Desks Thin Out Into Heart of Holiday Season

GBPUSD – technical overview

The latest break below 1.4895 has confirmed another lower top at 1.5240, within a very well defined downtrend off the 2015 high. This now opens the next major downside extension, exposing a retest of the 2015 low at 1.4566 in the days ahead. Any rallies should be very well capped ahead of 1.5240, with only a break above to delay prospects for additional declines and compromise immediate downside pressure.

• R2 1.5098 – 16Dec high – Strong
• R1 1.5008 – 17Dec high – Medium
• S1 1.4865 – 17Dec low  – Medium
• S2 1.4800 – Figure  – Strong

GBPUSD – fundamental overview

The Pound has emerged as a relative underperformer in recent days, with the market pricing in a less hawkish Bank of England, unlikely to follow in the Fed’s footsteps as quickly as many had initially anticipated. The combination of softer UK data and subdued inflation have prompted many BOE officials to highlight the fact that the central bank is in no hurry to raise rates. Most recently, the normally hawkish Martin Weale was out saying further downward pressure on inflation meant there was less urgency to hike. This shift in BOE expectations has opened a more significant policy divergence, while at the same time, escalating fear of a potential Brexit has also knocked the UK currency. Looking ahead, lack of first tier data leaves the market focused on UK CBI reported sales and the Chicago Fed national activity index.

USDJPY – technical overview

Rallies continue to be vey well capped below critical 123.76 range resistance and while the market holds below this level, risks are tilted to the downside, with a lower top sought out ahead of a bearish continuation back towards the psychological barrier at 120.00 and below. Only back above 123.76 would negate and force a shift in the structure.

• R2 122.20 – 17Dec low – Strong
• R1 122.00 – Figure – Medium
• S1 121.00 – Figure – Medium
• S2 120.34 – 14Dec low – Strong

USDJPY – fundamental overview

Quite a shakeup in the Yen on Friday, with the market experiencing whipsaw price action in the aftermath of a confusing BOJ policy decision, in which the monetary base held steady. The Yen was initially hit hard on the announcement, with participants assuming BOJ adjustments were greater than they actually proved to be. But on net, no change and no additional easing, with the announced 300B in annual ETF purchases merely offsetting the removal of an older central bank program to buy shares. This in conjunction with a 6-3 vote showing plenty of dissent to the BOJ changes, quickly had investors buying Yen back, while a fresh wave of risk liquidation, further contributed to Yen demand, keeping the currency supported into the new week.

EURCHF – technical overview

The market has entered a period of multi-week consolidation following an impressive recovery earlier in the year. At this point, the recovery structure remains intact, with only a break back below 1.0714 to compromise. As such, look for setbacks to continue to be well supported ahead of 1.0714 in favour of the next major upside extension through 1.1050 and towards 1.1200 further up.

• R2 1.1050 – 11Sep high – Strong
• R1 1.0950 – 13Oct high – Medium
• S1 1.0755 – 12Nov low – Medium
• S2 1.0714 – 19Aug low – Strong

EURCHF – fundamental overview

The SNB has been able to breathe out a bit in December, following a less dovish ECB meeting, allowing the SNB to hold steady and avoid a deeper push into negative interest rate territory. Still, the SNB will need to be careful with the emergence of risk off flow post FOMC, with the higher rates in the US to potentially act as a disincentive to be long risk assets, which in turn, is weighing on the correlated EURCHF rate. This in conjunction with a Euro coming back under pressure could prove to be a double headed dragon the SNB will have a very difficult time battling in the days ahead, if it hopes to continue to keep the Franc capped.

AUDUSD – technical overview

The market continues to show signs of topping out in favour of a resumption of the broader underlying downtrend, with a fresh medium-term lower top sought out at the recent 0.7385 high. Any rallies are therefore classified as corrective and should continue to be well capped ahead of 0.7385, with deeper setbacks projected in the sessions ahead back towards the recent multi-year base just shy of 0.6900. At this point, only a daily close back above 0.7385 would undermine the bearish structure.

• R2 0.7247 – 17Dec high – Strong
• R1 0.7200 – 18Dec high – Medium
• S1 0.7097 – 17Dec low – Medium
• S2 0.7016 – 10Nov low – Strong

AUDUSD – fundamental overview

A mild recovery in commodities prices has failed to prop the Australian Dollar much into the new week, with the currency still under pressure on narrowing yield differentials with the US and a fresh wave of risk liquidation flow. However, with the markets now settling into holiday trade, volumes are expected to thin out dramatically and this could result in some quieter trade in the days ahead. Lack of meaningful economic data for the remainder of the day will certainly contribute to the quieter trade, with only the Chicago Fed national activity index due.

USDCAD – technical overview

The strong uptrend remains well intact, with the market taking out the previous 11-year peak from September, and surging to fresh multi-year highs at 1.4001 thus far, just shy of the 2004 peak of 1.4007. Technical studies are however tracking in severe overbought territory across the board, and there is risk for some form of a healthy corrective retreat. Still, any setbacks should be well supported ahead of 1.3400, while ultimately, only back below 1.3000 would delay the constructive structure.

