Buck Poised for Recovery Post Year-End Profit Taking

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

GBPUSD – fundamental overview

The UK holiday closure will keep the Pound somewhat in check on Monday, though wild price swings on razor thin trade should not be ruled out. Plenty of bearishness has already been priced over that past couple of weeks, with the market now pricing a more dovish BOE, perhaps more in line with the ECB than Fed. Last week’s dovish comments from Martin Weale, gave an excuse to see additional downside, with the known hawk changing his tune, saying there was no need to rush towards an interest rate hike. The market has now shifted BOE rate hike expectations beyond 2016, with the first hike not seen until January 2017. Still, we have seen some recovery off recent lows, with the price action attributed to an OIL bounce and broad based USD profit taking into year end. Looking ahead, the calendar is exceptionally thin. This will put much of the focus on today’s round of US debt auctions, perhaps offering additional insight into the degree in which Fed liftoff is impacting real world borrowing costs.

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 121.50 – 21Dec low – Strong
• R1 120.98 – 24Dec high – Medium
• S1 120.02 – 28Oct low – Medium
• S2 119.61 – 22Oct low – Strong

USDJPY – fundamental overview

Japanese markets are one of the few markets open in holiday trade, and we are seeing this reflected in price action early Monday, with the Yen selling off on the back of a weaker round of data out of Japan. Both Japanese industrial production and retail sales prints managed to disappoint and this has given the few market participants trading, an excuse to buy back some US Dollars. Still overall, the US Dollar has come under broad pressure into year end, with many investors squaring up on long USD bets post FOMC. Looking ahead, the calendar is exceptionally thin. This will put much of the focus on today’s round of US debt auctions, perhaps offering additional insight into the degree in which Fed liftoff is impacting real world borrowing costs.

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

SNB President Thomas Jordan was out over the weekend justifying the Swiss central bank’s historic move to remove the cap on the Franc back in January. Jordan said the timing to lift the cap was right, even though it meant steep challenges to many Swiss companies. Jordan also added that any delay to act on the SNB’s part would have resulted in more severe consequences. 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.

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 0.7300 – Figure – Medium
• S1 0.7226 – 24Dec low – Medium
• S2 0.7209 – 23Dec low – Strong

AUDUSD – fundamental overview

Holiday closure in Australia leaves this market trading in razor thin conditions and subject to broader macro flows. The recent recovery in commodities prices and repositioning on US Dollar longs into year end, post FOMC, have been helping to support the Australian Dollar, while Monday’s not as bad China industrial profits hasn’t hurt. Still, with the commodity currency having already enjoyed a nice run, there have been signs of renewed selling into this latest rally, as market participants look ahead to 2016 and potential RBA policy divergence with the Fed. For today, much of the focus will be on the round of US debt auctions, perhaps offering additional insight into the degree in which Fed liftoff is impacting real world borrowing costs.

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

Despite ongoing weakness in Canadian economic data and a more notable divergence in monetary policy, the Canadian Dollar has managed to recover out from recent 11-year lows against the Buck. The Loonie’s recovery has been driven off a healthy bounce in OIL, overdone technicals, and some broad based profit taking on US Dollar longs into year end. Still, with the Fed on course to raise rates 100bps in 2016 and with the OIS market pricing an almost 50% chance of a BoC rate cut by July, there remains risk for additional Canadian Dollar weakness going forward, particularly if OIL prices remain depressed. Looking ahead, Canada is closed for holiday and the economic calendar is exceptionally thin. This will put much of the focus on today’s round of US debt auctions, perhaps offering additional insight into the degree in which Fed liftoff is impacting real world borrowing costs.

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 0.6850 – Mid-Figure– 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 broad based profit taking on US Dollar longs post into year end. Still, with Kiwi 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. We are already seeing signs of this in razor thin Monday trade, with New Zealand closed for holiday. 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. Looking ahead, much of the focus will be on the round of US debt auctions, perhaps offering additional insight into the degree in which Fed liftoff is impacting real world borrowing costs.

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 (despite this latest mild rebound), 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 in 2016. Stocks have recovered from recent lows in thin holiday trade, though fresh offers are expected to emerge in the sessions ahead. Looking ahead, much of the focus will be on the round of US debt auctions, perhaps offering additional insight into the degree in which Fed liftoff is impacting real world borrowing costs.

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 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, while a broader rebound in commodities this past week and end of year profit taking on US Dollar longs is also helping in the short-term. 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 17.3180 –12Dec high – Medium
• S1 16.9000 – 16Dec low – Medium
• S2 16.3270 – 15Oct low – Strong

Feature – fundamental overview

Unlike the Fed, the recent move by Mexico’s central bank to raise rates 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 Mexico rates.