Suggested reading
No Brexit, A. Kaletsky, Project Syndicate (February 20, 2016)
Negative Rates Could Head Lower, E. Holodny, Business Insider (February 20, 2016)
Chart talk: Major markets technical overview video
EURUSD
GBPUSD
USDJPY
EURCHF
AUDUSD
USDCAD
NZDUSD
US SPX 500
GOLD
Feature
PMIs
London Mayor
Japanese banks
central banks
medium-term players
OIL
RBNZ cuts
Hotter CPI
Dollar weakness
USDSGD
Charts: Technical & fundamental highlights
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EURUSD
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Feature
EURUSD – technical overview
The rally has stalled out for now ahead of a measured move objective at 1.1410. Still, while the market holds above previous support at 1.1060 on a daily close basis, risk remains for a higher low ahead of the next upside extension through 1.1400. Only a daily close below 1.1060 would take the immediate pressure off the topside and suggest the market could be poised for a resumption of the broader downtrend.
R2 1.1179 – 17Feb high – Strong
R1 1.1150 – 18Feb high – Medium
S1 1.1060 – Previous Resistance – Strong
S2 1.1000 – Psychological – Strong
EURUSD – fundamental overview
The Euro has been comfortable trading in a tight range just off key previous resistance turned support at 1.1060. The market had been supported in Friday trade on a round of risk liquidation, though was unable to put in any meaningful rallies as hotter US CPI and central bank speak kept the major pair capped. Fed Mester was out backing a gradual tightening approach, while ECB Visco called for pre-emptive, aggressive ECB easing to avert a dramatic fall in inflation expectations. Looking ahead, we get German and Eurozone services and manufacturing PMIs, followed by Markit manufacturing PMIs out of the US later in the day.
GBPUSD – technical overview
The corrective rally in the major pair has stalled out for now at 1.4668, with this most recent break and close below 1.4350 suggesting the market could already be poised for the next major downside extension below 1.4080. A daily close below 1.4235 would strengthen this outlook and accelerate declines back to the near 7 year low, while back above 1.4668 would be required to negate and take the immediate pressure off the downside.
R2 1.4413 – 15Feb low – Strong
R1 1.4408 – 19Feb high – Medium
S1 1.4235 – 17Feb low – Medium
S2 1.4149 – 29Jan low – Strong
GBPUSD – fundamental overview
The Pound was able to shrug off the hotter US CPI reading on Friday, with the market more focused on developments surrounding PM Cameron’s negotiations to stay in the EU. News that Cameron had secured a deal that had the EU giving in to UK demands did a good job of rallying the Pound sharply into the Friday close, though all of that has now been given back into the new week. The initial optimism from Cameron’s achievements didn’t last long, after London Mayor Boris Johnson announced over the weekend he would be backing the campaign for Brexit. This knocked the Pound hard on the Monday open. Looking ahead, UK CBI trends data and US Markit manufacturing PMIs are unlikely to factor into trade, with ongoing Brexit speculation and broader flows to play a more important role in determining Pound direction.
USDJPY – technical overview
The correction out from the recent multi-month low at 110.98 has stalled out, with the market contemplating the formation of a lower top at 114.88 ahead of the next major downside extension below 110.98 and towards the 107.00 area further down. However, a break below 110.98 would be required to confirm the lower top and strengthen the bearish outlook. But ultimately, while the market holds below 116.00 the immediate pressure remains on the downside.
R2 114.87 – 16Feb high – Strong
R1 113.38 – 19Feb high – Medium
S1 112.31 – 19Feb low – Medium
S2 111.66 – 12Feb low – Strong
USDJPY – fundamental overview
Decent buying interest into Monday from HFT accounts and Japanese banks, reportedly buying on behalf of importers and pension funds. Leveraged accounts have also been covering USDJPY shorts which has been further supportive of the pair in the early week. Gains in the risk correlated major currency have been attributed to a rebound in equities, with the Nikkei tracking higher along with China stocks. On the data front, Japanese manufacturing PMIs came in weaker than expected which has also contributed to the bid. Still, with broader risk tilted to the downside, meaningful rallies are expected to be well capped. Looking ahead, US manufacturing PMIs is the only notable release and the market will likely defer to broader flow.
