Curtains Close on Memorable 2015

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 1.4945 – 24Dec high – Medium
• S1 1.4785 – 29Dec low  – Medium
• S2 1.4701 – 15Apr low  – Strong

GBPUSD – fundamental overview

Not the worst of years for the Pound, with the currency poised for a modest 5% drop against the Buck in 2015. However, this is somewhat misleading, given the Pound’s collapse in recent weeks. In a short time, we have seen a dramatic repricing in BOE timeline expectations, with the market shifting gears and pricing a more dovish central bank, with no rate hikes in 2015. The combination of a more downbeat outlook and fear of Brexit are themes that have invited this intense wave of selling, which could very well carry over into 2016. Looking ahead, end of year volatility will dictate most of the flow, with the only notable data release coming in the form of US initial jobless claims.

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 below 120.00 and towards next medium-term support in the 118.00 area. At this point, 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

In the end, the Yen will look to close out 2015, not too far away from where it opened, down less than 1% on the year. For the moment, the Yen has found renewed bids, with a good deal of the demand coming from risk sentiment related flow, with many market participants opting to lighten up on risk correlated investments and move to safety into year end, as the Fed sets out on what could be a stifling path to policy normalisation for the global economy. While yield differentials are supportive of the US Dollar, at the same time, the offsetting negative risk implications are Yen supportive. And so, on net, we have a Yen that hasn’t been able to commit in either direction these past 12 months. Looking ahead, end of year volatility will dictate most of the flow, with the only notable data release coming in the form of US initial jobless claims.

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

Considering the historic calamity from January, it’s quite amazing to see a Franc that is looking to close out 2015 virtually unchanged against the US Dollar. SNB President Jordan was out this past weekend justifying the SNB’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 was 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, which in turn, could weigh on EURCHF. 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 0.7334 – 10Dec high – Medium
• S1 0.7245 – 29Dec low – Medium
• S2 0.7209 – 23Dec low – Strong

AUDUSD – fundamental overview

Although it feels like the Australian Dollar hasn’t done much over the past few months, the currency is set to close out 2015 down over 10% against the Buck. The market has priced the shift in Fed policy and fallout from a major pullback in commodities prices, and on net, this has been a native for the correlated currency. But as we head into year end, position squaring on US Dollar longs has been helping to support the Australian Dollar. Still, with the commodity currency having enjoyed a nice recovery these past several weeks, 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. The latest Commitment of Traders report is reflecting this sentiment, with Aussie shorts doubling. Looking ahead, end of year volatility will dictate most of the flow, with the only notable data release coming from US initial jobless claims. We do get Friday manufacturing PMIs out of China, which could factor into the Monday open.

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 1.3940 – 29Dec high – Medium
• S1 1.3778 – 17Dec low – Medium
• S2 1.3673 – 15Dec low – Strong

USDCAD – fundamental overview

Quite a year for he Canadian Dollar, with the Loonie getting hit the hardest in the developed currency space. As we head into the close of 2015, the Canadian Dollar looks to close out the year down a whopping 20% against the Buck. Clearly the Fed’s transition to the path towards monetary policy normalisation has been a major factor, though the Loonie has relatively underperformed on the added blow of multi-year lows in the price of OIL. The Canadian economy has suffered at the hands of the OIL collapse, which has in turn resulted in an even greater monetary policy divergence between the Bank of Canada and Fed. While a good deal of this weakness may have already been priced in, there is clearly still downside risk for the Canadian Dollar into 2016. Looking ahead to the final hours of the year, end of year volatility will dictate most of the flow, with the only notable data release coming in the form of US initial jobless claims.

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 in the 0.6900 area, in favour of an acceleration to the downside and bearish resumption to fresh multi-year lows. Ultimately, only a daily close above 0.6900 will negate and potentially force a shift in the structure.

• R2 0.6950 – Mid-Figure– Medium
• R1 0.6893 – 16Oct high– Strong
• S1 0.6800 – Figure – Medium
• S2 0.6721 – 21Dec low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has enjoyed a nice rally over the past several days, aided by an upbeat RBNZ, recovery in dairy, and bounce in commodities. We have also seen profit taking on US Dollar longs into year end. Still, with Kiwi trading up to critical medium-term resistance in the 0.6900 area, offers are back on the table from longer-term players looking to take advantage of US Dollar yield differentials, now that the Fed has initiated liftoff. 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. It is also important to take the Kiwi recovery with a grain of salt, as the currency is still set to close out 2015 as a relative underperformer, down about 12% against the Buck. Looking ahead, end of year volatility will dictate most of the flow, with the only notable data release coming from US initial jobless claims. We do get Friday manufacturing PMIs out of China, which could factor into the Monday open.

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 2083.00 – 29Dec 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 as 2015 comes to a close, with any bullishness from the Fed’s 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 in 2016. IMF Lagarde has cast soured investor confidence some more into year end, after coming out with a disappointing global growth outlook for 2016. Looking ahead, end of year volatility will dictate most of the flow, with the only notable release coming from US initial jobless claims. We do get Friday manufacturing PMIs out of China, which could factor into the Monday open.

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 looking at little stretched at record levels, which could warn of limited upside or a potential correction before any meaningful bullish resumption. Still, setbacks should be very well supported ahead of previous resistance in the 16.9000 area, while only back below 16.3270 would compromise the highly constructive outlook.

• R2 17.5000 – Psychological – Strong
• R1 17.4680 –14Dec/Record – Strong
• S1 16.9000 – 16Dec low – Medium
• S2 16.3270 – 15Oct low – Strong

Feature – fundamental overview

Unlike the Fed, the December 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 into year end, 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.