Political Risk Trumps All

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 1.2511 – 16Dec high – Strong
• R1 1.2450 – Mid-Figure – Medium
• S1 1.2370 – 23Jan low – Medium
• S2 1.2253 – 19Jan low – Strong

GBPUSD – fundamental overview

At the moment, most of the strength in the Pound is coming from the US side of this equation, with the market selling US Dollars as it reacts to Donald Trump’s early focus on protectionism. But Brexit risk is right there as well and will come back into the spotlight tomorrow, with the Supreme Court ruling due. A hard landing is still a possibility and this could continue to keep any meaningful rallies well capped. The Prime Minister will also be heading over to the US later this week and the market will be looking to see if there is any update relating to a trade deal. But for Monday, lack of economic data will leave the focus on US political developments.

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 115.62 – 19Jan high – Medium
• R1 114.42 – 23Jan high – Medium
• S1 113.00 – Figure – Medium
• S2 112.57 – 18Jan low – Strong

USDJPY – fundamental overview

We are seeing an added intensity of Yen demand on Monday with the Japanese currency benefiting from broad based US Dollar selling along with a concurrent pullback in risk sentiment. The currency market is getting more worried about global trade wars with Trump not backing down from his protectionism talk and this has opened the door for a pullback in the Buck. At the same time, the fear and uncertainty associated with the Trump administration could also unnerve investors, something that we are perhaps seeing a bit of into the new week. Looking ahead, the empty economic calendar will continue to leave the focus on developments out of Washington.

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 done a good job in 2017, with the currency making a healthy run that has resulted in this latest push back above 0.7500. A wave of broad based selling in the US Dollar, supported metals and healthy Australian economic data, have all factored into Aussie’s push. 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. There has also been an added wave of uncertainty this year, with systemic risk associated with Brexit, this worry about the Trump administration and fear of a slowing China all arguing for a less optimistic take on the Australian Dollar going forward given the currency’s correlation with global sentiment.

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 1.3461 – 3Jan low – Strong
• R1 1.3388 – 20Jan high – Medium
• S1 1.3253 – 19Jan high – Medium
• S2 1.3190 – 17Jan low – Strong

USDCAD – fundamental overview

The Canadian Dollar has done a really good job recovering into Monday, with the Loonie putting all of its energy into focusing on a wave of broad based US Dollar weakness in response to protectionist talk from the US President. However, it’s unlikely the Canadian Dollar run extends much further, particularly after the Bank of Canada came out with a more downbeat policy decision last week and Friday’s Canada economic disappointed. On Friday, Canada CPI was softer, while retail sales came in well below forecast. Looking ahead, the key focus for the remainder of the day will be on developments out of Washington, with the economic calendar empty. Dealers cite solid demand for USDCAD into dips.

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

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. Looking ahead, a quiet Monday calendar will leave the focus on the political and any new colour the market gets from the Trump administration’s policies.

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 is likely to bring in protectionist 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 to artificially support risk assets.

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 should 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. Certainly this latest wave of broad based US Dollar selling in reaction to fear of US protectionist policy has also been helping to drive the metal higher in 2017.

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 Lira depreciation. Latest efforts 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 another rate hike is forthcoming at tomorrow’s meeting, 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.