A Minor Wave of Profit Taking

GBPUSD – technical overview

The recent topside failure ahead of 1.2800 was a significant development as it confirmed the rebound from the +30 year low only corrective and kept the overall pressure on the downside. This has now opened a break back below internal support at 1.2300 which could pave the way for a retest of that 1.1840 critical base from October. Only back above 1.2800 forces a shift in the structure.

• R2 1.2410 – 20Dec high – Strong
• R1 1.2379 – 22Dec high – Medium
• S1 1.2229 – 23Dec low – Medium
• S2 1.2206 – 1Nov low – Strong

GBPUSD – fundamental overview

The Pound has come under added pressure into the end of the year, though last week’s better than expected UK GDP print and a round of end of year profit taking on USD longs have helped to buoy additional setbacks for now. Still overall, diverging economic outlooks and interest rate differentials should keep a lid on Sterling rallies, while the threat of a hard Brexit and looming invocation of Article 50 could expose the UK currency to additional downside. Looking ahead, UK BBA loans and US pending home sales are the only notable standouts on today’s docket.

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 Yen has failed to participate in an early Wednesday round of broad based profit taking on long US Dollar exposure, with the Japanese currency remaining under pressure.  USDJPY continues to be well supported at every dip and HFT types are the most likely candidates in this week’s thin trade. It seems the market is still not ready to give up on the idea of a 120.00 test before the year is out. The BOJ has come out committing to buy less backend JGBs, cutting the purchases of the 10-25 year maturities and the greater than 25 year maturities, but this news hasn’t really factored into price action. Economic data also hasn’t had any influence on flows after Japanese industrial production disappointed while retail trade impressed. Looking ahead, US pending home sales is the only notable standout on the economic calendar for the remainder of the day.

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 0.7313 – 19Dec high – Strong
• R1 0.7280 – 21Dec high– Medium
• S1 0.7160 – 26Dec low – Medium
• S2 0.7145 – 24May low – Strong

AUDUSD – fundamental overview

The Australian Dollar is finding some mid-week relief on the back of a round of broad based profit taking on long USD exposure, though ultimately, any gains are likely to be met with formidable selling interest. The key focus for this pair is a retest of that 0.7145 May low, which many dealers have been talking about. Overall, the outlook for the Australian Dollar is rather grim with monetary policy divergence, China fears, Trump administration worry and falling commodities prices all a threat to the currency’s outlook. Looking ahead, US pending home sales is the only notable standout.

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 1.3081 in favour of the next major upside extension towards a measured move objective into the 1.4000 area. Ultimately, only back below 1.3081 would delay the constructive outlook.

• R2 1.3589 – 14Nov high – Strong
• R1 1.3560 – 27Dec high – Medium
• S1 1.3412 – 22Dec low – Medium
• S2 1.3358 – 21Dec low – Strong

USDCAD – fundamental overview

Interestingly, Tuesday’s impressive surge in the price of OIL failed to have any supportive impact on the value of the Canadian Dollar, with the Loonie extending its run of recent declines. It seems monetary policy divergence, yield differentials and fear over the outlook in a world of Trump have all converged to knock the Loonie. Looking ahead, there is no data of note scheduled out of Canada, with US pending home sales the only notable release for the remainder of the day.

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 0.6990 – 19Dec low – Strong
• R1 0.6948 – 21Dec high – Medium
• S1 0.6862 – 23Dec low – Strong
• S2 0.6800 – Figure– Strong

NZDUSD – fundamental overview

The New Zealand Dollar continues to suffer from a confluence of negative drivers that include an overheating New Zealand property market, Fed policy divergence, the China outlook, fear of protectionism from the Trump administration and anti-globalisation that stems from these policies. Meanwhile, with the Australian Dollar comprising a hefty 22% of the New Zealand trade weighted index and the Australian Dollar at longer-term cyclical lows against Kiwi, there are many who feel this will be an additional threat to the New Zealand export economy if the AUDNZD rate remains at depressed levels, which if proven true, could result in more Kiwi relative underperformance in the months ahead. Looking ahead, US pending home sales is the only notable standout for the remainder of the day.

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.

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 1.4000 in favour of the next higher low and bullish resumption.

• R2 1.4600 – Figure – Medium
• R1 1.4517 – 27Dec/2016 high – Medium
• S1 1.4355 – 15Dec low – Medium
• S2 1.4148 – 8Dec low – Strong

Feature – fundamental overview

More chatter of MAS intervention along with some broad based profit taking on US Dollar longs has helped to give the Singapore Dollar a bit of breather after the currency had broken to another multi-year low. But ultimately, downside pressure on the Singapore Dollar isn’t expected to fade away for any meaningful period of time as the market keeps its eye on striking monetary policy divergence with the Fed and the prospects for slower emerging market growth when the new US administration takes over.