Buck On the Ropes in Light Holiday Trade

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 1.4908 – 22Dec high – Medium
• S1 1.4805 – 22Dec low  – Medium
• S2 1.4701 – 15Apr low  – Strong

GBPUSD – fundamental overview

Softer UK economic data, subdued inflation, dovish BOE comments and fear of Brexit, have all been weighing heavily on the Pound these past several days. Markets are repricing BOE timeline expectations and reassessing views of the central bank’s policy outlook, which seems to be diverging from the Fed and converging with the ECB. Tuesday’s discouraging UK public finance numbers have done nothing to help matters, with the Pound extending declines across the board and relatively underperforming. A fresh wave of cross related EURGBP demand has also contributed to the latest downside pressure in Cable. Looking ahead, all eyes turn to the results of UK GDP, which is then followed up by a healthy batch of data out of the US, featuring durable goods, personal consumption, new home sales and Michigan confidence.

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 121.50 – 21Dec high – Medium
• S1 120.72 – 22Dec low – Medium
• S2 120.34 – 14Dec low – Strong

USDJPY – fundamental overview

A public holiday in Japan on Wednesday has made for even thinner conditions in an already light Christmas week. Though we did see a slightly better than expected Q3 GDP reading out of the US on Tuesday, the fact that the GDP print was lower than previous and existing home sales came in much softer, seemed to offer enough of an excuse to keep the major pair focused on the downside. Interestingly enough, even a decent recovery in US equities failed to prop the risk correlated major pair. We have also been seeing some broad based selling of the Buck this week, which also could be further contributing to price action. Looking ahead, focus shifts to a healthy batch of US data, featuring durable goods, personal consumption, new home sales and Michigan confidence.

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 of risk off flow into 2016, with 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 any Euro weakness could prove to be a double headed dragon the SNB will have a very difficult time battling. The SNB certainly won’t be pleased with a shift in IMM positioning, with the market shifting from a convincing net short to net long CHF. But for now, this week’s rebound in the Euro and stocks has helped to support the cross rate. Swiss KOF leading indicator digested today.

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 0.7249 – 22Dec high – Medium
• S1 0.7155 – 21Dec low – Medium
• S2 0.7097 – 17Dec low – Strong

AUDUSD – fundamental overview

The Australian Dollar has been performing well this week, with the currency benefitting from broad based profit taking on USD longs post FOMC, and a welcome recovery in the price of iron ore, up over 8% since the December 11th low. Real money account and reserve manager demand has been reported into Wednesday, though overall, with the Fed initiating its path to policy normalisation and the China outlook still in question, there is risk that any additional upside will be challenging, with the broader US Dollar uptrend to reassert. Looking ahead, focus shifts to a healthy batch of US data, featuring durable goods, personal consumption, new home sales and Michigan confidence.

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

Not much going on with the Canadian Dollar in the early week on the thinner pre-Christmas trade. Still with the Loonie having been beaten down to fresh 11-year lows and USDCAD finally taking out major psychological barriers at 1.4000, there has been a natural round of light US Dollar profit taking. This in conjunction with a broad based lightening up of US Dollar longs post Fed, a disheartening round of US existing home sales, and a recovery in the price of OIL, have been factoring into the minor Canadian Dollar recovery. Looking ahead, things will get more interesting on Wednesday, with Canada retail sales and GDP due, along with a healthy batch of US data featuring durable goods, personal consumption, new home sales and Michigan confidence.

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 0.6836 – 22Dec high– Medium
• S1 0.6721 – 21Dec low – Medium
• S2 0.6681 – 18Dec low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has been enjoying a nice rally over the past several days, aided by an upbeat RBNZ, recovery in dairy, and bounce in commodities prices. We have also seen some broad based profit taking on US Dollar longs post FOMC, with Tuesday’s disheartening US existing home sales doing nothing to help the Buck’s cause. Meanwhile, the early Wednesday release of slightly better than expected New Zealand trade has added to Kiwi’s bid tone. Still, with the commodity currency now approaching critical medium-term resistance in the 0.6900 area, there is a good chance a fresh round of offers will emerge from longer-term players looking to take advantage of favourable US Dollar yield differentials, now that the Fed has set on its path to policy normalisation. Looking ahead, we get a healthy batch of US data featuring durable goods, personal consumption, new home sales and Michigan confidence.

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 bearish price action to pave the way for the next downside extension towards medium-term support in the 1870 area. Only back above 2117 negates.

• R2 2082.00 – 17Dec high – Strong
• R1 2055.00 – 15Dec 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. Stocks have recovered from recent lows in very light pre-holiday trade, though fresh offers are expected to emerge in the sessions ahead. For Wednesday, the key focus will be on a healthy batch of data featuring durable goods, personal consumption, new home sales and Michigan confidence.

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. However, there are signs of a potential bottom carving out, though a push back above 1100 would be required to strengthen this outlook and force a shift in the structure.

• 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 US Dollar 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. This week’s better than expected Mexico retail sales hasn’t factored into price action.