US Dollar Looking to Extend Gains Into Year End

GBPUSD – technical overview

The major pair has been locked in some sideways trade just off the recent year low at 1.5541, with the price action classified as a bearish consolidation ahead of the next major downside extension towards the 1.5250 area. Ultimately, only a break and daily close back above 1.5826 would take the immediate pressure off the downside.

• R2 1.5826 – 27Nov high – Strong
• R1 1.5786 - 16Dec high – Medium
• S1 1.5541 – 8Dec/2014 low  – Strong
• S2 1.5500 – Psychological – Medium

GBPUSD – fundamental overview

The Pound is coming off a solid week of economic data, highlighted by impressive retail sales and employment. However, with the Bank of England Minutes showing upgraded concern over the softer inflation outlook, the BOE is unlikely to make any move towards higher rates any time soon. This should keep the Pound weighed down against the Buck on the diverging policy theme, but at the same time, we could see outperformance relative to other currencies, with the UK economy looking better than other economies ex-US.

USDJPY – technical overview

The market remains locked within a very well defined uptrend, with setbacks continuing to be very well supported on minor dips. The recent correction off fresh 7-year highs at 121.85 has stalled out around 115.50 and a fresh higher low is now sought ahead of the next major upside extension back through 121.85 and towards the 125.00 are further up. Only back under 115.50 delays.

• R2 120.20 – 8Dec low – Medium
• R1 119.92 – 10Dec high – Medium
• S1 118.25 – 18Dec low – Medium
• S2 117.44 – 11Dec low – Medium

USDJPY – fundamental overview

Last week, the Bank of Japan left policy unchanged, maintaining its unprecedented stimulus, holding the annual target of monetary base expansion at JPY80Tln and leaving interest rates near zero. Meanwhile, the Fed has kept to its tightening path and will be looking to raise rates in the first half of 2015. The dramatic policy divergence has been dominating trade in recent months, driving USDJPY to 7-year highs, and continues to keep the major pair elevated into year end. Expect trade to thin out a good deal this week, with Japanese markets already closed for holiday on Tuesday.

EURCHF – technical overview

The market has finally broken out of a very tight multi day range, with the price surging back through key resistance at 1.2045 to suggest a major base in the works. Look for a daily close above 1.2045 on Monday to confirm the constructive outlook and open the door for a test of next key resistance at 1.2140 further up. Inability to close above 1.2045 will however delay recovery prospects.

• R2 1.2140 – 7Oct high – Strong
• R1 1.2098 – 18Dec high – Medium
• S1 1.2025 – 19Dec low – Medium
• S2 1.2007 – 17Dec/2014 low– Strong

EURCHF – fundamental overview

Finally some movement in EURCHF, with the SNB catching the market off guard last week, introducing negative interest rate policy (“NIRP”). The SNB moved rates to minus 0.25% and opened the door for a decline in the Franc and breakout in the EURCHF market. The successful defense of the 1.2000 floor may come as a surprise to many out there, after the rate had been trading just a few points off the level for so many sessions. SNB Jordan explained the recent crisis with the Ruble had resulted in massive inflows that forced the SNB to take action. It’s also interesting to note the SNB’s NIRP will take effect on the same day as the next ECB policy decision (January 22). Perhaps the move also acts as preemptive effort ahead of the ECB. Still, even with the dramatic policy move, EURCHF hasn’t been able to hold onto gains, and will need to establish back over 1.2045 to encourage legitimate recovery prospects.

AUDUSD – technical overview

The pair continues to extend declines to fresh yearly and multi-year lows, with the price inching closer and closer to next key psychological barriers at 0.8000. While the structure remains intensely bearish with deeper setbacks ahead, the market is also tracking in oversold territory and could be due for some form of a corrective bounce ahead of bearish resumption. But ultimately, any rallies should prove to be very well capped ahead of previous support turned resistance around 0.8550.

• R2 0.8274 – 16Dec high – Medium
• R1 0.8235 - 17Dec high – Medium
• S1 0.8107 – 17Dec/2014 low – Medium
• S2 0.8000 – Psychological – Strong

AUDUSD – fundamental overview

The Australian Dollar has enjoyed a modest bounce in recent trade, with the currency benefitting from the resurgence in demand for equities and latest SNB move to negative interest rates. Still, any Aussie gains are not expected to last given the ongoing policy divergence with the Fed and slowing Aussie economy. The Fed is still on track for a rate hike in the first half of 2015, and the RBA is moving in the opposite direction. Larger macro accounts have been major players in the AUDUSD short trade on the policy divergence and declining commodities themes, and are still looking to build into this position for 2015.

USDCAD – technical overview

The outlook for this pair remains highly constructive, with the price recently breaking some medium-term resistance and pushing to fresh multi-year highs. The next key topside objective comes in at 1.1750, while any setbacks are now expected to be very well supported into previous resistance turned support around 1.1465. Ultimately, only back below 1.1300 would stall the bullish momentum.

