Fed Data Dependency Puts US GDP in Spotlight

GBPUSD – technical overview

Setbacks have been very well supported and the market could be looking to carve out a fresh higher low at 1.5350 in favour of the next major upside extension back towards and above the recent 2015 high at 1.5930. At this point, only back below 1.5350 would negate the constructive outlook and compromise the constructive outlook.

• R2 1.5733 – 1Jul high – Strong
• R1 1.5690 – 29Jul high – Medium
• S1 1.5528 – 28Jul low  – Medium
• S2 1.5467 – 24Jul low  – Strong

GBPUSD – fundamental overview

Thursday will be another day with and empty UK economic calendar and the major pair will continue to trade off external themes. Earlier in the week, the Pound had outperformed on the back of a well received UK GDP print, but since then, the market has been more focused on all things US, with economic data and the timing of Fed liftoff taking centre stage. On Wednesday, Cable pushed to fresh multi-session highs just shy of 1.5700, with upbeat UK mortgage approvals and a softer round of US housing data driving the gains. But with the Fed upgrading its outlook for the labour market in the monetary policy statement, the Pound came back under pressure on broad based post FOMC, USD demand. The Fed continues to stress the importance of economic data in determining the appropriate time for a rate hike, and as such, today’s US GDP release is likely to get a good deal of attention.

USDJPY – technical overview

Although the broader uptrend remains firmly intact, the market has been showing signs of exhaustion off fresh multi-year highs at 125.85. The recent break back below 124.00 has opened the door for deeper setbacks in the sessions ahead, potentially towards the recent 121.32 multi-day low. Monthly studies are highly overbought and have been warning of the need for additional consolidation and correction to allow for these studies to unwind. As such, for the time being, rallies may continue to be well capped towards 125.00.

• R2 124.48 – 21Jul high – Strong
• R1 124.19 – 23Jul high – Medium
• S1 123.33 – 29Jul low – Medium
• S2 123.01 – 27Jul low – Strong

USDJPY – fundamental overview

Real money accounts have been quite active on dips, with the bids helping to push the major pair back above 124.00 on Wednesday. These buyers did however get a little help from the post FOMC rate decision reaction, with the market perceiving the monetary policy statement to be more hawkish. The Fed upgraded its outlook of the labour market and continued to downplay the impact of lower energy prices, still assigning the price action as a transitory development. The resurgence in demand for US equities didn’t hurt the rally in USDJPY, although with data dependency still a high priority for the Fed, Thursday’s US GDP print takes centre stage and will likely have a key influence on the next move in this pair. There are plenty of offers reported ahead of 124.50.

EURCHF – technical overview

The market looks to be in the process of carving out a meaningful base. From here, there is risk for a recovery back towards the February 1.0815 peak, with any setbacks expected to be very well supported above 1.0400 on a daily close basis. However, ultimately, only a daily close below 1.0235 would compromise the recovery outlook and give reason for pause.

• R2 1.0815 – 20Feb high – Strong
• R1 1.0692 – 27Jul high – Medium
• S1 1.0600 – Figure – Medium
• S2 1.0558 – 27Jul low – Strong

EURCHF – fundamental overview

Recent price action in this cross rate has been rather interesting, with the market rallying in risk off settings and pulling back when risk comes back on. While risk on/risk off correlations are perhaps less relevant than they once were, the fact that the correlation has been a strong inverse correlation in recent days is what is perplexing. The most logical explanation for the price action is that the SNB has been committed to stepping in to weaken the Franc as risk comes off so that it can offset the safe haven Franc demand. But once risk appetite returns to global markets, the SNB no longer needs to intervene as natural forces are supportive of Franc outflows. Of course the danger with all this is if risk really comes off for a sustained period. At that point, it would mostly likely be difficult for the SNB to offset the flows and this would open another major bout of unwelcome Franc demand. But in the interim, the SNB can breath out, with EURCHF well off extreme lows.

AUDUSD – technical overview

Although the downtrend remains firmly intact, with the market considering a drop to psychological barriers at 0.7000, there are signs the market could be looking for some form of a short-term bottom to allow for stretched studies to unwind. Despite subsequent setbacks on Wednesday, Tuesday’s bullish outside day formation could be setting the stage for this corrective outlook in the sessions ahead. Ultimately however, any gains should be well capped ahead of 0.7800 in favour of the next lower top and bearish continuation.

• R2 0.7496 – 10Jul high – Strong
• R1 0.7351 – 29Jul high – Medium
• S1 0.7257 – 28Jul/2015 low – Medium
• S2 0.7240 – May 2009 low – Strong

AUDUSD – fundamental overview

Softer Thursday Aussie trade and building approvals data hasn’t done much to inspire any fresh demand in the commodity currency which trades just off fresh multi-year lows. Aussie has been beaten down in recent trade on the back of escalating China concerns and ongoing commodity weakness, while monetary policy divergence between the RBA and Fed has also been a major driver of price action. Wednesday’s Fed monetary policy statement came out on the hawkish side, and this has fueled some broad based US Dollar demand. The Fed upgraded its outlook for the labour market, while at the same time showing little concern for energy price declines. Looking ahead, today’s US GDP release will be the major event for the day.

USDCAD – technical overview

Finally some cooling off after the market broke to fresh multi-year highs just over 1.3100. Technical studies were well stretched and the current round of setbacks is welcome to allow for these studies to normalize. There risk for additional declines in the sessions ahead, with the market looking for the next medium-term higher low ahead of a bullish continuation. Ultimately, any setbacks should however be well supported ahead of 1.2600.

