Sterling Pounded on the Open

GBPUSD – technical overview

The market remains pressured to the downside with this latest break back below 1.2000 exposing a direct retest of the +30 year low from October at 1.1840. At this point, we would need to see a break back above the 2017 high at 1.2433 at a minimum to take the immediate pressure off the downside.

• R2 1.2233 – 13Jan high – Strong
• R1 1.2121 – 13Jan low – Medium
• S1 1.1991 – 16Jan low – Medium
• S2 1.1840 – 7Oct +30-Year low – Strong

GBPUSD – fundamental overview

The Pound is getting all of the attention on Monday, with the currency taking a dive at the open on weekend news tomorrow’s PM May speech will outline her plans for a hard Brexit, something that is not in any way comforting to the ailing UK currency. May’s prioritising of immigration over the economy has been a dagger to the Pound as the prospect of exit from the single market significantly reduces the currency’s attractiveness. Given the light UK calendar and US holiday, this Cable decline will likely be the major story for the remainder of the day. BOE Governor is slated to speak much later but with the PM speech out on Tuesday, it’s unlikely carney will inspire much Sterling demand.

USDJPY – technical overview

Daily studies have been unwinding from stretched levels which suggests additional upside could be limited in favour of a more significant healthy corrective pullback. The recent bearish break below 116.00 confirms and could open a deeper drop towards 112.00. But ultimately, any setbacks are expected to be well supported ahead of 110.00 in favour of that next higher low and bullish resumption towards 120.00.

• R2 116.87 – 11Jan high – Strong
• R1 115.51 – 12Jan high – Medium
• S1 114.00 – Figure – Medium
• S2 113.75 – 12Jan low – Strong

USDJPY – fundamental overview

The concerning weekend news out of the UK has not been lost on the Yen, with the Japanese currency rallying on the back of a wave of GBPJPY liquidation and broad based safe haven demand. A hard Brexit would carry systemic risk that would likely ripple through the global economy and as risk positions are liquidated, the natural flow still has this flow moving back into the Japanese funding currency. Second tier data out of Japan on Monday was better than expected overall, but isn’t getting any attribution for the Yen move widely accepted to be driven off broader flows. Looking ahead, more volatility is expected as the market continues to grapple with Brexit, especially with the US light on the MLK holiday and the economic calendar empty.

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 additional 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.

• R2 1.0900 – 8Dec high – Strong
• R1 1.0763 – 30Dec high – Strong
• S1 1.0675 – 2Jan low – Strong
• 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, even with global equities elevated, the Franc is still not depreciating as much as the SNB would 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. Certainly a scenario resulting in a hard Brexit is one of those systemic risks that could be a headache for the SNB.

AUDUSD – technical overview

The market has entered a healthy corrective phase after setbacks stalled shy of key medium-term support at 0.7145 in late December. Still, overall, the broader downtrend remains intact, with only a break and daily close back above 0.7525 to compromise this outlook. Look for a fresh lower top over the coming sessions ahead of renewed downside.

• R2 0.7525 – 14Dec high – Strong
• R1 0.7500 – Psychological– Medium
• S1 0.7430 – 12Jan low – Medium
• S2 0.7353 – 11Jan low – Strong

AUDUSD – fundamental overview

The Australian Dollar hasn’t cared too much about the pickup in private inflation, with the currency tracking lower in reaction to the pullback in the Pound on systemic risk associated with a hard Brexit scenario. Perhaps another Aussie negative on Monday is the news that Fitch has put Australian banks on a negative sector outlook, downgrading them from stable. Meanwhile, medium-term players have been looking to take advantage of this Aussie run up to 0.7500, using it as an opportunity to build into existing shorts. Ongoing demand for base metals has however mitigated some of the negative flow. Looking ahead, a light economic calendar in Europe and MLK holiday in the US will make for a thinner day, though volatility is to be expected as the market contends with Brexit implications and a very busy calendar from Tuesday through Friday.

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 above 1.3000 in favour of the next major upside extension towards a measured move objective into the 1.4000 area. Ultimately, only a daily close below 1.3000 would delay the constructive outlook.

