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FX Analysis – Technical Outlook (2015-11-02)

by James Chen

Key economic data releases this week:

Monday (2nd November):

  • CNY – Caixin Manufacturing PMI
  • GBP – UK Manufacturing PMI
  • USD – US ISM Manufacturing PMI
  • USD – US FOMC Member John Williams Speech

Tuesday (3rd November):

  • AUD – Reserve Bank of Australia (RBA) Cash Rate and Rate Statement
  • GBP – UK Construction PMI
  • EUR – ECB President Draghi Speech
  • NZD – New Zealand Employment Change and Unemployment Rate

Wednesday (4th November):

  • AUD – Australian Retail Sales and Trade Balance
  • AUD – Australian Trade Balance
  • GBP – Services PMI
  • USD – US ADP Non-Farm Employment Change
  • CAD – Canadian Trade Balance
  • USD – US Trade Balance
  • USD – US Fed Chair Yellen Testifies
  • USD – US ISM Non-Manufacturing PMI
  • CAD – US Crude Oil Inventories

Thursday (5th November):

  • AUD – Reserve Bank of Australia (RBA) Governor Stevens Speech
  • GBP – Bank of England (BOE) Inflation Report
  • GBP – BOE Official Bank Rate, Monetary Policy Summary, and MPC Official Bank Rate Votes
  • GBP – BOE Governor Carney Speech
  • USD – US Unemployment Claims

Friday (6th November):

  • AUD – RBA Monetary Policy Statement
  • GBP – UK Manufacturing Production
  • CAD – Canadian Building Permits
  • CAD – Canadian Employment Change
  • CAD – Canadian Unemployment Rate
  • USD – US Non-Farm Payrolls
  • USD – US Unemployment Rate

Technical developments:

  • EUR/USD has continued to trade under 1.1100 and could be due for further downside towards 1.0800. Technical bias: Bearish.
  • GBP/USD re-tested 1.5500 resistance, but faces downside pressure ahead of the Bank of England monetary policy summary this week. Technical bias: Slightly Bearish.
  • USD/JPY remains in a consolidation range between two key moving averages and could be due for an impending breakout. Technical bias: Neutral to Slightly Bearish.
  • AUD/USD could extend its breakdown towards multi-year lows as the Australian dollar continues to be pressured and the US dollar finds some Fed-driven support. Technical bias: Bearish.

EUR/USD

james-chen-EURUSD-2015-11-02

The past week saw EUR/USD fluctuate well below key resistance at the 1.1100 level. In the week prior, the currency pair had plunged below that level after a dovish ECB press conference indicated that the central bank would be open to further quantitative easing. In terms of the recent EUR/USD weakness, helping along the euro currency’s understandably negative reaction to those ECB remarks was a sharp rebound for the US dollar, which extended slightly further this past week. This rebound was reinforced by a relatively hawkish FOMC statement this past week that increased speculation over a potential Fed rate hike in December. Still mired well under key resistance factors including the noted 1.1100 resistance level, the 200-day moving average, and a well-defined uptrend support line extending back to March’s 12-year low, EUR/USD continues to carry a bearish bias and outlook, especially in light of the current monetary dynamics of both the ECB and the Fed. If the currency pair remains under the noted resistance factors into the new trading week, the clear downside target is at the 1.0800 support level, followed by the long-term lows around the 1.0500 support objective.

GBP/USD

james-chen-GBPUSD-2015-11-02

GBP/USD surged this past week and has risen to re-test the 1.5500 resistance level to start the new trading week. The 1.5500 level was tested multiple times in mid-October, but the currency pair was unable to breach it. Despite this surge, the new trading week brings a very important indicator for GBP/USD – the Bank of England’s official bank rate and monetary policy summary. Like the US, with the UK also potentially on track to raise interest rates in the foreseeable future, any hawkish or dovish signals coming out of the Bank of England this week should be a major mover of the British pound. Currently, the key levels to watch continue to be the noted 1.5500 resistance area to the upside and the 1.5350 support level to the downside. The 1.5350 level is also where the 50-day and 200-day moving averages recently converged in a bearish technical pattern commonly referred to as a “death cross.” In the event of further bearish momentum below 1.5350, the next major downside target is at the key 1.5100 support level.

USD/JPY

james-chen-USDJPY-2015-11-02

USD/JPY has fluctuated within the past week between two key moving averages – the 50-day and 200-day. Most recently, the Bank of Japan kept its monetary policy unchanged, with no plans for further quantitative easing. Understandably, the Japanese yen rose on this news, placing pressure on USD/JPY. With the current consolidation between two key moving averages, the currency pair could be winding up for a breakout. While there is a slight bearish bias from a technical perspective, any further strength and support for the US dollar in light of the Fed’s relatively more hawkish stance could mitigate much further downside. Currently, the major downside level to watch continues to be the key 120.00 psychological level. A breakdown below 120.00 could send USD/JPY back down towards 118.00-area support, where it dipped in mid-October. Any further upside should be met by major resistance around the 122.00 level.

AUD/USD

james-chen-AUDUSD-2015-11-02

The past week saw AUD/USD break down below key 0.7200 support after consolidating above that level for much of October. Prompting this breakdown was not only a surge in the US dollar, but also a low inflation reading out of Australia that potentially heightens the prospects of yet another interest rate cut by the Reserve Bank of Australia (RBA). From a longer-term view, AUD/USD continues to be deeply entrenched within a sharp downtrend that has been in place for well more than a year, and the directional bias currently remains firmly to the downside. If the currency pair continues to trade under 0.7200, the next major downside targets are at the 0.7000 psychological level followed by the 0.6800 support objective.

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