• R2 1.4007 – 2004 high – Very Strong
• R1 1.4001 – 18Dec/2015 high – Strong
• S1 1.3854 – 18Dec low – Medium
• S2 1.3778 – 17Dec low – Strong

USDCAD – fundamental overview

The Canadian Dollar came to within a stone’s throw of its 2004 low against the US Dollar on Friday, with the Loonie extending declines to fresh 11-year lows on the back of ongoing weakness in commodities markets and a further widening in US Dollar yield differentials post FOMC. OIL prices have dropped back towards this week’s 6-year low, all while the market is contending with a broader liquidation in risk assets, yet another weight on the Canadian Dollar. While the lower exchange rate will unquestionably help Canadian exports, at the same time, the lure of cheaper exports is lost if global demand slows down. Looking ahead, there is no first tier data scheduled on Monday, with only the Chicago Fed national activity index due in the US. On the official circuit, Bank of Canada Governor Poloz is scheduled to make a presentation to Canadian finance ministers.

NZDUSD – technical overview

Any rallies continue to be very well capped, with the market confined to a broader downtrend. From here, look for the formation of a meaningful lower top at 0.6893, in favour of an acceleration to the downside and bearish resumption to fresh multi-year lows. Ultimately, only a daily close above 0.6893 will negate and potentially force a shift in the structure.

• R2 0.6835 – 16Dec high– Strong
• R1 0.6801 – 17Dec high– Medium
• S1 0.6681 – 19Dec low – Medium
• S2 0.6571 – 9Dec low – Strong

NZDUSD – fundamental overview

A New Zealand Dollar that has managed to hold up relatively well over the past several days, is finally succumbing to the pressures of sinking commodities prices, faltering equities and favourable US Dollar yield differentials post FOMC. While developments on the local front may have been supporting Kiwi in recent trade, any positives from the recent hawkish rate cut and better round of economic data have been diminished by broader macro drivers. The Fed’s expectation for 100 basis points of rate hikes next year has become a bigger concern for risk markets over the past couple of sessions, with the Fed’s path to policy normalisation potentially coming at the expense of a still struggling global economy. Monday’s rise in New Zealand Westpac consumer confidence could however be propping Kiwi a bit in early trade. Looking ahead, lack of first tier data will keep the market trading on broader flow.

US SPX 500 – technical overview

Signs of exhaustion following an impressive multi-year rally to a fresh record high in 2015. The market has finally stalled out at 2137, with the latest break and daily close back below 2003 strengthening the case for the formation of a major top. Look for this latest bearish close to now open an acceleration of declines towards next medium-term support in the 1870 area, while only back above 2117 negates.

• R2 2082.00 – 17Dec high – Strong
• R1 2040.00 – 18Dec high – Medium
• S1 1993.00 – 14Dec low – Strong
• S2 1970.00 – 7Oct low – Medium

US SPX 500 – fundamental overview

It seems reality is finally setting in for stock market participants post Fed, with any bullishness from Fed confidence in initiating liftoff offset by harsher realities. The fact that the Fed will be looking to raise rates four times next year should be somewhat concerning to a market that has been supported to record highs over the past several years on near zero interest rate policy. This in conjunction with declining commodities prices, stress in the high yield market and a still struggling global economy make for a policy divergence that could ultimately be a most unwelcome development for risk assets. Looking ahead, the economic calendar for Monday is thin and the market is expected to trade off broader macro flows.

GOLD (SPOT) – technical overview

The market hovers just over the recent multi-year at 1046, with a break below to end a period of bearish consolidation, opening the door for the next major downside extension to critical psychological barriers at 1000. At this point, a push back above 1100 would be required to force a shift in the structure and alleviate immediate downside pressure.

• R2 1112.00 – 5Nov high – Strong
• R1 1098.00 – 16Nov high – Medium
• S1 1046.00 – 3Dec/2015 low – Medium
• S2 1000.00 – Psychological – Very Strong

GOLD (SPOT) – fundamental overview

Despite the US Dollar in strong demand as the Fed finally initiates liftoff, GOLD is finding formidable support into this latest dip, given the struggling global economy and uncertainty in the air, particularly now that Fed is reversing course and other central banks are fully extended with accommodative measures. Longer term macro players have also been accumulating the metal as a hedge against an overinflated equity market that could be on the verge of major capitulation. This has helped GOLD stay somewhat supported, in the face of broader weakness in the commodity sector. Dealers cite stops major stops below $1040 and above $1100.

Feature – technical overview

USDMXN has recently broken to yet another fresh record high, with the market taking out the previous peak from September. Daily studies are however now in the process of unwinding from stretched levels, and there is risk for additional consolidation in the sessions ahead before any meaningful bullish resumption. Still, setbacks should be very well supported ahead of previous resistance in the 16.7000 area, while only back below 16.3270 would compromise the highly constructive outlook.

• R2 17.4680 – 14Dec/Record – Strong
• R1 17.2945 –14Dec low – Medium
• S1 16.9000 – 16Dec low – Medium
• S2 16.3270 – 15Oct low – Strong

Feature – fundamental overview

The Mexican Peso has found some relief since this past week’s event risk, which saw Banxico follow in the footsteps of the Fed, also raising rates. However, the move by Mexico’s central bank is less than ideal, with the local economy contending with well below forecast GDP and record low inflation. This in conjunction with a Peso at record lows, has not been a welcome recipe for the central bank, which has opted to prioritize dealing with a record low currency over softer growth and subdued inflation. The higher rates go in Mexico, the more of a strain on the local economy, and with Banxico committed to following the Fed, this presents challenges going forward, especially if the Fed keeps with its timeline of 100 basis points of hikes in 2016. Throw in ongoing weakness in commodities and a fresh wave of risk liquidation and more record lows are to be expected for the Peso, despite higher rates.