Year End Market Tendencies

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 1.2313 – 20Dec low – Medium
• S2 1.2302 – 18Nov low – Strong

GBPUSD – fundamental overview

The Pound has come under additional downside pressure this week on the back of differences of opinion on how the UK should handle Brexit negotiations. PM May is on one side, while Scotland FM Sturgeon is on the other, warning Scotland could leave the UK if it no longer has access to the single market. Meanwhile, calls from a major US bank that it expects Britain will lose passporting rights post Brexit have also been weighing. Solid UK CBI distributive trades data has helped to offset some of the weakness, while more hawkish inflation talk from BOE McCafferty is also helping to support the Pound into dips. Of course, the strong US Dollar uptrend in the face of widening yield differentials is an overarching theme that continues to be Dollar supportive and could ultimately continue to keep any Sterling rallies well capped. Looking ahead, UK public finances and US existing home sales are the only notable standouts.

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

Fed tightening projections and US fiscal stimulus expectations should continue to support the major pair into year end, particularly as it pulls closer to the major psychological barrier at 120.00. Of course, the Bank of Japan also isn’t bothered by Yen weakness, which is making this USDJPY move all the more intense. Another added variable here has been the ongoing bid in US equities, continuing to track at record highs. And while risk markets remain supported, it offers another boost. Looking ahead, only US existing home sales stand out on today’s calendar.

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 0.7223 – 20Dec low – Medium
• S2 0.7145 – 24May low – Strong

AUDUSD – fundamental overview

The Australian Dollar will be relieved to find some support into Wednesday after taking a big hit on the back of broad based US Dollar demand, China outlook concerns and falling metals prices. However, with the economic calendar exceptionally thin, with only US existing home sales standing out, it’s unlikely that any Aussie rallies are long lasting, with the greater risk for sizable offers on intraday jumps. Monetary policy divergence with the Fed is the major driver right now and all of this more hawkish talk out of the Fed should invite additional Aussie weakness.

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 1.3435 – 20Dec high – Strong
• S1 1.3318 – 19Dec low – Strong
• S2 1.3268 – 15Dec low – Medium

USDCAD – fundamental overview

Despite a downward revision, Canada wholesale sales came in stronger on Tuesday which helped to give the Canadian Dollar a bit of a prop. Meanwhile, OIL strength also factored into the Loonie’s recovery, with the commodity trading back towards its recent yearly high. Still, overall, the outlook for the Canadian Dollar is negative given the more pressing market driver of monetary policy divergence with the Fed in a world where the Fed is looking more hawkish than had previously been priced. Looking ahead, lack of data out of Canada leaves the focus on US existing home sales.

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 0.6883 – 20Dec 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 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. It’s worth noting Tuesday’s negative GDT auction print hasn’t hurt Kiwi all that much considering the drop was smaller than expected, while softer visitor arrivals and trade also haven’t factored into Wednesday price action. Looking ahead, US existing home sales is the only notable standout on today’s docket.

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 1120 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 – 78.6% 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

The Singapore Dollar has enjoyed a nice recovery since making fresh multi-year lows on Tuesday, with chatter of MAS intervention seen as the primary driver behind the Asian currency’s bounce. 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 dips.