Dollar Bends But Won’t Break

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 1.2388 – 30Dec high – Strong
• R1 1.2305 – 3Jan high – Medium
• S1 1.2200 – 3Jan low – Medium
• S2 1.2082 – 25Oct low – Strong

GBPUSD – fundamental overview

UK manufacturing PMI came in above forecast and at a 30 month high on Tuesday and yet, this wasn’t enough to generate sustainable demand for the Pound, which continues to focus more on Brexit and US developments. Tuesday’s very healthy bout of US ISM manufacturing and construction spending was offsetting and ultimately opened a drop just below the December base. Of course, with the March Article 50 date fast approaching and with fear of a hard Brexit still out there, any rallies are expected to be well capped. Looking ahead, we get UK construction PMIs, UK consumer credit, US ADP employment and the FOMC Minutes.

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 116.04 – 30Dec low – Medium
• S2 114.74 – 13Dec high – Strong

USDJPY – fundamental overview

The Yen hasn’t seemed to care much about today’s stronger Japan manufacturing PMIs, which were the strongest since December 2015, also producing the 4th consecutive monthly expansion. The driving forces behind flows in this major pair continue to be monetary policy divergence which has been very supportive of the US Dollar, ongoing demand for equities and pure momentum, with funds targeting that next major psychological barrier at 120.00. Looking ahead, US ADP employment and the FOMC Minutes are the notable standouts.

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 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. 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. 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 0.7247 – 30Dec high– Medium
• S1 0.7160 – 26Dec low – Medium
• S2 0.7145 – 24May low – Strong

AUDUSD – fundamental overview

The Australian Dollar has been performing well in early 2017, with the currency getting a boost from solid data out of Australia and China and fresh demand for commodities. We’ve also seen a rotation out of Kiwi and into Aussie over the past 24 hours on account of the solid Aussie developments and disappointing New Zealand GDT auction, which ultimately has also been supportive of AUDUSD. Looking ahead, US ADP employment and the FOMC Minutes are the key standouts 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 1.3081 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 1.3599 – 28Dec high – Strong
• R1 1.3500 – Psychological – Medium
• S1 1.3385 – 2Jan low – Medium
• S2 1.3358 – 21Dec low – Strong

USDCAD – fundamental overview

The Canadian Dollar has been locked in a bit of a holding pattern in early 2017. On the one side, strong US data and favourable US Dollar yield differentials are weighing on the Loonie, while on the other, recovering OIL prices and decent data reads out of Canada are supporting the Loonie. But overall, the bigger push seems to be in the direction of the US Dollar and with OIL prices retreating on Tuesday off multi-month highs, this could be yet another variable that opens renewed downside pressure in the Canadian Dollar. Looking ahead, we get US ADP employment and the FOMC Minutes.

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 0.6979 – 30Dec high – Medium
• S1 0.6862 – 26Dec low – Strong
• S2 0.6800 – Figure– Strong

NZDUSD – fundamental overview

The New Zealand Dollar has been the weakest amongst its peers at the start of 2017. While the Canadian Dollar has benefited from multi-month highs in OIL and the Australian Dollar is rallying on solid economic data, the New Zealand Dollar is struggling to find any demand, particularly after Tuesday’s disappointing New Zealand GDT auction result which produced a negative print. We’ve been seeing a rotation away from the New Zealand Dollar which had been outperforming on a longer-term basis against Aussie and Cad and this cross related Kiwi selling is acting as a weight on NZDUSD. Looking ahead, US ADP employment and the FOMC Minutes stand out.

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 sustain gains beyond 2200 over the coming weeks. 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 significant 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 2215.00 – 30Nov high – 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. The market will now be looking for more colour on the Fed policy outlook in today’s Minutes and if we continue to see this hawkish bias, it could open a renewed wave of downside pressure on stocks.

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 bounced out from critical 1120 area support in the form of a 78.6% fib retracement off of the 2015-2016 low-high move, with the hold above this level keeping the longer-term basing outlook intact. Daily studies are confirming, looking more constructive after trading into oversold territory.

• 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

Solid demand from medium and longer-term players continues to emerge on dips despite an intense round of setbacks in late 2016, 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 1.4545 – 3Jan/2017 high – Medium
• S1 1.4409 – 21Dec low – Medium
• S2 1.4148 – 8Dec low – Strong

Feature – fundamental overview

The Singapore Dollar remains under pressure into 2017 but is doing its very best to battle against additional declines. This week’s impressive Singapore GDP data, rumours of MAS intervention and some broad based profit taking on long US Dollar exposure have been helping to offset the intense bearish flows. But ultimately, downside pressure on the local currency isn’t expected to fade away for any meaningful period of time as the market keeps its eye on solid US economic data, striking monetary policy divergence and prospects for slower emerging market growth when the new US administration takes over. Looking ahead, US ADP employment and the Fed Minutes will be watched on Wednesday.