• R2 1.1750 – Measured Move – Strong
• R1 1.1674 - 15Dec/2014 high – Medium
• S1 1.1547 – 15Dec low – Medium
• S2 1.1467 – Previous 2014 High – Strong

USDCAD – fundamental overview

Although we have seen a mild recovery over the past few sessions, the Canadian Dollar remains under a good amount of pressure, with USDCAD at 5 year highs. The ongoing slide in oil prices has been a major drag on the Canadian Dollar, with the Canada economy heavily correlated to the direction in the commodity, which is down about 50% since June. Recent speculative positioning data shows a pickup in Canadian Dollar short positions in reaction to the oil slide. Bank of Canada Governor Poloz has warned the drop in oil prices could be reflected in January’s monetary policy statement, and this is something the markets will be watching. Not much of a reaction to the latest bout of mixed data, with Canada retail sales slightly better, while CPI came in a good deal softer.

NZDUSD – technical overview

Although the market trades just off recent 2014 lows, price action in this pair has been mostly sideways of late. However, the underlying downtrend remains firmly intact, with deeper setbacks favoured towards 0.7285 on a break below 0.7600. Look for the 20-Day SMA to continue to act as formidable resistance, while ultimately, only back above 0.8035 would compromise the bearish outlook.

• R2 0.7975 – 17Nov high – Strong
• R1 0.7871 - 11Dec high – Medium
• S1 0.7680 – 18Dec low – Medium
• S2 0.7609 – 9Dec/2014 low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar hasn’t been bothered too much by the release of some softer Q4 consumer confidence data, which came in at 114.8 versus 116.7 previous. The currency has still managed to track modestly higher in early Monday trade. But gains are not expected to last, with heavy offers from larger macro players seen around the 0.7800 area and all the way up to 0.8000. Many of these players are looking for a strong US Dollar and softer equities in 2015, which should translate into Kiwi underperformance.

US SPX 500 – technical overview

The broader uptrend is well intact, with the market putting in a higher low last week by the top of the daily Ichimoku cloud and reversing sharply back to fresh record highs. The break above 2080 now opens the door for a test of the next major psychological barrier at 2100 further up. At this point, only back below 2010 would compromise the highly constructive outlook.

• R2 2100.00 – Psychological – Very Strong
• R1 2082.00 – 19Dec/Record High – Strong
• S1 2033.00 – 12Dec high – Medium
• S2 2010.00 – 18Dec low – Strong

US SPX 500 – fundamental overview

The stock market has welcomed the latest Fed decision with open arms. It seems investors believe the Fed managed to hit the sweet spot last week. The Fed offered a more upbeat outlook on the economy, while at the same time letting the markets know it would remain ‘patient’ on rates. While it is unclear how much longer the easy money angle will support an overinflated equity market, for the time being, participants are welcoming the decision. Still, Yellen has signaled a possible rate hike as soon as April, and this could be something that starts to weigh more heavily on stocks into 2015. The fact that the US Dollar has mostly appreciated in reaction to the Fed could be a bit of a red flag.

GOLD (SPOT) – technical overview

The market has done a good job of mounting a healthy recovery over the past several weeks, out from multi-year lows at 1131. The price action could be suggestive of some form of a meaningful base in the works. But a break back above 1256 would be required to strengthen this outlook. Inability to clear 1256 would keep the underlying downtrend intact and leave the market vulnerable to another test of the 1131 base.

• R2 1256.00 – 21Oct high – Strong
• R1 1238.00 – 10Dec high – Medium
• S1 1183.00 – 17Dec low – Medium
• S2 1131.00 – 7Nov/2014 low – Strong

GOLD (SPOT) – fundamental overview

Even with the latest setbacks, gold has still been very well supported in recent weeks. Though there has been no specific catalyst for a resurgence in demand, signs of ongoing stress in the global economy, despite aggressive monetary policy efforts, have raised questions over the effectiveness of easy money central bank policy. Investors appear to be quite comfortable buying into the hard asset, with the push back into the 1200 area taking a lot of the pressure off the downside. The latest decision by the Fed to stay ‘patient’ is also seen supporting the yellow metal in recent trade. There are still good offers out there from bearish commodity players, but dealers are now citing solid two way interest, with larger macro accounts on the bid. There is also speculation Russia could be weighing on the metal, as it considers selling gold reserves, using the proceeds to intervene on behalf of a rapidly declining Ruble.

Feature – technical overview

US OIL (spot) recoveries have been short-lived, despite some very overextended technical readings. From here, there is risk for another downside extension on a break below 53.60, which could expose a measured move objective at 48.20. However, with the market having dropped so sharply in recent months, there is also good risk for some form of stabilization and the formation of an interim base. Look for a daily close back above the 10-Day SMA to strengthen the case for the onset of a legitimate correction.

• R2 61.65 – 11Dec high – Medium
• R1 59.00 – 18Dec high – Strong
• S1 53.60 – 16Dec/2014 low – Strong
• S2 53.00 - Figure – Medium

Feature – fundamental overview

Ali Al-Naimi, the oil minister of Saudi Arabia, has reaffirmed his stance the country will be making no moves to cut production despite the ongoing slide in prices, even if other nations outside of OPEC choose to make production cuts. While the drop in oil has been most unwelcome, the oil minister remains confident prices will rise at some point once again. Until then, the world’s largest exporter of oil plans to ride out the wave. The Saudis lower break-even cost has clearly afforded the luxury of employing such a strategy, which is weighing more heavily on countries like Russia, Iran, Venezuela and Nigeria. The booming US shale market has also fallen victim to the major pullback. Oil has however stabilized a bit since dropping to fresh multi-year lows earlier last week.