Market Prepares for Holiday Closure

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

While Wednesday’s UK GDP figures came in a tad below forecast, the data was offset by a better than expected UK current account release. This in conjunction with an oversold and underperforming Pound, inspired some profit taking on Sterling shorts ahead of the holidays, with many participants opting to square up on bearish GBP bets. A better round of Wednesday US data helped to stall Cable’s recovery, though with little in the way of economic data on Christmas eve, and trading conditions thinning out dramatically, there is risk for more positioning squaring. Looking ahead, US initial jobless claims is the only notable release.

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 120.34 – 14Dec low – Medium
• S2 120.02 – 28Oct low – Strong

USDJPY – fundamental overview

A rather stale Bank of Japan Minutes release and nothing new out of Kuroda on Thursday, has left the Yen trading on broader flows, which have been Yen supportive. Overall, nothing new from the BOJ, as it continues to see inflation picking up, but remains willing to act should conditions warrant. It seems the January Minutes will be more interesting following last week’s BOJ policy decision which produced some deceptive policy tweaks and three dissents. Last week’s decision was on net less dovish than expected and this has been fueling additional Yen demand this week. But there has also been some broad based position squaring on long US Dollar trades, acting as a further weight on the major pair in razor thin holiday trade. Interestingly, JP Morgan has come out with a forecast for USDJPY back towards 110.00 into 2016, calling for equilibrium below 100.00. Looking ahead, US initial jobless claims is the only notable release.

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, now that the market has moved from a convincing net short CHF position to net long. But for now, this week’s rebound in the Euro and stocks has helped to support the cross rate.

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 0.7334 – 10Dec high – Strong
• R1 0.7283 – 15Dec high – Medium
• S1 0.7209 – 23Dec low – Medium
• S2 0.7155 – 21Dec low – Strong

AUDUSD – fundamental overview

Australia’s conference board leading index came in at -0.1%, while also showing a downward revision to the previous print. At the same time, the coincident indicator produced a healthy increase. But none of this secondary data is factoring into price action, with the Australian Dollar more fixated on the rebound in commodities prices, broad based profit taking on US Dollar longs into the holidays and a decent resurgence in risk appetite, with equities bid back up. This has helped push Aussie back towards recent range highs, though fresh offers from longer-term macro players are expected to cap well ahead of 0.7400. Looking ahead, trading conditions will be exceptionally thin into the close, with US initial jobless claims the only notable release.

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 in the process of unwinding a bit from severe overbought territory, and there is risk for additional corrective weakness in the sessions ahead before the uptrend reasserts. Still, any setbacks should be very well supported ahead of 1.3400, while ultimately, only back below 1.3000 would compromise the constructive structure.

• R2 1.4001 – 18Dec/2015 high – Strong
• R1 1.3936 – 23Dec high – Medium
• S1 1.3778 – 17Dec low – Medium
• S2 1.3673 – 15Dec low – Strong

USDCAD – fundamental overview

The Canadian Dollar was spared what could have been another round of intense declines on Wednesday, following softer Canada GDP and retail sales prints and an on the whole solid round of US data. Yet the Loonie was able to find a good deal of comfort in OIL price action, with the correlated currency benefitting from the resurgence in demand for the black gold. An unexpected decline in crude stockpiles was seen as the fundamental catalyst for the surge in OIL, up nearly 4%, though with this market having been so beaten down, it didn’t feel like it would take much to inspire some form of a correction. Looking ahead, trading conditions will continue to thin out dramatically ahead of the holiday close, with only US initial jobless claims standing out on the calendar.

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, and into year end. 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. Furthermore, as much as dairy has recovered from the depths of 2015 lows, the market is still suffering and will face further headwinds in 2016 that could once again weigh on the New Zealand Dollar. Looking ahead, trade conditions will continue to thin out dramatically, with the only notable economic release coming in the form of US initial jobless claims.

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 recent break back below 2000 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. Any rallies should be well capped below 2100, while ultimately, only back above 2117 negates.

• R2 2117.00 – 3Nov high – Strong
• R1 2082.00 – 17Dec high – Medium
• S1 2040.00 – 23Dec low – Strong
• S2 1993.00 – 14Dec 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. US initial jobless claims is the only notable release on this Christmas Eve.

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 favourable US Dollar fundamentals 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 major buy 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 minor relief since this past week’s event risk, which saw the Banxico follow in the footsteps of the Fed, with a rate rise of its own. However, unlike the Fed, the move by Mexico’s central bank is less than ideal and carries much greater risk, as the local economy contends 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 for now, opted to prioritize dealing with the declining 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 exceptional challenges going forward, especially if the Fed keeps with its timeline of 100 basis points of hikes in 2016. Throw in ongoing risks to commodities and a very real threat of risk liquidation in 2016, and more record lows are to be expected for the Peso, despite higher rates.