Yellen Props Buck, BOJ On Hold

GBPUSD – technical overview

The market has seen a sizable correction towards major resistance at 1.2800 over the past several days. Ultimately, however, while the market holds below 1.2800, the downtrend remains intact and a lower top is sought out in favour of a bearish resumption back towards 1.2000. Only a weekly close above 1.2800 would compromise the structure. A daily close below 1.2300 will put the immediate pressure back on the downside.

• R2 1.2568 – 15Dec high – Strong
• R1 1.2511 – 16Dec high – Medium
• S1 1.2355 – 19Dec low – Medium
• S2 1.2302 – 18Nov low – Strong

GBPUSD – fundamental overview

The Pound was a clear underperformer in Monday trade, with the UK currency coming under pressure on the back of news that Nicola Sturgeon would call for a new Scotland referendum to break away from the UK if access to the single market was no longer on the table. There were however solid bids into dips after PM May said the UK planned to match EU payments if it represented good value for money. But ultimately, it was Janet Yellen who kept a lid on Cable rallies after talking about the strong US jobs market and signs of a pickup in wage growth. Looking ahead, UK CBI retail sales is the only notable standout on the calendar.

USDJPY – technical overview

The major pair has seen an intense bullish shift in recent days, with the most recent break above 110.00 exposing fresh upside towards next meaningful resistance in the 120.00 area. However, daily studies are looking stretched which suggests that additional upside could be limited  in favour of a more significant healthy corrective pullback. But ultimately, any setbacks are expected to be well supported above previous resistance at 110.00.

• R2 118.67 – 15Dec high – Strong
• R1 118.00 – Figure – Medium
• S1 116.55 – 19Dec low – Medium
• S2 116.13 – 12Dec high – Strong

USDJPY – fundamental overview

The Bank of Japan left rates and policy on hold as was widely expected, while at the same time upgrading its outlook. Still this upgrade was contingent on developments in the US which mitigated some of the initial desire for the market to trade into the Yen. But ultimately, even with a more upbeat outlook and speculation this could inspire a move towards policy tightening in Japan into 2017, the US Dollar remains king, with yield differentials continuing to favour the Buck. The Buck got another lift on Monday after Yellen commented on the strength of the jobs market and signs of a rise in wage growth. Looking ahead, the economic calendar is exceptionally thin and broader flow will dictate direction.

EURCHF – technical overview

A recent close below 1.0800 which had been defined as the bottom of a multi-week range strengthens the bearish outlook and opens the door for an acceleration of declines towards the 2016 low at 1.0624. At this point, a daily close back above 1.0900 would now be required to take the immediate pressure off the downside and suggest the market is once again looking settle back into the previous range.

• R2 1.0900 – 8Dec high – Strong
• R1 1.0799 – 9Dec high – Strong
• S1 1.0650 – Mid-Figure – Medium
• S2 1.0624 – 24Jun/2016 low – Strong

EURCHF – fundamental overview

The SNB has unquestionably had a challenging time of late, with the central bank forced to contend with an ongoing wave of demand for the Swiss Franc, mostly recently on the back of December’s dovishly perceived ECB decision. The central bank has been committed to its mandate of ensuring the Franc does not appreciate further through monetary policy and intervention tools. Though despite all efforts, the Franc continues to want to appreciate against the Euro. It seems the strategy has been to buy Euro when risk comes off and to do nothing when risk is back on and natural flows should be CHF bearish. But the trouble is, with risk on and global equities elevated, the Franc is still not depreciating as much as the SNB would probably like to see and if global risk sentiment deteriorates, it could invite a massive wave of demand for the Franc that the SNB will be unable to offset.

AUDUSD – technical overview

The latest break below 0.7400 is a significant development and now opens the door for deeper setbacks towards next key support at 0.7145 in the days ahead. At this point, look for any rallies to be well capped ahead of 0.7500. Only back above 0.7525 delays the bearish outlook.

• R2 0.7370 – 16Nov high – Strong
• R1 0.7313 – 19Dec high– Medium
• S1 0.7200 – Figure – Medium
• S2 0.7145 – 24May low – Strong

AUDUSD – fundamental overview

Nothing new from the RBA Minutes on Tuesday with the central bank echoing its mantra that a strong Aussie could complicate the economic adjustment process. Other key highlights from the Minutes were that there was considerable uncertainty about the outlook for the labour market, inflation is expected to remain low for some time and Q3 GDP growth is expected to be weaker than forecast. Overall, the focus here is more on macro risks associated with China in 2017 and the threat of trade wars with the Trump administration coming into power. Of course, the focus is also on yield differentials with the US Dollar, which continue to tilt in the Dollar’s favour. On Monday, Yellen gave the Buck an added boost after commenting on the strength of the jobs market and signs of rising wage growth. Looking ahead, the economic calendar is empty for the remainder of the day.

USDCAD – technical overview

This market looks to be in the process of carving out a longer-term base off the 1.2461, 2016 low. Look for any additional weakness to be supported well ahead of 1.3000 in favour of the next major upside extension towards a measured move objective into the 1.4000 area. Ultimately, only back below 1.3000 would delay the constructive outlook.

