What Happens When This Consolidation Breaks?

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

Worry over the Brexit outcome had faded into the background in October and November, which helped the Pound put in a healthy recovery off its 31 year low below 1.2000. But all of those fears are coming back into the forefront into year end and this has once again opened downside pressure. Wednesday’s better than expected public finance data did little to support the Pound, with that much talked about triggering of Article 50 March date fast approaching. This week’s threats out of Scotland that it will separate if single market access is lost, has been one of the many stories reigniting fear in the UK. Looking ahead, the economic calendar is empty in the UK and the focus will be on US data which features GDP, personal consumption, durable goods and initial jobless claims.

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

Liquidity in this major pair is going to thin out more quickly than the other major currencies, with Japan getting set for its Friday holiday. At the moment, we have settled into a period of consolidation following this latest surge in the Buck. But given how things usually play out into year end, the path of least resistance is the path taken and this would translate into more USDJPY upside, exposing that major 120.00 barrier. Clearly with the US Dollar in the driver’s seat across the board on the favourable yield differentials and with US equities failing to show any fear of heights at fresh record highs, it would seem the risks are indeed tilted to the upside here. Looking ahead, US economic data comes into focus with GDP, personal consumption, durable goods and initial jobless claims all featured.

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 has come under intense pressure into year end, with the currency getting hit on many fronts which include Fed policy divergence, commodity price declines and worry over the outlook for the China economy. Moreover, Aussie data has been coming out on the weaker side of late, which has been adding to the downside pressure. Year end flows favour trends and if this is the case again this year, we could still see another round of weakness in the days ahead. As far as today goes, the key focus will be on a round of US data which features GDP, personal consumption, durable goods and initial jobless claims.

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 1.3481 – 29Nov high – Strong
• S1 1.3358 – 21Dec low – Strong
• S2 1.3318 – 19Dec low – Medium

USDCAD – fundamental overview

Wednesday’s strong bearish reversal day in the price of OIL has unquestionably been having an impact on the highly correlated Canadian Dollar, which has extended its latest run of declines on this development. But economic data will come back into focus on Thursday, with the Canadian Dollar forced to contend with a deluge of releases that include Canada CPI and retail sales along with a heavy batch of US data featuring GDP, personal consumption, durable goods and initial jobless claims.

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

Mixed results out from New Zealand GDP and current account data left the Kiwi rate mostly in a state of consolidation early Thursday, with the market more focused on this latest wave of Kiwi selling from broader macro themes which include Fed policy divergence, the China outlook, fear of protectionism from the Trump administration and anti-globalisation that stems from these policies. Looking ahead, it will be about US economic data with GDP, personal consumption, durable goods and initial jobless claims on tap.

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 2248.00 – 14Dec low – Medium
• S2 2180.00 – 5Dec low– 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 and the Trump administration could bring in policies that threaten prospects for global growth. 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. Looking ahead, risk markets will be focused on a batch of US data that includes GDP, personal consumption, durable goods and initial jobless claims.

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

Chatter of MAS intervention earlier this week along with a consolidation in US Dollar gains across the board, helped to give the Singapore Dollar a bit of breather after the currency had broken to another multi-year low. But that downside pressure is coming back into the latter half of the week as the market once again thinks about striking monetary policy divergence with the Fed and the prospects for slower emerging market growth when the new US administration takes over. Of course, this latest batch of softer Singapore releases in the form of a weak Spore economic outlook and a deterioration in SME business sentiment are doing nothing to help the Singapore Dollar’s cause. Looking ahead, we get a healthy batch of data out of the US which includes GDP, personal consumption, durable goods and initial jobless claims.