• R2 1.3295 – 11Jan high – Strong
• R1 1.3186 – 12Jan high – Medium
• S1 1.3081 – 14Dec low – Medium
• S2 1.3030 – 12Jan low – Strong

USDCAD – fundamental overview

The Canadian Dollar’s run in early 2017 has been super impressive, with the Loonie mostly benefitting from a market that is reconsidering its macro view on the US Dollar. OIL’s ability to hold up on dips has also been a prop to the Loonie. However, overall, yield differentials and monetary policy divergence have not gone away and should once again invite renewed sell interest in the Canadian Dollar. With that said, we’ve already been hearing about the emergence of heavy buy interest in USDCAD towards 1.3000. Looking ahead, an empty Monday calendar will leave this market trading on broader themes, while also starting to think about positioning into Wednesday’s Bank of Canada decision. The BoC is widely expected to leave rates unchanged while taking a cautious approach given all of the mixed signals of late. On the one side, recent GDP data has been concerning, while on the other side, trade data and employment readings have come in much stronger.

NZDUSD – technical overview

Despite this latest upside correction, the overall pressure remains on the downside with the market expected to be very well capped on rallies ahead of 0.7200. A recent break below 0.6972 confirms a lower top at 0.7239, opening the next major downside extension towards medium-term support at 0.6676. As such, expect the market to stall out over the coming sessions.

• R2 0.7239 – 14Dec high – Strong
• R1 0.7149 – 16Jan high – Medium
• S1 0.7046 – 12Jan low – Medium
• S2 0.6949 – 9Jan low– Strong

NZDUSD – fundamental overview

The economic calendar out of New Zealand feels like it has been on sabbatical, with the Kiwi rate far more dependent on external flows. A wave of profit taking on US Dollar longs in early 2017 have helped to give the currency a bit of a boost, though overall, medium-term players continue to look for opportunities to sell Kiwi into rallies. Concerns over the impact of the Trump presidency on the commodity bloc currencies, fear of a slower China and worry over a potential bubble in equity markets are all negatives for the local currency. Meanwhile, softer inflation and ongoing woes in the dairy sector are only added strains on the domestic front. Tomorrow we get another GDT auction that will be watched closely. Otherwise, lack of data on today’s calendar will leave Kiwi trading on these external themes. Certainly the systemic risk associated with a hard Brexit is one of those stories that could fuel additional Kiwi liquidation. There has also been plenty of talk of AUDNZD related interest with this market showing signs of recovery off longer-term cyclical lows.

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 2180 to once again encourage the possibility for a significant bearish structural shift. Next resistance comes in at 2300, while initial support comes in at 2232, with a break below to take the immediate pressure off the topside.

• R2 2300.00 – Psychological – Strong
• R1 2282.00 – 6Jan/Record high – Medium
• S1 2232.00 – 30Dec low – Strong
• 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. One of those shocks that could really rattle investor sentiment is the systemic risk associated with a hard Brexit, something investors are already worrying about into the weekly open. Today’s Martin Luther King Day holiday could however translate into a less active futures market.

GOLD (SPOT) – technical overview

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. A daily close above 1200 will strengthen the bullish shift in structure and open the door for a push back towards the 2016 peak at 1375. Only below 1120 negates.

• R2 1221.10 – 22Nov high – Strong
• R1 1207.00 – 12Jan high – Strong
• S1 1162.95 – 5Jan low – Medium
• S2 1122.75 – 15Dec low  – Strong

GOLD (SPOT) – fundamental overview

Solid demand from medium and longer-term players continues to emerge 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, 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

USDTRY has exploded to the topside, with the market extending its violent run of fresh record highs, closing in on critical psychological barriers at 4.0000. The parabolic price action has however inspired the onset of a necessary corrective pullback to allow for severely stretched studies to unwind. The market is extended across the major time frames, with the weekly and monthly charts severely overbought. A break and close back below 3.7000 will likely trigger a more significant correction.

• R2 4.0000 – Psychological – Strong
• R1 3.9410 – 11Jan/Record High – Medium
• S1 3.7075 – 10Jan low – Medium
• S2 3.7000 – Psychological – Strong

Feature – fundamental overview

The Turkish Lira has been in an absolute freefall these past several months, with the currency’s declines accelerating dramatically in early 2017 to fresh record lows. Political instability, terrorist activity and an already vulnerable Turkish economy have contributed to the declines, while on the other side, the Lira isn’t getting any help from the US Dollar, which has been driving higher on favourable interest rate differentials. But it would seem that this rout in the Lira is finally testing the nerves of President Erdogan who lashed out at the FX market this past Thursday, aliking USD bulls to ‘terrorists with Dollars.’ Erdogan went on to warn that the CBRT had the ability to ‘wreck this game.’ The decision to skip last week’s one week repo auction and a reduction in interbank borrowing limits to TRY11bn are more signs of the government’s displeasure with the Lira’s slide and it seems this has helped to cool the Dollar run a little bit. Whether or not this lasts will depend on whether the CBRT takes more action, most likely in the form of an aggressive rate hike.