Week of Politics, Central Bank Decisions and Data

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. Still ,we would need to see a daily close back above 1.2775 to strengthen this outlook. Until then, the overall pressure remains on the downside despite these recent gains.

• 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 UK currency has had a really nice go over the past couple of weeks, recovering nicely after stalling shy of the +30 year low from October earlier this month. More clarity relating to Brexit, solid UK data and a wave of profit taking on long US Dollar exposure have been the major contributors of this Sterling bounce. However, at this point, most of the positives have been priced and there is legitimate risk hard Brexit concerns will once again creep back into flows and weigh on the Pound. Later this week, we get an important Bank of England policy decision, though in the interim, any Brexit headlines will be the major source of volatility. As far as today goes, lack of first tier data out of the UK will leave the market focused on US releases in the form of personal income and spending, PCE and pending home sales.

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 corrective pullback. The recent bearish break below 116.00 strengthens this outlook and could open a deeper drop towards 110.00 if support in the 112.50 is broken in the sessions ahead. But ultimately, any additional setbacks below 112.50 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

Japanese retail sales came out much weaker than expected on Monday, but as is usually the case with the Yen, unless it’s something related to monetary policy or global risk, this market isn’t very sensitive. In fact, an early wave of risk off flow at the weekly open has factored into price action, with the Yen tracking higher on this flow. It seems more uncertainty and discontent relating to Trump policies and actions has been forcing investors to liquidate equity exposure. Looking ahead, we get a Bank of Japan decision early Tuesday that will be another source of volatility. In the interim, it’s today’s US data featuring personal income and spending, PCE and pending home sales that will command attention.

EURCHF – technical overview

A recent close below 1.0800 which had been defined as the bottom of a multi-week range has strengthened the bearish outlook, opening 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

The Australian Dollar has cooled off recent highs, though the market has also been well supported above 0.7500 thus far. Right now, it seems Aussie is caught between diverging flow with the currency supported on softer US economic data but weighed down by this latest wave of risk off flow on the back of concern over Trump protectionist policies. There is plenty of risk ahead this week, with ongoing Trump headlines, a Fed decision and Friday’s US NFPs standing out. We also get data out of Australia including tomorrow’s NAB business confidence and private sector credit readings. As far as today goes, US data comes into focus with personal income and spending, PCE and pending home sales commanding attention.

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

A nice run for the Canadian Dollar has run into a wall, with the Loonie once again getting sold into rallies. A wave of risk off flow in the early week has added to the offered tone, with the market also perhaps thinking about softer economic data out of Canada the other week. Oil price action hasn’t really factored of late, with the commodity stabilising. Looking ahead, Tuesday is going to be an interesting day for the Loonie, with Canada GDP data scheduled. In the interim, headlines out of Washington and US data featuring personal income and spending, PCE and pending home sales will command attention.

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

Interestingly, we got softer data out of the US on Friday and stronger data out of New Zealand on Monday and yet Kiwi has been very well capped. Monday’s healthy New Zealand trade data has done nothing to inspire additional Kiwi bids and it seems this market is more focused on perhaps rallying a little too much of late, ongoing risk associated with the Trump Presidency and an upcoming Fed decision that is likely to highlight the monetary policy divergence. As far as the remainder of today goes, US data comes into focus with personal income and spending, PCE and pending home sales commanding attention.

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 introducing 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 1219.80 – 24Jan high – Medium
• S1 1180.60 – 27Jan 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 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. But a break and close back below 3.7000 will be required to trigger a more significant correction. Until then, fresh record highs to those psychological barriers at 4.0000 can not be ruled out.

• 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 slow depreciation in the Lira, the market is sending a message it hasn’t been 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 Erdogan confirming his 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. On Friday, Fitch came out and downgraded Turkey’s long-term foreign currency issuer default rating from BBB- to BB+. And 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.