Trade Deals and GDP

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 1.2775 – 6Dec high – Strong
• R1 1.2674 – 26Jan high– Medium
• S1 1.2491 – 26Jan low – Medium
• S2 1.2419 – 24Jan low – Strong

GBPUSD – fundamental overview

The Pound was unable to extend its impressive run, despite a solid Thursday UK GDP print. Instead, the market was consumed with a revival in the US Dollar. Perhaps the market got too carried away with Trump protectionist policy, not focusing enough on US Dollar supportive Trump tax cuts and fiscal stimulus. Or perhaps, the market remembered the Fed is still leaning to the hawkish side, with yield differentials ever in the Buck’s favour. The Brexit overhang is yet another weight on the Pound and all will be watching what comes of today’s talks between the UK PM and US President. Otherwise, the market will take in important first tier US data in the form of GDP, personal consumption, durable goods and Michigan sentiment.

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 110.00. But ultimately, any setbacks are expected to be well supported around the 110.00 psychological barrier in favour of that next higher low and bullish resumption towards 120.00.

• R2 116.00 – Figure – Medium
• R1 115.62 – 19Jan high – Strong
• S1 114.39 – 27Jan low – Medium
• S2 112.52 – 24Jan low – Strong

USDJPY – fundamental overview

Perhaps this latest run up in USDJPY has been helped along by the latest news the BOJ has boosted 5-10 year JGB purchases, but overall, the price action is more likely a function of the revival of US Dollar demand into the latter half of the week. The market seems to once again shifting its focus back to Dollar supportive Trump policies like tax cuts and fiscal stimulus, while not forgetting about a hawkish Fed policy trajectory. Of course, the ongoing bid for record high US equities has not hurt this run either. Looking ahead, US data is front and centre with GDP, personal consumption, durable goods and Michigan sentiment due.

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 1.0763 would be required to take the immediate pressure off the downside.

• R2 1.0900 – 8Dec high – Strong
• R1 1.0763 – 30Dec high – Strong
• S1 1.0670 – 26Jan low – Medium
• 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. But 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 0.7610 – 24Jan high– Strong
• S1 0.7494 – 19Jan low – Strong
• S2 0.7430 – 12Jan low – Medium

AUDUSD – fundamental overview

No major data out of Australia on Friday but looking at the sum of its parts, the data was supportive, with producer prices coming in hotter while exports shot up. Imports were softer, but again, on the whole, mostly supportive. Still, the main driver of the Australian Dollar at the moment are US fundamentals. Into the latter half of the week, the US Dollar has been attempting to regain traction, with market participants focusing back on Dollar supportive Trump policies and a hawkish leaning Fed. Looking ahead, the focus is on US data which features GDP, personal consumption, durable goods and Michigan 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 1.3335 – 23Jan high – Strong
• R1 1.3200 – Figure – Medium
• S1 1.3054 – 26Jan low – Medium
• S2 1.3019 – 17Jan low – Strong

USDCAD – fundamental overview

The Canadian Dollar has been feeling better this week about prospects for a healthy relationship with the new US administration. Trump’s greenlighting of the Keystone XL pipeline was one of those developments inspiring renewed demand for the Loonie, while analysts have come out since calling for the negative impact from Trump’s protectionism and trade deals to be felt by Mexico. Of course, broad based selling of the US Dollar has contributed to Canadian Dollar gains as well, though in light of last week’s downbeat Bank of Canada and softer first tier Canada data, additional upside in the Loonie could prove to be a challenging task. Moreover, the US Dollar has been regaining traction into the latter half of the week, helped along by a shift in focus to US Dollar supportive Trump policies and a hawkish leaning Fed. Looking ahead, US GDP, personal consumption, durable goods and Michigan sentiment highlight Friday’s docket.

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 into the 0.7300 area. 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 0.7200 will help strengthen this outlook.

• R2 0.7403 – 8Nov high – Strong
• R1 0.7312 – 26Jan high – Medium
• S1 0.7222 – 26Jan low – Medium
• S2 0.7209 – 24Jan low– Strong

NZDUSD – fundamental overview

The New Zealand Dollar run in 2017 could be coming to an end as the market starts to realize there is more to President Trump than protectionist policy. Certainly the inability for Kiwi to extend gains early Thursday following a hotter CPI print is a testament to this fact. The shift in focus back to US 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, the RBNZ isn’t likely to be too happy about this latest run up in the currency in 2017. As far as today goes, we get a batch of US releases featuring GDP, personal consumption, durable goods and Michigan sentiment.

US SPX 500 – technical overview

The latest push to yet another record high following a healthy period of consolidation, opens the door for the next big push towards a measured move objective at 2320. At this point, a break back below 2232 would be required at a minimum to alleviate immediate topside pressure.

• R2 2320.00 – Measured Move – Strong
• R1 2304.00 – 26Jan/Record high – Medium
• S1 2232.00 – 30Dec low – Strong
• S2 2180.00 – 5Dec low– Strong

US SPX 500 – fundamental overview

The record run in 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 poke above 1200 strengthens the bullish shift in structure and opens the door for a push back towards the 2016 peak at 1375 in the months 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 1219.50 – 23Jan high – Medium
• S1 1177.20 – 11Jan low – Medium
• S2 1170.95 – 6Jan low  – Strong

GOLD (SPOT) – fundamental overview

Solid demand from medium and longer-term players continues to emerge despite this latest round of setbacks, 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. Dealers are now talking of a healthy batch of bids ahead of $1160.

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 market is super extended across the major time frames, with the weekly and monthly charts severely overbought. As such, any sustained upside beyond 4.0000 would be unlikely, given the desperate need for a healthy correction. Still, a break and close back below 3.7000 will be required to take the immediate pressure off the topside.

• 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 has been taking action to try and slow depreciation in the Lira, the market clearly is clearly sending a message it wasn’t 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 will need to raise the benchmark rate. The strategy of alternative forms of tightening don’t seem to be doing the trick and a higher benchmark rate is believed to be the only solution. The trouble is, at least for the Lira, that President Erdogan has been quite vocal about his reluctance to raise the benchmark rate given the strain on the local economy. We’ve since heard more talk from the President’s advisor confirming a reluctance to tighten the benchmark. 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 days ahead. On the political front, the upcoming Turkish referendum is making the FX market even more nervous about holding Lira, as all indications point to even more control for Erdogan.