Yellen Revives Dollar After Trump Dump

GBPUSD – technical overview

Inability to establish below 1.2000 followed by this latest intense push back above 1.2300 suggests the market could be in the process of establishing a longer-term base off the +30 year low from October 2016 at 1.1840. Look for a daily close back above 1.2500 to strengthen this outlook. Ultimately however, we would need to see a clear break above 1.2800 to officially signal a more significant shift in the structure.

• R2 1.2433 – 5Jan high – Strong
• R1 1.2416 – 17Jan high – Medium
• S1 1.2233 – 13Jan high – Medium
• S2 1.2121 – 13Jan low – Strong

GBPUSD – fundamental overview

Price action in the Pound seems to be driving more on the political than anything else at the moment, as the market continues to contemplate looming Brexit implications. This week’s speech from PM May offered a little more welcome clarity, which gave the Pound a boost, though there is still plenty of uncertainty and fear of systemic risk associated with the event that will keep the market from getting too aggressive with its demand for Sterling. Clearly the more hawkish leaning Yellen appearance has also factored into price action, with the UK currency retreating on the yield differentials. Interestingly, economic data out of the UK this week has been supportive, with hot CPI followed up by solid wage and employment readings. Looking ahead, lack of first tier UK releases will leave the market focused on Brexit, the ECB decision and US data which includes housing starts, building permits, initial jobless claims and the Philly Fed.

USDJPY – technical overview

Daily studies have been unwinding from stretched levels which suggests additional upside could still 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 111.45. 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 115.51 – 14Jan high – Strong
• R1 115.00 – Psychological – Medium
• S1 113.62 – 16Jan low – Medium
• S2 112.57 – 18Jan low – Strong

USDJPY – fundamental overview

While the Yen should never be ignored, for the moment, the Japanese currency is taking on a role as a follower. Clearly with all of the risk going on in the UK, Eurozone and US at the moment, Japanese fundamentals are not getting the same degree of attention. Another reason the Yen has been less interesting of late is due to the lack of volatility in the equity market. Sentiment is still a major driver of Yen flow and with global equities in a standstill, this is detracting from the currency’s relevance, at least for now. Overall, BOJ monetary policy divergence with the Fed and favourable US Dollar yield differentials should continue to support the major pair on dips. Fed speak continues to lean hawkish as reflected via the Fed Chair herself late Wednesday. Looking ahead, we get US CPI, US industrial production, US NAHB housing and more Fed speak, including an appearance from the Fed Chair herself. Looking ahead, the ECB decision is a standout on the calendar. US data for today includes housing starts, building permits, initial jobless claims and the Philly Fed. Views on the incoming US administration’s Dollar outlook could also come back into the light today, with US Treasury Secretary nominee Mnuchin making an appearance.

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

Though you wouldn’t necessarily know it from looking at the EURCHF rate, the SNB is in a quiet battle with the market, forced to contend with an ongoing wave of demand for the Swiss Franc in a less certain global environment, especially with the weapon of monetary policy worn down. 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. It seems the central bank’s 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, arguably reflecting global appetite for risk, the Franc is still not depreciating as much as the SNB would like to see. And if global equities begin to falter, it could invite a wave of demand for the Franc that the SNB will have a very hard time offsetting.

AUDUSD – technical overview

The market has entered a healthy bullish phase after setbacks stalled shy of key medium-term support at 0.7145 in late December. Still, overall, rallies continue to be very well capped on a medium-term basis, with only a daily close back above 0.7800 to compromise this outlook.

• R2 0.7582 – 15Nov high – Strong
• R1 0.7569 – 17Jan high– Medium
• S1 0.7494 – 19Jan low – Medium
• S2 0.7430 – 12Jan low – Strong

AUDUSD – fundamental overview

The Australian Dollar has been an outperformer in 2017, benefitting from broad based US Dollar weakness, rallying base metals, elevated risk markets and solid local data. Early Thursday, Aussie employment data gave the Australian Dollar another prop on the rise in the participation rate and pickup in full time jobs. At the same time, the market may soon start to find offers from medium-term players still looking at the monetary policy divergence theme and more hawkish Fed trajectory. Janet Yellen’s latest appearance is a testament to this fact, with the Fed Chair confirming the Fed’s hawkish trajectory. There has also been an added wave of uncertainty this year, with systemic risk associated with Brexit, worry about the Trump administration and fear of a slowing China all arguing for a less optimistic take on the Australian Dollar going forward. Looking ahead, we get an important US CPI reading, US industrial production, US NAHB housing and more Fed speak, including an appearance from the Fed Chair herself. Looking ahead, the ECB decision is a standout on the calendar. US data for today includes housing starts, building permits, initial jobless claims and the Philly Fed. Views on the incoming US administration’s Dollar outlook could also come back into the light, with US Treasury Secretary nominee Mnuchin making an appearance.

