Tight Ranges Expected in Razor Thin Holiday Trade

GBPUSD – technical overview

A multi-day bearish consolidation has been broken, with the major pair taking out the 1.5541 range base, to open fresh 2014 lows and the next major downside extension. From here, deeper setbacks are now seen towards a measured move objective in the 1.5250 area, while only back above 1.5826 would compromise the bearish outlook.

• R2 1.5786 – 16Dec high – Strong
• R1 1.5682 - 19Dec high – Medium
• S1 1.5485 – 23Dec/2014 low  – Medium
• S2 1.5400 – Figure – Medium

GBPUSD – fundamental overview

Cable has finally broken down to fresh 16-month lows after holding in a tight range trade for several days. The weakness comes on the back of contrasting Tuesday data, which showed UK growth coming in softer than expected, and US Q3 GDP coming in much better than forecast. The respective releases further highlight an ongoing policy divergence between the BOE and Fed, and this should continue to weigh on Cable into 2015. Also helping the US Dollar’s cause was the near 8-year high in US consumer sentiment data.

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 area further up. Only back under 115.50 delays.

• R2 121.85 – 8Dec/2014 high – Strong
• R1 121.00 – Figure – Medium
• S1 119.30 – 22Dec low – Medium
• S2 118.25 – 18Dec low – Medium

USDJPY – fundamental overview

Japanese markets returned from Tuesday holiday with USDJPY driving higher and closing in on a retest of the recent 7-year peak at 121.85. The primary catalyst for the latest move came from a very healthy batch of US data, which produced a much better than expected Q3 GDP print and solid consumer sentiment. The economic data further highlights the ongoing policy divergence between the Fed and BOJ, which should continue to bolster the major pair into 2015. Also supporting USDJPY has been the drive to fresh record highs in US equity markets. Expect trade to thin out a good deal today, with Christmas Eve finally upon us.

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 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 1.2022 – 23Dec low – Medium
• S2 1.2007 – 17Dec/2014 low– Strong

EURCHF – fundamental overview

The impact of the SNB’s negative interest rate policy move is diminishing with each passing day, as the EURCHF market gravitates back towards the major SNB floor at 1.2000. It seems the likelihood for some form of additional accommodation from the ECB on January 22nd could be offsetting the case for Franc depreciation and this is surely an unwelcome development for the SNB. The SNB remains committed to defending the 1.2000 floor, but until it steps up with another intervention, it looks like the market will continue to test the central bank’s resolve.

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 0.8190 - 10-Day SMA – Strong
• S1 0.8087 – 23Dec/2014 low – Medium
• S2 0.8000 – Psychological – Strong

AUDUSD – fundamental overview

Another day, another slide in the Australian Dollar, which has dropped to fresh +4-year lows following the latest batch of data out of the US, which produced stellar Q3 GDP and impressive consumer sentiment. The data will put more pressure on the Fed to move sooner than later with a rate hike in 2015, resulting in more favourable US Dollar yield differentials. Meanwhile, the Australian economy is contending with reduced demand from China and rapidly declining iron ore prices. Australian prime minister Tony Abbott hasn’t helped Aussie’s cause, after coming out with warnings of a “heightened level of terror chatter” post the recent siege at a Sydney cafe.

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 on the back of better than expected Canada GDP and some stabilization in oil prices, 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 has given up half its value 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.

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 has come under some pressure in recent trade, with the market falling victim to an impressive batch of data out of the US on Tuesday. The much better than expected Q3 GDP and consumer sentiment readings only further highlight the ongoing Fed, RBNZ policy divergence and should continue to weigh on the higher yielding Kiwi into 2015. Though recent NZ trade data produced a better than expected result, the deficit still widened out from previous readings, and this in conjunction with declining dairy prices, is not something that will do anything to help Kiwi’s cause. The NZD has been relatively supported of late on surging US equity prices. But with stocks looking vulnerable at record highs, any weakness here will translate into downside pressure and relative underpeformance in Kiwi into 2015.

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. Q3 GDP, which came in at its fastest pace in 11 years, and consumer sentiment, at 8-year highs, will only increase the likelihood of a sooner than later Fed hike in 2015.

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 1170.00 – 22Dec low – Medium
• S2 1131.00 – 7Nov/2014 low – Strong

GOLD (SPOT) – fundamental overview

Gold has come back under some pressure in recent sessions, with investors losing confidence in the metal as an alternative investment. The ongoing drag in oil prices has not helped, and with inflation nowhere to be seen, many investors have been scaling back on the traditional inflation hedge. Interestingly enough, speculators have actually been increasing long gold exposure, nearly doubling bets since November. These speculators still see gold as an attractive play in an historically low interest rate environment that should ultimately translate into a pickup in global inflation.

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

The pullback in oil prices by around 50% in 2014 has been  major story in global markets, and it’s clear this is a theme that will continue to garner the market’s attention into 2015. Saudi Arabia has been quite vocal that it will do nothing to help prop the price, as it will not be cutting production, while oversupply and lack of demand has further depressed prices. Looking ahead, it will be interesting to see if opposition from other countries within OPEC opens the door for a lift in prices. It will also be important to keep an eye on US shale producers to see just how much longer they can sustain business at current levels. Geopolitical risk is another theme that could influence in 2015 and should not be overlooked.