A Return To The Old Normal – When Bad Was Bad

GBPUSD – technical overview

The recent break below 1.4951 has resulted in fresh 2015 and multi-month lows to 1.4635 thus far, while also confirming a medium-term lower top at 1.5552. This opens the door for the next major downside extension towards a measured move objective at 1.4350 in the weeks ahead. However, the market could be entering a period of short-term correction after putting in a bullish outside week in the previous week. Still, any rallies are now expected to be very well capped ahead of 1.5300, with only a break above 1.5555 to force a shift in the structure.

• R2 1.5165 – 18Mar high – Strong
• R1 1.5010 – 19Mar high – Medium
• S1 1.4831 – 25Mar low  – Medium
• S2 1.4635 – 18Mar/2015 low  – Strong

GBPUSD – fundamental overview

The Pound has been a standout underperformer this week, with some dovish BOE talk getting backed up by a more subdued UK inflation reading. Expectations for a 2015 BOE rate hike have been scaled back dramatically, and with UK election risk also hanging in the balance, it could be a bumpy road ahead for Sterling. One positive development in recent trade has however come from BOE Deputy Governor Shafik who says the next rate move from the BOE will be higher, not lower. UK retail sales are the main event in Thursday trade will be watched closely for added directional clarity.

USDJPY – technical overview

Although the market has recent broken to fresh multi-year highs through 122.00, lack of upside follow through has been discouraging, with the pair more content on deferring to a period of correction. Overall, the broader trend remains highly constructive and any setbacks should continue to be very well supported in favour of the next major upside extension through 122.03 and towards key psychological barriers at 125.00 further up. At this point, only a close below 118.00 would delay, while a break below 115.55 would be required to negate the constructive outlook.

• R2 121.20 – 20Mar high – Strong
• R1 120.17 – 23Mar high – Medium
• S1 118.23 – 17Feb low – Strong
• S2 116.87 – 3Feb low – Medium

USDJPY – fundamental overview

The Yen has not been immune to traditional risk correlations over the past 24 hours, with the currency rallying a good deal as equity markets come off. The fallout from the much softer US durable goods orders along with an escalation in geopolitical tension, as Saudi Arabia and gulf allies launch airstrikes in Yemen, has opened a fresh wave of USDJPY selling towards 118.00. However, there is a point at which the broader, macro fundamentals of policy divergence will start to work their way back into play, with medium and longer-term accounts looking to build into short Yen positions. Though the Fed has recently scaled back its hawkish timeline, and the BOJ has been sounding less dovish, the fact remains that the divergence is still holding up and expected to become even more pronounced going forward.

EURCHF – technical overview

The recovery out from the historic lows has finally come into some stiff resistance just over 1.0800, with the market rolling back over. Still, the newly adopted constructive outlook remains intact while above 1.0415, with a higher low sought ahead of the next upside extension towards 1.1000. Only a daily close back below 1.0415 would give reason for pause.

• R2 1.0700 – 19Mar high – Strong
• R1 1.0605 – 23Mar high – Medium
• S1 1.0415 – 9Feb low – Strong
• S2 1.0355 – 30Jan low – Medium

EURCHF – fundamental overview

A fresh wave of risk liquidation in markets following softer US data and an escalation in geopolitical tension is not exactly the kind of stuff the SNB will be happy to see. The EURCHF market has already come under pressure after last week’s SNB decision to leave policy unchanged. Many had been looking for the central bank to move further into negative interest rate policy with another 25bp cut to -1.00%. EURCHF has now broken down below the much talked about 1.0500-1.1000 SNB corridor this week and this has fueled speculation we could see some SNB action ahead. However, though SNB Jordan has made it clear the central bank is ready to take additional action, the market will need to see such action to be convinced.

AUDUSD – technical overview

Despite the latest bounce, the downtrend remains firmly intact, following the recent break to fresh multi-year lows at 0.7560. This opens the door for the next major downside extension, with setbacks projected towards the next major psychological barrier at 0.7000. As such, any rallies should continue to be well capped below 0.7900 on a daily close basis, while ultimately, only a daily close back above 0.8025 would delay the bearish outlook and give reason for pause.

• R2 0.8025 – 28Jan high – Strong
• R1 0.7938 – 24Mar high – Medium
• S1 0.7763 – 23Mar low – Strong
• S2 0.7731 – 12Mar high – Medium

AUDUSD – fundamental overview

Though we have seen Aussie hold up relatively well in recent trade against the Buck, there have been clear signs of underperformance relative to the other major currencies. Aussie has been finding some bids on the back of a rally in EURUSD, but these gains are being mitigated by a downturn in risk sentiment brought on by softer US economic data and an escalation in geopolitical risk following the latest airstrikes in Yemen. This week’s RBA FSR clearly outlined risks to the local economy and with the Australia still showing signs of cooling, there is an expectation the RBA could cut rates again as soon as next month. This should keep the Australian Dollar from running too far and well offered into rallies.

USDCAD – technical overview

Although the market has recently broken to a fresh multi-year high above 1.2800, inability to establish a daily close above the figure has triggered the onset of a correction. Ultimately, the broader uptrend remains firmly intact, with the next big push seen towards the 2009 peak at 1.3065. But in the interim, there is risk for a period of additional correction and choppy consolidation before bullish resumption. Setbacks should however be very well supported above 1.2350, with only a break below to delay the constructive outlook.