USDCAD – technical overview

The market has done a good job absorbing an intense round of setbacks in early 2017. It continues to look like the pair is in the process of carving out a longer-term base off the 1.2461, 2016 low. Look for any additional weakness to be supported on a daily close basis 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 1.3385 – 2Jan low – Strong
• R1 1.3295 – 11Jan high – Medium
• S1 1.3190 – 17Jan high – Medium
• S2 1.3111 – 13Jan low – Strong

USDCAD – fundamental overview

Quite the turnaround for the Canadian Dollar on Wednesday after the Bank of Canada produced  a more cautious, downbeat interest rate decision. While no changes were made to policy, the BoC highlighted significant uncertainties weighing on its outlook, also expressing concern over the impact the rising Canadian Dollar was having on the economy’s competitiveness. The sour BoC tone in conjunction with a hawkish leaning Yellen later in the day, proved to be a nasty 1-2 punch that has resulted in the Loonie being the only developed currency tracking lower against the Buck over the past week. Looking ahead, Canada international securities transactions and manufacturing shipments should get much attention. More of today’s focus will be on the ECB decision, US data in the form of housing starts, building permits, initial jobless claims and the Philly Fed, and an appearance from US Treasury Secretary nominee Mnuchin.

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 0.7300. The longer-term chart is reflective of this fact as it looks like we are seeing the formation of a major top of the 2016 high. As such, expect the market to stall out over the coming sessions in favour of that next lower top. Back below 0.7076 will help strengthen this outlook.

• R2 0.7239 – 14Dec high – Strong
• R1 0.7220 – 17Jan high – Medium
• S1 0.7118 – 19Jan low – Medium
• S2 0.7076 – 16Jan 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. But a wave of profit taking on US Dollar longs in early 2017, rallying commodities and ongoing support for risk assets have all helped to give the currency a boost. Still, 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, worry over a potential bubble in equity markets, systemic risk associated with a hard Brexit and a hawkish Fed policy trajectory are all negatives for the local currency. Another Kiwi negative driver in 2017 has been talk of AUDNZD related interest with this market showing signs of recovery off longer-term cyclical lows. Certainly the contrast in Thursday’s data with disappointing Kiwi building permits going up against impressive Aussie employment, only adding to the bearish Kiwi view. Looking ahead, the ECB decision is a standout on the calendar. US data for today includes housing starts, building permits, initial jobless claims and the Philly Fed. Views on the incoming US administration’s Dollar outlook could also come back into the light, with US Treasury Secretary nominee Mnuchin making an appearance.

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 extend this record run beyond the 2280 area over the coming days. But ultimately, at this point, any topside failure will also need to be met with a break back below what could be a double top neckline at 2232, to officially alleviate topside pressure and encourage the possibility for a significant bearish structural shift.

• 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 global 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

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 increasingly constructive. The recent daily close above 1200 strengthens the bullish shift in structure and opens the door for a push back towards the 2016 peak at 1375 in the weeks ahead. Any dips from here should be well supported ahead of 1160, with only a break back below 1120 to negate.

• R2 1233.10 – 16Nov high – Strong
• R1 1221.10 – 22Nov high – Medium
• S1 1187.95 – 13Jan low – Medium
• S2 1177.20 – 11Jan 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 in 2017, 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 super 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 3.7200 – 13Jan low – Medium
• S2 3.7000 – Psychological – Strong

Feature – fundamental overview

A Turkish government and central bank that were more cavalier with the +20% collapse in the Lira in 2016 have been reconsidering their stance in 2017 after the currency fell by as much as another 10% this month. It started with Erdogan’s attack on US Dollar bulls, aliking them to terrorists and has been followed up by a series of CBRT actions to counter the depreciation. This latest effort to defend the Lira has come out of Davos, with FinMin Simsek warning the government is not indifferent to the Lira’s moves, adding the CBRT’s duty is clear and it will do what is right. This would certainly suggest a rate hike is forthcoming, which would appear to be necessary for the Lira to have any chance of avoiding another slide, particularly with the Fed still leaning to the hawkish side, as reflected in the Fed Chair’s Wednesday appearance. The CBRT next meets on January 24th.