US Dollar Retreats On Short-Term Profit Taking

GBPUSD – technical overview

A multi-day bearish consolidation has been broken, with the market taking out the 1.5485 range base, to open fresh +18 month lows and the next major downside extension. From here, deeper setbacks are now seen towards the 2013 base at 1.4814, while only back above 1.5620 would delay the bearish outlook.

• R2 1.5583 – 2Jan/2015 high – Strong
• R1 1.5485 - 23Dec low – Medium
• S1 1.5176 – 5Jan/2015 low  – Medium
• S2 1.5100 – Figure – Medium

GBPUSD – fundamental overview

Cable remains under pressure into 2015, with the most recent declines coming on the back of a slide in the Euro on Greek political uncertainty. The Pound has traded down to 18 month lows against the Buck and is at risk of a full retracement to the 2013 base just ahead of 1.4800. Softer UK PMIs over the past few days have also been weighing on the Sterling market. There is potential for some profit taking over the coming sessions to allow for extended studies to unwind, but ultimately, over the medium-term, the market should remain under pressure as the Fed diverges further from the BOE in 2015 and yield differentials move more favourably in the Buck’s direction.

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 at 115.55 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 115.55 delays.

• R2 120.83 – 23Dec high – Strong
• R1 119.51 – 6Jan high – Medium
• S1 118.25 – 18Dec low – Strong
• S2 118.00 – Figure – Weak

USDJPY – fundamental overview

The major pair has come under some pressure in recent trade on the back of risk reduction, equity market weakness and broad based profit taking on US Dollar longs. Still, despite the weakness, USDJPY is widely considered to be an attractive long play in 2015 as economic data further highlights the ongoing policy divergence between the Fed and BOJ. Also supporting USDJPY has been a worry that falling commodities prices will prevent the BOJ from achieving its 2% inflation objective. Dealers cite good demand ahead of 117.00.

EURCHF – technical overview

Although the market has been showing some signs of the formation of a major base above 1.2000, recent attempts through key resistance at 1.2045 have failed to garner momentum. 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. However, inability to close above 1.2045 keeps the immediate pressure on the downside, with a 1.2000 breach still possible.

• R2 1.2098 – 18Dec high – Very Strong
• R1 1.2045 – Previous Support – Strong
• S1 1.2013 – 5Jan 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 fails to break away from the 1.2000 floor. 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 weight of a potential Greek exit is certainly not helping. 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. SNB Jordan was on the wires Monday with his first public comments since the central bank introduced NIRP on December 18th. Jordan did not back down from the SNB’s commitment to defend the floor saying, “the cap is absolutely central for maintaining the adequate, correct monetary conditions for Switzerland.”

AUDUSD – technical overview

The pair continues to extend declines to fresh yearly and multi-year lows, with the price approaching the next key psychological barrier at 0.8000. While the structure remains intensely bearish, daily studies are a little stretched and there is room for a minor correction to allow for these studies to unwind a bit. But ultimately, any rallies should prove to be very well capped ahead of 0.8400, with only a break back above 0.8540 to negate the bearish outlook.

• R2 0.8274 – 16Dec high – Medium
• R1 0.8216 - 31Dec high – Strong
• S1 0.8035 – 5Jan low – Medium
• S2 0.8000 – Psychological – Strong

AUDUSD – fundamental overview

The Australian Dollar is trading just off recent +5 year lows, and remains at risk for deeper setbacks in 2015. US economic data has been solid and will put more pressure on the Fed to move sooner than later with a rate hike in 2015, while the Australian economy is contending with a slowing China and rapidly declining commodities prices. RBA Stevens has done nothing to help Aussie’s cause, welcoming an exchange rate closer to 0.7500. The release of the latest softer Aussie PMI data, which came in at 46.9, well below previous and the 50 boom/bust level, has not helped the Australian Dollar’s cause. Any gains in this pair are viewed as nothing more than short-term profit taking, with heavy offers cited on rallies.