EURCHF – technical overview
The latest round of setbacks from fresh multi-month highs at 1.1200 are viewed as corrective, with the broader outlook still highly constructive. Look for any additional weakness in the sessions ahead to be well supported above 1.0900 on a daily close basis, in favour of a higher low and the next major upside extension through 1.1200 and towards 1.1400 further up. Only a close below 1.0900 would delay the outlook.
R2 1.1096 – 8Feb high – Strong
R1 1.1062 – 17Feb high – Medium
S1 1.0950 – 11Feb low – Medium
S2 1.0910 – 20Jan low – Strong
EURCHF – fundamental overview
An impressive recovery in risk assets over the past week has taken a good deal of pressure off the SNB, with the risk correlated EURCHF rate rallying in response. Clearly, the SNB strategy of weakening the Franc has been highly effective these past several months. But at the same time, with signs of risk liquidation flow intensifying in 2016 and with the other traditional safe haven currencies rallying sharply to their detriment, the SNB battle could get a lot tougher going forward. We’ve already seen EURCHF come under pressure off recent highs and should other central banks move to looser policy, this could make the Franc more attractive again. The SNB has reiterated its commitment to offset Franc inflows at every turn, but it will be interesting to see what happens if risk sentiment takes another turn for the worse.
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 0.7242 – 4Feb high – Strong
R1 0.7187 – 17Feb high – Medium
S1 0.7100 – Figure – Medium
S2 0.7069 – 19Feb low – Strong
AUDUSD – fundamental overview
The Australian Dollar has done a good job shaking off last week’s disappointing Aussie employment report and Friday’s hotter US CPI reading, with the market bid back to recent range highs. Real money investors and Aussie exporters have been reported on the bid, while a modest recovery in equities has been helping to prop the pair. But overall, with broader risk sentiment still very shaky in 2016, dealers report heavy selling interest into additional rallies from medium-term players. Looking ahead, US Markit manufacturing PMIs are on the calendar, though the second-tier data is unlikely to factor much into trade, with broader macro flows having a greater influence.
USDCAD – technical overview
The market has entered a period of 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 to the 1.3600 area, which coincides with medium-term rising trend line support. At this point, only back above 1.4017 would suggests the correction has run its course, with the market poised for bullish resumption.
R2 1.3912 – 16Feb high – Strong
R1 1.3847 – 19Feb high – Medium
S1 1.3700 – Figure – Medium
S2 1.3639 – 4Feb/2016 low – Strong
USDCAD – fundamental overview
The Canadian Dollar has recovered from Friday setbacks after softer Canada retail sales, hotter US CPI and lower OIL weighed on the Loonie. But all of that has been reversed in the new week, with OIL off to a great start and the market perhaps also remembering Friday’s hotter Canada CPI a bit, which was overshadowed on Friday. Looking ahead, the Canada economic calendar is empty, with only second-tier US data due in the form of Markit manufacturing PMIs. Otherwise, it’s OIL prices and broader macro flow that will dictate trade.
NZDUSD – technical overview
The market remains confined to a broader downtrend with any rallies seen very well capped. A recent correction has stalled out around 0.6750 with the market looking like it is in the process of carving a fresh lower top ahead of the next major downside extension. The latest break below 0.6563 strengthens the outlook, exposing declines towards next key support at 0.6347 in the sessions ahead. Ultimately, only back above 0.6900 negates the bearish outlook.
