has been well supported on a recent dip to fresh multi-month lows below 1.5000. However, the overall pressure remains on the downside and deeper setbacks are seen towards the 2013 base at 1.4813 over the coming sessions. Ultimately, a break and close back above 1.5270 would be required to take the immediate pressure off the downside.

• R2 1.5270 – 14Jan high – Strong
• R1 1.5223 - 27Jan high – Medium
• S1 1.5060 – 27Jan low  – Medium
• S2 1.4952 – 23Jan/2015 low  – Strong

GBPUSD – fundamental overview

The Pound is showing signs of outperformance against most other currencies, with the Bank of England still seen closest to the Fed with its monetary policy reversal timeline, despite last week’s BOE Minutes which revealed a 9-0 decision to leave rates on hold. Calls from new BOE MPC member Forbes for sooner than later BOE rate hikes have been getting attention, while last week’s solid employment report has also been supportive. Tuesday’s slightly weaker Q4 UK GDP data didn’t do much to shake the recovery in the Pound and the market will now position ahead of today’s FOMC rate decision.

USDJPY – technical overview

The market remains locked within a very well defined uptrend, with setbacks expected to be supported on dips. The recent correction off fresh 7-year highs at 121.85 has stalled out at 115.55 and a medium-term higher low is now sought ahead of the next major upside extension back through 121.85 and towards the 125.00 area further up. Only a daily close back under 115.55 would delay the bullish structure.

• R2 119.97 – 8Jan high – Strong
• R1 118.87 – 20Jan high – Medium
• S1 117.18 – 21Jan low – Medium
• S2 115.55 – 16Dec low – Strong

USDJPY – fundamental overview

The Yen has taken a bit of a backseat of late, and seems to be caught between the flows of safe haven bids and those of diverging central bank policy. But ultimately, it should be the diverging policy flows that win out and send the Yen lower, with flight to safety Yen lure no longer what it once was. Central bank decisions over the past two weeks further highlight the pronounced monetary policy divergence theme between the Fed and rest of the central banking world, and has invited more US Dollar demand. Macro accounts continue to look for opportunities to add to existing long USDJPY exposure. But look for more consolidation ahead of today’s all important FOMC decision.

EURCHF – technical overview

A multi-session consolidation between 0.9710 and 1.0250 has been broken and this opens the door for additional corrective upside over the coming sessions. Technical studies are still tracking in oversold territory following the dramatic and violent decline from a couple of weeks back, and the break above 1.0250 now opens a push towards a measured move objective around 1.0700 over the coming sessions. Look for any setbacks to be well supported above 1.0000, while only a daily close back below this level would compromise the recovery structure.

• R2 1.0500 – Psychological – Medium
• R1 1.0385 – 27Jan high – Strong
• S1 1.0080 – 27Jan low – Medium
• S2 0.9710 – 15Jan Range low– Strong

EURCHF – fundamental overview

SNB Danthine seems to have inspired a fresh round of bids in the EURCHF market, which has broken out of its post SNB shock range consolidation. Danthine has reminded investors the SNB has not gone away and is still “fundamentally prepared” for intervention in the FX market. The EURCHF rate had already been supported back above parity pre-Danthine, with traders reconsidering the benefits of the flight to safety Franc play that now carries a much heavier cost.

AUDUSD – technical overview

Last week’s break below the critical psychological barrier at 0.8000 now opens the next major downside extension towards a measured move objective at 0.7700 over the coming sessions. As such, look for recovery rallies to be well capped ahead of 0.8150 in favour of bearish continuation. Ultimately, only back above 0.8295 would delay the bearish structure.

• R2 0.8136 – 22Jan high – Medium
• R1 0.8053 - 23Jan high – Strong
• S1 0.7900 – 27Jan low/2015 low – Strong
• S2 0.7800 – Figure – Medium

AUDUSD – fundamental overview

Aussie is outperforming on the day thus far, with the currency rallying on the back of some mixed inflation data, which showed the RBA trimmed mean higher than forecast, and the headline slightly lower. On the whole, the hotter inflation component was enough to inspire some profit taking on Aussie shorts, though these gains are expected to find solid renewed offers into rallies, with broader fundamentals impossible to ignore. There has been a growing expectation the next rate cut out of the central banking world will come from the RBA next week. The combination of accommodation from other central banks, uncertain global environment and declining commodity prices are all variables factoring into the rate cut forecast. Iron ore exports are critical to the health of the Australian economy, and the headwinds in this market, at +5 year lows, have been a major drag on local sentiment.

USDCAD – technical overview

The outlook for this pair remains highly constructive, with the price breaking medium-term resistance, surging to fresh +5 year highs. This has opened the door for a test of the next major psychological barrier at 1.2500. However, technical studies are highly stretched across the board, and there is risk for a meaningful pullback to allow for these studies to unwind before the market continues higher. Still, any setbacks should be well supported into the 10-Day SMA, with only a break and close below the short-term moving average to delay.

