US Dollar Selling Overdone?

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 1.2568 – 15Dec high – Strong
• R1 1.2545 – 24Jan high– Medium
• S1 1.2370 – 23Jan low – Medium
• S2 1.2253 – 19Jan low – Strong

GBPUSD – fundamental overview

The Pound has come back under pressure into Wednesday. Although the UK Supreme Court upheld the lower court ruling that the government would need to seek parliamentary approval to trigger Article 50, the fact that the court also ruled that Scotland, Wales and Northern Ireland would be excluded from having a say in the matter, was enough to once again stoke fear of a hard Brexit. Meanwhile, the US Dollar has taken quite a hit in early 2017 on worry over protectionist Trump policies, but the reality is that with Trump also expected to focus on fiscal stimulus and tax cuts and with the US economy on track to absorb three rate hikes this year, it would be tough to ignore the possibility of another US Dollar run. Looking ahead, UK CBI trends is the only notable standout. More headlines relating to Brexit will likely have a more meaningful impact.

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 112.52 – 24Jan low – Medium
• S2 111.45 – Previous Support – Strong

USDJPY – fundamental overview

There has been talk making the rounds that the BOJ are concerned about lifting the 10-year yield target from 0% due to concern that higher oil and a weakness in the Yen could reverse. It would make sense considering BOJ policy objectives that the central bank would be more inclined to stay behind the curve and this is something that continues to support the US Dollar. Another prop to the Dollar on Tuesday came from this latest push to record highs in US equities. Looking ahead, there is no data of note and the focus will be on broader macro themes and headlines out from the Trump administration.

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. Look for a daily close below 0.7500 to officially put the pressure back on the downside.

• R2 0.7630 – 11Nov high – Medium
• R1 0.7589 – 20Jan high– Strong
• S1 0.7494 – 19Jan low – Strong
• S2 0.7430 – 12Jan low – Medium

AUDUSD – fundamental overview

The market has already started wondering if it has gotten a little carried away with all this US Dollar selling in 2017 and we are finally seeing the emergence of renewed Aussie sell interest above 0.7500. It would seem many traders aren’t as downbeat about the US Dollar outlook, despite Trump’s protectionist talk. The fact that tax cuts and fiscal stimulus are in the pipeline should be USD supportive, while US economic data and the Fed outlook are certainly supportive of the US Dollar. Meanwhile, when looking at the RBA-Fed monetary policy divergence, Aussie has just taken another hit on Wednesday after CPI came in softer than expected, fueling talk of RBA rate cuts. Looking ahead, there is no data of note and the focus will be on broader macro themes and headlines out from the Trump administration.

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 1.3335 – 23Jan high – Strong
• R1 1.3200 – Figure – Medium
• S1 1.3106 – 24Jan low – Medium
• S2 1.3019 – 17Jan low – Strong

USDCAD – fundamental overview

A strong performance for the Canadian Dollar on Tuesday, with the Loonie outperforming across the board. The primary driver behind this latest wave of demand has come from the reports that President Trump will approve the Keystone XL pipeline. However, it’s worth noting that this news is hardly a surprise given that it was widely expected with Trump in power, and so, the reaction might be a little overstated. Remember, last week’s downbeat Bank of Canada decision and softer first tier Canada data, do not paint a rosy picture for the Canadian Dollar, particularly when in contrast with solid US economic data and a Fed moving towards more hikes in 2017. Looking ahead, there is no data of note and the focus will be on broader macro themes and headlines out from the Trump administration.

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 0.7300 – Figure – Strong
• R1 0.7277 – 24Jan high – Medium
• S1 0.7200 – Figure – Medium
• S2 0.7117 – 19Jan low– Strong

NZDUSD – fundamental overview

The New Zealand Dollar run in 2017 could be coming to an end, at least for now, as the market starts to realize there is more to President Trump policies than protectionist policies. The shift in focus back to fiscal stimulus and tax cuts will be US Dollar supportive and the market shouldn’t forget about solid US data and a Fed timeline that projects three rate hikes in 2017. On the other side, New Zealand is still battling softer inflation and the RBNZ has been needing to err on the side of accomodation. This will put a lot of focus on Thursday’s New Zealand inflation readings. As far as today goes, there is no data of note and the focus will be on broader macro themes and headlines out from the Trump administration.

US SPX 500 – technical overview

The latest push to yet another record high following a healthy period of consolidation, suggests the market could be looking for its next big run through psychological barriers at 2300. At this point, a break back below 2232 would be required at a minimum to alleviate immediate topside pressure.

• R2 2300.00 – Psychological – Strong
• R1 2285.00 – 24Jan/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 and systemic risk. 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.

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

Although the CBRT took action in Tuesday’s meeting, the market isn’t thinking it was enough. The consensus amongst many out there is that if the CBRT is going to have any chance at preventing further depreciation in the Lira, it is going to have to make some changes to the benchmark rate. The strategy of alternative forms of tightening may be effective in the short run, but a higher benchmark rate is believed to be far more effective. This time round, the CBRT focused on raising the overnight lending rate and rate for the late liquidity window. President Erdogan has been quite vocal about his reluctance to raise the benchmark rate given the strain on the local economy, but given the current outlook and considering the strain of the policy divergence with the Fed, Erdogan may be forced to change his tune in the weeks ahead.