• R2 1.3500 – Figure – Medium
• R1 1.3420 – 19Dec high – Strong
• S1 1.3318 – 19Dec low – Strong
• S2 1.3268 – 15Dec low – Medium

USDCAD – fundamental overview

The Canadian Dollar hasn’t been too interested in supported OIL prices of late, with the Loonie coming back under intense pressure on the back of monetary policy divergence with the Fed and yield differentials that are heavily tilted in the US Dollar’s favour. On Monday, Yellen helped to give the US Dollar another push after commenting on the strength of the labour market and signs of a pickup in wage growth. Looking ahead, Canada wholesale sales is the only notable standout on today’s calendar.

NZDUSD – technical overview

The overall pressure has shifted back to the downside with the market now expected to be very well capped on rallies ahead of 0.7200. The recent break below 0.6972 confirms a fresh lower top at 0.7239 opening the next major downside extension towards medium-term support at 0.6676.

• R2 0.7050 – 16Dec low – Strong
• R1 0.6990 – 19Dec high – Medium
• S1 0.6893 – 7Jun low – Strong
• S2 0.6800 – Figure– Strong

NZDUSD – fundamental overview

The New Zealand Dollar has taken a big hit over the past week and is now the weakest amongst the developed currencies. Most of the Kiwi outflows have been coming from fear of protectionism in the US, worry over financial stability in China and declining commodities prices. Technically, we’ve also seen an acceleration in selling following this most recent break back below psychological barriers at 0.7000. Looking ahead, much of Kiwi’s Tuesday fate will rest on the results from the upcoming GDT auction which projects WMP prices to decline by 1%.

US SPX 500 – technical overview

While this latest surge back to a fresh record high could compromise what has been the possibility for a toppish structure, the risk is still tilted to the downside if the market fails to establish above 2200 on a monthly close basis. But ultimately, at this point, any topside failure will also need to be met with a break back below 2100 to once again encourage the possibility for a bearish structural shift. Next resistance comes in at 2300, while initial support comes in at 2180, with a break below to take the immediate pressure off the topside.

• R2 2300.00 – Psychological – Strong
• R1 2278.00 – 13Dec/Record high – Medium
• S1 2180.00 – 5Dec low – Medium
• S2 2156.00 – 25Oct high– Strong

US SPX 500 – fundamental overview

The ongoing support for US equities has been more than impressive, particularly at a time when the Fed is embarking on a more hawkish path to policy normalisation as reflected in Wednesday’s decision. This leaves financial markets vulnerable to any shocks and exposed to intense periods of additional risk liquidation going forward, especially at a time when monetary policy around the rest of the globe is exhausted with very little left in the tank. Geopolitical risk is also back on the rise, though at the moment, stocks have ignored this latest wave of terror around the globe.

GOLD (SPOT) – technical overview

Setbacks in this market have been extreme over the past few weeks, with the weakness potentially compromising any possibility for a longer term base. But the market has dropped into critical support in the form of a 78.6% fib retracement off of the 2015-2016 low-high move, and a hold above this level will keep the basing outlook intact. Daily studies are also well overextended warning of a major reversal.

• R2 1197.70 – 28Nov high – Strong
• R1 1165.90 – 12Dec high – Medium
• S1 1122.75 – 15Dec low – Medium
• S2 1120.00 – 71.8% Fib  – Strong

GOLD (SPOT) – fundamental overview

GOLD has suffered quite a blow over the past few weeks, with the yellow metal unable to ignore the intense rotation into the US Dollar. However, solid demand from medium and longer-term players continues to emerge on dips despite the setbacks, with these players more concerned about the limitations of exhausted monetary policy, extended global equities, systemic risk and a bet that record low inflation will turn up even faster in a Trump presidency. All of this will almost certainly continue to keep the commodity in demand, even if the Buck is propped, with many market participants fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax.

Feature – technical overview

USDSGD has pushed up to a fresh 2016 high, taking this market to its highest levels since 2009. However, daily studies are starting to look a little stretched which warns additional upside could be limited for now, in favour of a healthy corrective decline. Still, any setbacks should be well supported above 1.3700 in favour of the next higher low and bullish resumption.

• R2 1.4600 – Figure – Medium
• R1 1.4505 – 20Dec/2016 high – Medium
• S1 1.4355 – 15Dec low – Medium
• S2 1.4148 – 8Dec low – Strong

Feature – fundamental overview

Plenty of MAS intervention talk making the rounds on Tuesday after the Singapore Dollar declined yet again to a fresh multi-year low, but this time resulting in a piercing of the major psychological barrier in USDSGD at 1.4500. But overall, the market isn’t really caring much about domestic fundamentals at the moment and continues to puts all of its focus on monetary policy divergence between the MAS and Fed and the impact this is having on yield differentials. Last week, we got strong NODX data out of Singapore and yet, the Singapore Dollar could only muster a very small rally. Dealers report very good demand into this Tuesday pullback.