• R2 1.3103 – 24Jul/2015 high – Strong
• R1 1.3043 – 28Jul high – Medium
• S1 1.2861 – 29Jul low – Medium
• S2 1.2805 – 14July high– Strong

USDCAD – fundamental overview

While the Canadian Dollar ended up lower in Wednesday trade, the currency did manage to extend its recovery against the Buck. Initially, the Loonie was well bid, rallying to its highest levels in about two weeks, with the rebound in OIL prices fueling the fresh round of bids. However, the markets interpreted the FOMC rate decision as leaning more to the hawkish side and this opened the door for a broad based US Dollar recovery into the close. The Fed didn’t change much in its statement, although the fact that it upgraded its outlook for the labour market and downplayed the impact of lower energy prices, was enough to keep investors focused on the possibility for a September rate hike. Perhaps also weighing on the Canadian Dollar a bit was the Canada Conference Board’s downgrade of Canada growth forecasts for this year, to their slowest pace since 2009. There is no data of note out of Canada today and the critical focus will be on the US GDP release and price action in the OIL market.

NZDUSD – technical overview

Daily studies have been turning up from deep oversold territory, and there is risk for additional consolidation in the sessions ahead to allow for these studies to further unwind before the market considers a bearish continuation below the recent multi-year low at 0.6498. Still, any rallies should be well capped ahead of 0.6850 in favour of the existing downtrend.

• R2 0.6924 – 25Jun high– Strong
• R1 0.6739 – 29Jul high– Medium
• S1 0.6599 – 28Jul low – Medium
• S2 0.6555 – 24Jul low – Strong

NZDUSD – fundamental overview

A recovery in the New Zealand Dollar off multi-year lows came to a halt in Wednesday trade, with the more hawkishly perceived FOMC monetary policy statement fueling some broad based US Dollar demand. The Fed upgraded its outlook for the labour market, while at the same time showing little concern for the downturn in energy prices, still using its ‘transitory’ language. An early Thursday New Zealand building consents release hasn’t done anything to help Kiwi’s cause, with the data coming in at -4.1%, much weaker than the previous 0% reading. Looking ahead, the key focus in Thursday trade will be on US GDP, with the Fed rate liftoff timing very much contingent on US economic data.

US SPX 500 – technical overview

The market has stalled out just shy of the May record high, with the lack of bullish momentum suggestive of exhaustion and warning of deeper setbacks ahead. Look for the latest topside failure to strengthen the bearish outlook in favour of deeper setbacks below the critical March low at 2040. At this point, only a break and daily close above 2137 would negate and open a bullish continuation.

• R2 2137.00 – 19May/Record – Strong
• R1 2121.00 – 23Jul high – Medium
• S1 2063.00 – 27Jul low – Medium
• S2 2040.00 – 11Mar low– Strong

US SPX 500 – fundamental overview

Stocks continued their impressive rebound in Wednesday trade, with the market already well in demand pre-FOMC rate decision. It seems this market has been moving on its own fundamentals, though it’s possible sentiment was bolstered post FOMC after the monetary policy statement showed no concern for softer commodities or external risk in China. Still, the rate decision was interpreted by FX markets as more hawkish and this should not be as equity bullish, with the hawkish implication suggesting the Fed could very well move in September. A move to higher rates would act as a disincentive to be long risk assets and could spark an overdue stock market capitulation. Clearly the Fed is still focused on economic data and as such, attention now shifts to today’s US GDP release.

GOLD (SPOT) – technical overview

The market remains under intense pressure, breaking to fresh multi-year lows below 1100. At this point, the downside break opens the door for the possibility of another drop towards major psychological barriers at 1000. However, it is worth noting that daily studies are extremely oversold and there is room for a short-term bounce. But a daily close back above the previous 2015 base at 1142 would be required to take the immediate pressure off the downside.

• R2 1175.00 – 6Jul high – Strong
• R1 1142.00 – Previous Low – Medium
• S1 1073.00 – 20Jul/2015 low – Medium
• S2 1000.00 – Psychological – Strong

GOLD (SPOT) – fundamental overview

The downside pressure in the GOLD market has intensified in July, with the primary driver coming from an accelerated Fed rate liftoff timeline. The expectation for higher rates has resulted in another liquidation in the yellow metal, this time below $1100. Recent data also shows China buying less GOLD as had been forecast, and this has been yet another let down for the commodity. In fact, the latest speculative positioning data shows the market actually net short the yellow metal for the first time. There seems to be very little out there GOLD bugs can source as a near term catalyst for a resurgence in demand, though in the short-term, a softer US GDP print later today could be a potential catalyst for a rebound, with the disappointment forcing a scaling back of Fed liftoff expectations. Month end flows could also factor into trade over the coming sessions.

Feature – technical overview

USDSGD remains locked in a very well defined uptrend, with the market closing in on a retest of the multi-year peak from March at 1.3938. Look for any setbacks to now be very well supported ahead of 1.3500, while only a break back below 1.3284 would compromise and force a shift in the structure.

• R2 1.3938 – 13Mar/2015 high – Strong
• R1 1.3758 – 24Jul high – Medium
• S1 1.3609 – 22Jul low – Medium
• S2 1.3440 – 30Jun low – Strong

Feature – fundamental overview

Hedge fund and macro account demand continue to push this market higher, with the Singapore Dollar on a downward trajectory, driven off monetary policy divergence with the Fed. Wednesday’s Fed monetary policy statement seemed to have a slightly hawkish bias, with the Fed upgrading its outlook for the labour market and showing no concern over falling commodities or a slowing China. At the same time, the Singapore Dollar could find some support on the stabilisation in China equities and rebound in US stocks. Also seen supporting the emerging market currency somewhat have been comments from IMF Lagarde that China’s intervention to stem its stock rout will not hurt its ability to gain reserve status for the Yuan. Looking ahead, today’s US GDP data comes into focus.