• R2 1.2758 – 19Mar high – Medium
• R1 1.2615 – 23Mar high – Strong
• S1 1.2412 – 26Mar low – Medium
• S2 1.2350 – 3Feb low – Strong

USDCAD – fundamental overview

The Canadian Dollar has managed to shrug off any weakness brought on by risk liquidation and elevated geopolitical tension, with a solid recovery in the price of oil and concurrent rally in the Euro helping to offset the negative flow. US initial jobless claims and Fed speak are due in today’s trade, though the key focus for this market will be on the BoC Governor speech due at 13:15GMT. The Fed policy divergence theme may be taking a bit of a backseat in recent trade, but it has certainly not gone away. There are plenty of good USDCAD bids no reported into the 1.2300-1.2350 area.

NZDUSD – technical overview

Despite the recent push through resistance at 0.7600, the market remains locked within a well defined downtrend and is in the process of seeking out the next medium-term lower top, which could now be in place at 0.7697. Look for a resumption of declines in the sessions ahead back towards the key low of 0.7176, below which opens the next major downside extension towards psychological barriers at 0.6500. Ultimately, only back above 0.7890 would give reason for pause.

• R2 0.7710 – 22Jan high – Medium
• R1 0.7697 – 24Mar high – Strong
• S1 0.7548 – 23Mar low – Strong
• S2 0.7441 – 12Mar high – Medium

NZDUSD – fundamental overview

The New Zealand Dollar has been bid up in recent trade, with the currency primarily benefitting from the rally in EURUSD. Still, private client and macro account sell interest remains strong, and these participants are taking advantage of the USD declines to build into existing Kiwi shorts. Disappointing New Zealand trade data this week is already weighing on the market, while a downturn in global equities and elevated geopolitical tension are being cited as an additional cause for relative weakness in the higher yielding, risk correlated commodity currency.

US SPX 500 – technical overview

The most recent rally has stalled out ahead of critical resistance in the form of the record high from February at 2120. This suggests we could be in the process of carving out a more meaningful top. Look for a break and close below critical support at 2040 over the coming sessions to confirm the structural shift and open the door for deeper setbacks towards 2000. At this point, a break back above 2120 would be required to negate.

• R2 2150.00 – Psychological – Medium
• R1 2120.00 – 25Feb/Record – Strong
• S1 2040.00 – 18Mar low – Strong
• S2 2000.00 – Psychological – Medium

US SPX 500 – fundamental overview

As the Fed inches closer and closer to a rate hike, euphoria has morphed into trepidation. There is a nervous tension and real sense that we are finally at the end of the rope and it all could come crashing down. On Wednesday, US durable goods came in much softer and the bad data triggered a negative equity market reaction. This is a big deal and could be an early warning sign that the old, intuitive normal, of bad data translating into lower stocks, is finally ready to make its return. Also factoring into the wave of risk liquidation has been the escalation in geopolitical tension following airstrikes in Yemen.

GOLD (SPOT) – technical overview

The intense decline from the January peak has stalled out in recent trade, just shy of the critical base from 2014 at 1131. Last Wednesday’s bullish reversal day strengthens the possibility for a key low, and the market could now be poised for renewed strength in the sessions ahead back above 1200. Still, a break above 1223 will be required to encourage a more legitimate recovery outlook. Until then, scope still exists for a lower top and retest of the multi-year low at 1131.

• R2 1223.00 – 2Mar high – Strong
• R1 1209.00 – 5Mar high – Medium
• S1 1179.00 – 23Mar low – Medium
• S2 1143.00 – 17Mar low – Strong

GOLD (SPOT) – fundamental overview

The gold market has been finding renewed bids after recently being well supported ahead of the 2014 base. Initially, it was some post Fed US Dollar selling that got the metal going, and since, we have seen an acceleration of gains back through $1200 following the weaker than expected US durable goods data and escalation in geopolitical tension in Yemen. Many investors already feel that with currencies across the board in a downward spiral, and global equities at risk for major capitulation, there is no better place to be invested than in the yellow metal.

Feature – technical overview

USDSGD has been locked within a very well defined uptrend over the past several months, with the market putting in a series of higher highs and higher lows. The market has most recently entered a corrective period within the uptrend, in search of the next medium-term higher low, potentially now in place at 1.3610. Key support comes in at 1.3485, which represents the previous higher low, and only a break below this level would compromise the constructive outlook.

• R2 1.3940 – 13Mar/2015 high – Strong
• R1 1.3805 – 23Mar high – Medium
• S1 1.3610 – 24Mar low – Medium
• S2 1.3485 – 26Feb low – Strong

Feature – fundamental overview

Much like all currencies in recent trade, the Singapore Dollar has been finding renewed strength on the back of post Fed US Dollar weakness. The latest release of much softer US durable goods orders has now opened some more recovery in the beaten down Singapore Dollar. Also perhaps contributing to the Sing recovery has been today’s Singapore manufacturing data, which although worse than previous, was in line with forecasts with an upward revision. Still, with global equities turning lower and geopolitical tension on the rise, any Singapore Dollar rallies are expected to be well capped, especially with the MAS committed to a lower currency and the Fed policy divergence very much alive.