• R2 1.2550 – Mid-figure – Medium
• R1 1.2500 - 26Jan/2015 high – Strong
• S1 1.2380 – 27Jan low – Medium
• S2 1.2313 – 22Jan low – Strong

USDCAD – fundamental overview

Signs of a potential recovery in depressed oil prices and disappointing US durable goods, have opened a welcome relief rally for the Canadian Dollar, which has recently been beaten down to fresh multi-year lows against the Buck. The Canadian Dollar had extended declines post the surprise Bank of Canada rate cut last week, with the ECB bazooka, and other accommodative central bank actions contributing further to the ongoing divergence between the Fed and BoC. Today’s Fed rate decision now comes into focus. If the Fed comes out on the dovish side in light of recent central bank accommodations, we could see the Loonie recovery extend some more.

NZDUSD – technical overview

A multi-week bearish consolidation has finally been broken, with the drop below 0.7600 opening the door for the next major downside extension towards a measured move objective at 0.7200. Look for any rallies to be well capped ahead of 0.7700, with only a break back above 0.8035 to negate the medium-term bearish structure.

• R2 0.7584 – 22Jan high – Strong
• R1 0.7527 - 23Jan high – Medium
• S1 0.7398 – 26Jan/2015 low – Strong
• S2 0.7350 – Mid-figure – Medium

NZDUSD – fundamental overview

RBNZ policy is looking particularly exposed at the moment, and the central bank will likely be forced to reconsider its stance later today and start thinking more about accommodation. PM Key has contributed to dovish RBNZ expectations this week after saying rates will remain lower for longer, while the swaps market is now pricing in a 50% chance for a rate cut over the next 12 months. Kiwi has not been immune to the impact of Fed monetary policy divergence, with the currency recently breaking down to fresh multi-month lows below 0.7400 against the Buck. Look for the currency to come under added pressure if the RBNZ drops the “some further increase in the OCR is expected to be required at a later stage,” in the monetary policy statement later today.

US SPX 500 – technical overview

Finally signs of a major top, with the market very well capped on rallies. Look for a break and daily close below key support at 1968 to confirm the topping structure and open the door for a fresh downside acceleration exposing the October 2014, 1820 area base. Ultimately, only a daily close above 2069 would compromise the bearish outlook and put the focus back on the 2097 record high.

• R2 2o93.00 – 29Dec/Record high – Strong
• R1 2069.00 – 9Jan high – Strong
• S1 2019.00 – 27Jan low – Medium
• S2 1968.00 – 16Dec low – Strong

US SPX 500 – fundamental overview

Recent moves from central banks to take on additional accommodation have supported the equity market, while the expectation the Fed could hold off on a tightening in light of policy divergence risk is also helping to support. But overall, the Fed is still inching closer to a hike and the solid US economic data will make it hard to argue against a less accommodative stance. This in conjunction with concern over the effectiveness of central bank policy to stimulate growth has cast a shadow on investor optimism, and could ultimately make it difficult for stocks to extends gains much further.

GOLD (SPOT) – technical overview

The market has taken out critical medium-term resistance at 1256 to suggest a major base could be in place at 1131. Look for the latest break to open the next upside extension back towards key resistance in the form of the July 2014 peak at 1345. Only below the weekly low at 1217 would negate the new found bullish momentum.

• R2 1345.00 – 6Jul high – Strong
• R1 1308.00 – 22Jan high – Medium
• S1 1272.00 – 19Jan low – Medium
• S2 1217.00 – 12Jan low – Strong

GOLD (SPOT) – fundamental overview

Accommodative central policy action around the globe has opened the door for significant currency depreciation and has left market participants with a lack of confidence. This has resulted in fresh wave of demand for gold in recent weeks, with the price of the yellow metal taking out some key resistance. Investors are now comfortable holding the hard asset and could continue to rally the metal as the ripple effects from these central bank actions work their way through the rest of the market. Consider the possibility for additional gains later today if the Fed comes out more dovish.

Feature – technical overview

US OIL (spot) recoveries have been short-lived, with the market deferring to a period of consolidation off the recent 44.20 multi-year low. However, medium-term studies are highly stretched and there is risk building for some form of a major corrective reversal. Look for a push back above 51.25 to confirm basing, while a daily close below 44.20 will negate and open fresh downside towards 40.00

• R2 51.25 – 15Jan high – Strong
• R1 47.75 – 23Jan high – Medium
• S1 44.20 – 13Jan/2015 low – Strong
• S2 40.00 - Psychological – Very Strong

Feature – fundamental overview

The best thing going for oil right now has been its ability to stop falling so sharply. And yet, there are still no signs of any serious profit taking on shorts or the emergence of healthy demand. The Saudis have said they will continue with production and will do nothing to help support prices at current levels. According to recent chatter, the Saudis wouldn’t step in until $25 oil. But comments from OPEC’s secretary-general El-Badri this week have helped to support the market for now against a drop to fresh lows, after the official warned prices could rise to as much as $200 per barrel if producers failed to invest in new supply.