R2 0.6752 – 5Feb high– Strong
R1 0.6700 – Figure – Medium
S1 0.6600 – Figure – Medium
S2 0.6546 – 16Feb low – Strong
NZDUSD – fundamental overview
Kiwi has been benefitting in the early week from a bout of risk on flow, which is supporting the correlated currency. However, selling from private clients and medium-term accounts is likely to keep the New Zealand Dollar well capped into additional rallies. Last week’s horrid round of Kiwi data has fueled increased expectations for additional RBNZ rate cuts in the months ahead, which should weigh more heavily going forward. Looking to the rest of Monday’s calendar, US Market manufacturing PMIs is the only notable standout and the market is likely to pay more attention to broader macro flow.
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 recent break back below the critical August base at 1834 strengths the newly adopted bearish outlook and 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. Ultimately, only a daily close back above 1993 will take the immediate pressure off the downside.
R2 1993.00 – Previous Support – Strong
R1 1947.00 – 1Feb high – Medium
S1 1902.00 –19Feb low – Medium
S2 1808.00 – 11Feb/2016 low – Strong
US SPX 500 – fundamental overview
Stocks have enjoyed a healthy recovery in recent days, largely supported by a bounce in the price of OIL and round of dovish Fed speak. But overall, with the OIL outlook still highly suspect, with central bank monetary policy exhausted and with fears escalating over a deterioration in China, it feels as though these rallies should continue to be well capped in favour of additional downside in the days and weeks ahead. Throw in this latest hotter than expected US CPI print which only increases prospects the Fed will need to tighten in the months ahead, and there is very little to get too excited about right now. It’s also becoming increasingly apparent in 2016 that even if the Fed in fact opts to scale back its rate hike timeline, this might not be as supportive as many had thought.
GOLD (SPOT) – technical overview
The market continues to show signs of a major structural shift, with the impressive recovery from the multi-year low in late 2015 at 1046, extending above the critical October 2015 peak at 1192. From here, any setbacks should be well supported ahead of 1160, in favour of a higher low and the next major upside extension to medium-term resistance at 1307. Ultimately, only back below 1100 negates the constructive outlook.
R2 1263.00 – 11Feb/2016 high – Strong
R1 1240.00 – 18Feb high – Medium
S1 1191.00 – 16Feb low – Medium
S2 1164.00 – 8Feb low – Strong
GOLD (SPOT) – fundamental overview
GOLD has pulled back from recent highs, but still stands out as an outperformer over the past week. Massive outflows across equities, high yield and emerging markets have left investors looking for an alternative investment. GOLD has become increasingly attractive in the current market environment. The wave of risk liquidation in 2016 has catapulted the metal on its status as a compelling hedge against uncertainty and negative interest rate policy. Also supporting the metal a bit in recent trade has been some broad based selling in the US Dollar. Dealers continue to talk strong bids into dips.
Feature – technical overview
USDSGD has entered a period of correction after pulling back from the recent multi-year high from early January at 1.4445. But overall, the structure remains highly constructive, with dips well supported for now into the 1.3800s. Look for any additional setbacks to continue to be well supportive above 1.3800 in favour of an eventual resumption of the uptrend and retest of 1.4445. Ultimately, only back below 1.3730 would negate the highly constructive outlook.
R2 1.4170 – 4Feb high – Strong
R1 1.4110 –17Feb high – Medium
S1 1.2965 – 16Feb low – Medium
S2 1.3860 – 11Feb/2016 low – Strong
Feature – fundamental overview
A wave of risk on trade in the early week has been helping to support the Singapore Dollar a bit. But overall, the combination of Asian central bank policy easing, broader risk off flow in 2016 and ongoing expectation the Fed will need to move to higher rates, should continue to keep the Singapore Dollar under pressure. Friday’s hotter than expected US CPI print and hawkish Fed Mester comments only strengthen this outlook and should invite more USDSGD bids in the sessions ahead.
Peformance chart: Five day performance v. US dollar
Today’s report: Pound Hit on Weekend News, Risk Markets Recover
Most of the attention in the early hours of the week is on the Pound, with the UK currency slammed into the open on weekend news London Mayor Boris Johnson would be campaigning for Brexit. Otherwise, currencies have held up rather well, shrugging off last Friday’s hotter US CPI and a hawkish Fed Mester.
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Wake-Up Call
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