Euro Bounces, Commodities Recover, US GDP Ahead

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 1.5008 – 17Dec high – Strong
• R1 1.4950 – 18Dec high – Medium
• S1 1.4865 – 17Dec low  – Medium
• S2 1.4800 – Figure  – Strong

GBPUSD – fundamental overview

Over the past several weeks, the market has seen the Bank of England increasingly diverge from the Fed, while at the same time, converging with the European Central Bank, with respect to monetary policy timelines. Softer UK data, subdued inflation and comments from BOE officials, have extended the wait for any form of a rate hike from the BOE, with Carney and Co. in no rush to move on rates any time soon. Perhaps weekend comments from the normally hawkish BOE Weale, who has seemingly defected to the dovish camp, after dismissing the need for tighter policy, have also been helping to back up this recent shift in policy expectations and weigh more heavily on the Pound. On the data front, UK GfK consumer confidence came in slightly better overnight and looking ahead, we get UK public finance and public sector net borrowing, along with a batch of US releases featuring GDP,  the house price index, existing home sales and Richmond Fed manufacturing.

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 120.84 – 21Dec low – Medium
• S2 120.34 – 14Dec low – Strong

USDJPY – fundamental overview

The major pair continues to consolidate recent declines, after the BOJ left policy on hold last week, with only minor tweaks to its program. This in conjunction with a decision showing 3 dissents has left many investors less convinced the central bank will do as much on the easing front going forward, which has been keeping the Yen bid. Additionally, the latest IMM positioning data shows a significant reduction in Yen shorts, which is also factoring into price action. Finally, this latest downturn in global sentiment and weakness in equities is also inviting Yen demand, with the Japanese currency still sharing traditional inverse correlations with risk sentiment. Looking ahead, we get a batch of US data featuring GDP,  the house price index, existing home sales and Richmond Fed manufacturing.

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, could weigh 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 on a path of weakening its local currency. The SNB certainly won’t be pleased with the notable shift in CHF IMM positioning, with the market shifting from a convincing net short to net long. In the interim, Monday’s rebound in the Euro and stocks has helped to lift the cross rate into Tuesday. Swiss trade data will be digested today as well.

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 0.7283 – 15Dec high – Strong
• R1 0.7247 – 17Dec high – Medium
• S1 0.7155 – 21Dec low – Medium
• S2 0.7097 – 17Dec low – Strong

AUDUSD – fundamental overview

The recovery in commodities and stocks over the past 24 hours has been a welcome development for the Australian Dollar, with the currency emerging as one of the outperformers into Tuesday trade. Lack of any meaningful economic data out of Australia in the early week, will keep Aussie trading on external drivers, broader macro flows and sentiment, with the focus for today on a batch of US data featuring GDP, the house price index, existing home sales and Richmond Fed manufacturing.

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 beaten down Canadian Dollar, trading at 11-year lows against the Buck, has been finding some welcome relief into Tuesday trade, with the Loonie benefiting from a bullish reversal in the price of OIL and other commodities. There has also been some mild profit taking on US Dollar longs across the board, further contributing to CAD gains. Earlier this month, Governor Poloz introduced the idea of negative interest policy and although the central bank is far from officially committing to a move in this direction, the exercise itself is something that has accelerated the recent wave of Canadian Dollar declines. Looking ahead, no first-tier economic data out of Canada, and the focus will be on a batch of US releases featuring GDP, the house price index, existing home sales and Richmond Fed manufacturing.

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 0.6893 – 16Oct high– Strong
• R1 0.6835 – 16Dec high– Medium
• S1 0.6721 – 21Dec low – Medium
• S2 0.6681 – 18Dec low – Strong

NZDUSD – fundamental overview

Developments on the local front have been supporting Kiwi in recent trade, with Monday’s rise in Westpac consumer confidence further contributing. Overall, solid local leads, improving dairy and a more upbeat RBNZ have been driving relative outperformance in the New Zealand Dollar, despite broader demand for US Dollars as the Fed sets out on a path of policy normalisation. More support for the local currency into Tuesday on this latest rebound in commodities prices. The market will now look ahead to Tuesday’s US data releases featuring GDP, the house price index, existing home sales and Richmond Fed manufacturing. Shortly after, in early Wednesday trade, we get New Zealand trade.

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 broader weakness in commodities, 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 key focus for Tuesday will be on a batch of US data featuring GDP, the house price index, existing home sales and Richmond Fed manufacturing.

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 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 the 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. But the higher rates go in Mexico, the more of a strain on the local economy. And with the 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, more record lows are to be expected for the Peso, despite higher rates.