US Dollar Weakness Justified?

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 1.2253 – 19Jan high – Medium
• S2 1.2121 – 13Jan low – Strong

GBPUSD – fundamental overview

Activity in the Pound has settled into the latter half of the week, following the massive Tuesday recovery on the back of the PM May speech. While the UK currency has given back some of those gains, it remains supported on dips, with a bigger wave of broad based US Dollar selling and solid UK economic data supporting. This week alone, the UK calendar has produced hotter CPI, solid wages and an impressive employment report. Of course, Brexit uncertainty remains a big concern and could continue to weigh on any meaningful upside attempts. For today, the focus will be on UK retail sales and the inauguration of Donald Trump.

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 a previous resistance turned support level at 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 116.00 – Figure – Medium
• R1 115.62 – 19Jan high – 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 this week. Looking ahead, the US economic calendar is empty and the primary focus will be on the inauguration of Donald Trump and any new insights the market gets with respect to US policy.

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 0.7630 – 11Nov high – Medium
• R1 0.7589 – 20Jan 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 economic data. Thursday’s Aussie employment beat has now been followed up by an impressive Aussie new home sales print and well received batch of Friday China data in the form of retail sales, industrial production and GDP. News that China had cut its reserve ratio for 5 big banks didn’t seem to factor into price action. However, 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, the inauguration of Donald Trump will be the standout event in Friday trade.

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 1.3354 – 19Jan high – Medium
• S1 1.3252 – 19Jan high – Medium
• S2 1.3190 – 17Jan low – Strong

USDCAD – fundamental overview

Quite the turnaround for the Canadian Dollar this week 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 of a rising Canadian Dollar on the economy’s competitiveness. The sour BoC tone in conjunction with this week’s hawkish leaning Yellen, has proven to be a nasty 1-2 punch resulting in Canadian Dollar underperformance across the board. Looking ahead, the primary focus on Friday will be the Trump inauguration, but we also get first tier Canada data in the form of CPI and retail sales that will surely factor into price action.

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 weekly chart is reflective of this fact as it looks like we are seeing the formation of a major top off 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 0.7225 – 20Jan high – Medium
• S1 0.7117 – 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, a hawkish Fed policy trajectory, and RBNZ unlikely to be pleased with this run of Kiwi strength 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 add to the bearish Kiwi view. Looking ahead, the primary focus on Friday will be the inauguration of Donald Trump.

US SPX 500 – technical overview

Although the market has been consolidating just off its recent record peak and risk remains for a fresh upside break through 2300, signs of trend exhaustion have also emerged. But ultimately, any topside failure will 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 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 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. Latest effort to defend the Lira include comments from FinMin Simsek that the government is not indifferent to the Lira’s moves, and another cancellation of the 1-week repo funding window. All of this certainly suggest a rate hike is forthcoming, which would appear to be the next necessary step for the Lira to have any chance of avoiding another major slide, particularly with the Fed maintaining a hawkish policy trajectory. The CBRT next meets on January 24th.