Month End Flows – Franc Wins Out But USD Still King

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 1.5018 – 29Jan low  – Medium
• S2 1.4952 – 23Jan/2015 low  – Strong

GBPUSD – fundamental overview

Despite a wave of USD demand post FOMC, the Pound is one of the only outperformers against the Buck this week. The combination of a stretched Dollar move and Bank of England that is seen closest to the Fed with its monetary policy reversal timeline, have helped drive the outperformance in recent trade. Calls earlier this week from new BOE MPC member Forbes for sooner than later BOE rate hikes have further contributed to the supportive price action. Second tier Friday UK data in the form of mortgage approvals and consumer credit, will play second fiddle to US GDP, personal consumption and Chicago PMIs. End of month flows will also add to today’s volatility.

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, inviting more US Dollar demand. Macro accounts continue to look for opportunities to add to existing long USDJPY exposure and could use this week’s disappointing Japanese retail sales and industrial production prints as an excuse to build into those longs.

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. Medium-term 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 1.0700 – Measured Move – Strong
• R1 1.0500 – Psychological – Medium
• S1 1.0215 – 29Jan low – Medium
• S2 1.0080 – 27Jan low – Strong

EURCHF – fundamental overview

SNB Danthine seems to have inspired a fresh round of bids in the EURCHF market this week, with the rate breaking out of its post SNB shock range consolidation. Danthine has reminded investors the SNB has not gone away and is still “fundamentally prepared” to intervene in the FX market. In fact, there is been a lot of chatter that the SNB has already been actively involved this week. The EURCHF rate had also been supported back above parity pre-Danthine, with traders reconsidering the benefits of a flight to safety Franc play, with the currency overbought and carrying a much heavier cost.

AUDUSD – technical overview

The market has finally traded down into the next measured move objective area around 0.7700. But with daily studies tracking into oversold territory, there is risk for some form of a corrective bounce in the sessions ahead to allow for stretched studies to unwind. Look for a lower top somewhere ahead of 0.8150 ahead of the next downside extension towards 0.7500.

• R2 0.7890 – 29Jan high – Medium
• R1 0.7858 - 26Jan low – Medium
• S1 0.7720 – 29Jan/2015 low – Medium
• S2 0.7700 – Measured Move – Strong

AUDUSD – fundamental overview

There has been a growing expectation the next rate cut out of the central banking world will come from the RBA on Tuesday. The combination of accommodation from other central banks (including this most recent shift from the RBNZ), uncertain global environment and declining commodity prices are all variables factoring into the rate cut forecast. It looks as though there is a 50/50 shot at a cut, with some opposing the idea on the basis Aussie has already fallen sharply, there has been a pickup in house price inflation and the labour market has shown signs of improvement. Whatever the case, whether the RBA cuts or not, we can definitely expect a statement that leans on the dovish side.

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 push beyond the next major psychological barrier at 1.2500, shy of 1.2700 thus far. 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 1.2700 – Figure – Medium
• R1 1.2678 - 29Jan/2015 high – Medium
• S1 1.2513 – 29Jan low – Medium
• S2 1.2380 – 27Jan low – Strong

USDCAD – fundamental overview

The Loonie continues to extend declines as the divergence between the US and Canada economies becomes even more pronounced. The surprise Bank of Canada rate cut last week opened a fresh wave of CAD liquidation, while this week’s upgraded outlook from the FOMC and 15 year low in US initial jobless claims intensified the pace of Canadian Dollar declines. Also weighing tremendously on the Canadian Dollar has been the bottomless drop in oil prices which have broken to yet another multi-year low. Macro accounts will be looking to build into existing USDCAD longs, with the BoC reportedly open to additional rate cuts, but may wait for the pair to correct a bit from severely overbought technical readings. Today’s end of month flows and GDP prints out of the respective economies could make for some good fireworks.

NZDUSD – technical overview

The market has come under intense pressure since breaking down out of a multi-week consolidation between 0.7600-0.8000. The 400 point consolidation warned of a fresh 400 hundred point move on a break of the range, and we have since seen the pair trade from 0.7600 down towards the measured move objective around 0.7200. From here, deeper setbacks are expected towards 0.7000, but most probably not before a healthy corrective bounce to allow for stetted studies to unwind. Look for a lower top to carve out somewhere ahead of the previous range base at 0.7600.

• R2 0.7398 – 26Jan low – Medium
• R1 0.7329 - 29Jan high – Medium
• S1 0.7234 – 29Jan/2015 low – Medium
• S2 0.7200 – Measured Move – Strong

NZDUSD – fundamental overview

The latest RBNZ decision has thrown another wrench in the New Zealand Dollar, after the central bank revised its outlook, shifting from a hawkish to neutral stance. Clearly the weight of other central bank accommodative actions could not be ignored, and the RBNZ responded accordingly. The central bank also reminded investors the currency is still well overvalued at current levels and is expected to trade lower. Many now expect the rate to head down to the 0.6500 level touted by PM Key (who knows a thing or two about currencies) some months back.

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 2o69.00 – 9Jan high – Strong
• R1 2031.00 – 26Jan low – Medium
• S1 1977.00 – 16Jan low – Medium
• S2 1970.00 – 16Dec low – Strong

US SPX 500 – fundamental overview

Overall, the Fed is still inching closer to a hike, as indicated in Wednesday’s monetary policy statement, and this will make it hard to argue against a less accommodative stance. This in conjunction with concern over the effectiveness of global accommodative central bank policy to stimulate growth is starting to cast a shadow on investor optimism, and could ultimately make it difficult for stocks to hold onto recent gains off record highs. For today, look for end of months flows and US GDP to dictate direction.

GOLD (SPOT) – technical overview

The market continues to show signs of medium-term basing following the break of key resistance at 1256 a few weeks back. As such, this latest retracement into the 1250 area is viewed as corrective, with the market in search of the next higher low ahead of a bullish continuation towards 1345. Ultimately, only back below 1217 would compromise the recovery outlook and put the pressure back on the downside.

• R2 1345.00 – 6Jul high – Strong
• R1 1308.00 – 22Jan high – Medium
• S1 1238.00 – 10Dec high – Medium
• S2 1217.00 – 12Jan low – Strong

GOLD (SPOT) – fundamental overview

Though Gold pulled back sharply from recent multi-week highs on Thursday, this shouldn’t do anything to change a new picture taking form. 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. There is talk of solid demand in the $1220-$1250 area.

Feature – technical overview

US OIL (spot) recoveries have been short-lived, with the market deferring to a period of consolidation at fresh multi-year lows below 45.00. 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 44.00 will negate and open fresh downside towards 40.00

• R2 47.75 – 23Jan high – Strong
• R1 46.50 – 27Jan high – Medium
• S1 43.55 – 29Jan/2015 low – Medium
• 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, with the market dropping to another low and down a dramatic 60% since June. Record high US stockpiles have been the big story this week, and this has fueled this latest drop to the lowest levels since 2009. Meanwhile, 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.