USDCAD – technical overview

The outlook for this pair remains highly constructive, with the price recently breaking some medium-term resistance and pushing to fresh +5 year highs. The next key topside objective comes in at the 1.1877, 2007 high, while any setbacks are now expected to be very well supported ahead of previous resistance turned support at 1.1280. Ultimately, only back below 1.1280 would stall the bullish momentum.

• R2 1.1877 – 2007 high – Strong
• R1 1.1842 - 5Jan high – Medium
• S1 1.1700 – Figure – Weak
• S2 1.1674 – 15Dec high – Strong

USDCAD – fundamental overview

The Canadian Dollar remains under a good amount of pressure into 2015, with USDCAD recently pushing to fresh 5-year highs. The ongoing slide in oil prices has been a major drag on the Loonie, with the Canada economy heavily correlated to the direction in the commodity, which has given up more than half its value since June, breaking down below the critical $50 barrier. 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. Throw in a Fed that is expected to hike rates sooner than later, and the outlook for the pair remains constructive over the medium-term.

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 0.7200 on a break below 0.7600. Look for the 0.7800-0.7900 area to continue to act as formidable resistance, while ultimately, only back above 0.8035 would compromise the bearish outlook.

• R2 0.7800 – 2Jan high – Strong
• R1 0.7747 - 6Jan high – Weak
• S1 0.7618 – 5Jan low – Medium
• S2 0.7609 – 9Dec/2014 low – Strong

NZDUSD – fundamental overview

Kiwi has been very well supported in recent weeks, aided by the attractive yield differentials. But with stocks looking vulnerable off record highs and commodities under constant pressure, the risk correlated currency could soon be at risk for relative underperformance. Solid US economic data only further highlights the ongoing Fed, RBNZ policy divergence and should weigh on the higher yielding Kiwi into 2015. Look out for more cross related Kiwi offers against the Australian Dollar, with AUDNZD attempting to recover from multi-year lows. Dealers cite heavy stops below 0.7600.

US SPX 500 – technical overview

Although the broader uptrend remains well intact, there are signs of reversal after the market put in a bearish outside week off record highs. Look for confirmation of a meaningful top over the coming days, as the market attempts to show follow through from last week’s bearish formation. But ultimately, a break below 1970 would be required to confirm and force a meaningful shift in the structure. Back above 2100 negates and opens fresh upside.

• R2 2o97.00 – 29Dec/Record high– Very Strong
• R1 2056.00 – 5Jan high – Medium
• S1 2013.00 – 18Dec low – Medium
• S2 1970.00 – 16Dec low – Strong

US SPX 500 – fundamental overview

Now that we are finally into 2015 and portfolio managers have successfully pushed equities to yet another record high in 2014, we are finally seeing some form of a capitulation as reality sets in. All signs point to a Fed rate hike over the coming months and with easy money incentives fading away, the motivation to be long equities could also dissipate. Meanwhile, signs of distress in global markets have inspired some risk reduction, and this could open the door for additional liquidation in the days ahead.

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 1167.00 – 2Jan low – Medium
• S2 1131.00 – 7Nov/2014 low – Strong

GOLD (SPOT) – fundamental overview

We are seeing a bit of a battle in the gold market with decent two way demand. On the bearish side, 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. On the bullish side, speculators have 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, with the market once again breaking down through a bearish consolidation to fresh multi-year lows through major support at 50.00. However, daily studies are looking stretched and there is risk building for some form of a major corrective reversal. As such, any weakness below 50.00 is expected to be well supported over the short-term. At the same time, a break back above 60.00 would be required to take the pressure off the downside.

• R2 55.70 – 29Dec high – Medium
• R1 52.65 – 5Jan high – Medium
• S1 49.65 – 5Jan low – Weak
• S2 49.00 - Figure– Medium

Feature – fundamental overview

The dramatic pullback in oil prices over the past several months 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. Recent data shows specs scaling back on long bets for the first time in 4 weeks, and reducing exposure by some 5%, after being frustrated with attempts to find a bottom in this market.