BOJ Holds, US Politics Front and Centre

GBPUSD – technical overview

This latest impressive run to the topside has stalled out ahead of critical resistance in the form of the December 2016 peak at 1.2775. This keeps the pressure on the downside and could open the door for another drop back towards 1.2000 over the coming sessions. Ultimately, the market would need to establish above 1.2775 to suggest a major base is in place and force a bullish structural shift.

• R2 1.2674 – 26Jan high – Strong
• R1 1.2601 – 30Jan high– Medium
• S1 1.2450 – Mid-Figure – Medium
• S2 1.2419 – 24Jan low – Strong

GBPUSD – fundamental overview

The Pound was one of the harder hit currencies on Monday, with the risk off flow really hurting the UK currency given the added layer of stress on top of ongoing systemic risk already associated with Brexit. On Monday, PM May added to the stress after saying Article 50 would be a simple decision for lawmakers if they respected the will of the British people. As far as today's data goes, UK consumer credit is scheduled but isn't expected to factor into trade, while later on, we get US Case Shiller, Chicago PMIs and US consumer confidence. The market will also start to think about Super Thursday featuring the Bank of England policy decision and QIR.

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 115.62 – 19Jan high – Strong
• R1 114.39– 27Jan low – Medium
• S1 113.04 – 25Jan low – Medium
• S2 112.52 – 24Jan low – Strong

USDJPY – fundamental overview

The Bank of Japan left policy on hold as widely expected. Meanwhile, in the BOJ’s quarterly outlook report, the central bank maintained its upbeat outlook, with GDP forecasts revised higher and inflation projections unchanged. Unsurprisingly, the Yen hasn’t done much to react to the event risk, instead focusing its attention on developments out of Washington and the implementation of Trump protectionist measures that are inspiring Yen demand both on negative US DOllar implications from such policy and on safe haven flows. Looking ahead, politics will continue to influence the direction in this market while on the data front, we get US Case Shiller, Chicago PMIs and US consumer confidence.

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 1.0763 – 30Dec high – Strong
• R1 1.0700 – 30Jan high – Medium
• S1 1.0638 – 30Jan 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

Australia's NAB business confidence, business conditions and private sector credit readings were all better than expected early Tuesday, which has helped to keep the Australian Dollar supported following a Monday session which saw the currency moderately lower on the back of broad based risk off flow. Looking ahead, Aussie will likely take its cues from external developments relating to global sentiment. Clearly moves out of Washington will have an impact, while the market will also start to think about tomorrow's Fed decision and possible implications as far as yield differentials go. Anything suggesting the Fed is reconsidering its more hawkish stance of late would of course be Aussie supportive, while anything confirming the Fed's current trajectory would weigh on the currency. As far as today goes, upcoming data includes US Case Shiller, Chicago PMIs and US consumer confidence.

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 1.3170 – 30Jan high – Medium
• S1 1.3054 – 26Jan low – Medium
• S2 1.3019 – 17Jan low – Strong

USDCAD – fundamental overview

Not much going on with the Canadian Dollar in Monday trade, though volatility is expected to pick up in a big way today, with Canada GDP due. The Canadian Dollar has been finding demand on the back of a wave of Dollar selling triggered by Trump protectionist policies, but at the same time, USDCAD bids continue to emerge ahead of psychological barriers at 1.3000. Looking at Canada data, recent releases have been less than impressive, which includes cooler retail sales and inflation. Meanwhile, the latest downbeat Bank of Canada decision should not be forgotten, with the central bank expressing concern over risks to the economy and a stronger Canadian Dollar. Bank of Canada Governor Poloz will be back on the wires later in the day and he could remind the market about the central bank's recent message which could open renewed Canadian Dollar selling. Looking at the US calendar, we get US Case Shiller, Chicago PMIs and US consumer confidence.

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 has been very well supported in 2017 thus far, showing no signs of any meaningful weakness at this point. Still, the run has been overly impressive and dealers have been talking about renewed sell interest from medium-term players at current levels. The combination of an RBNZ unlikely to be welcoming of this latest run of strength and ongoing policy divergence that favours the US Dollar as the Fed looks to continue to raise rates in 2017, should invite a lower Kiwi rate in the days ahead. Meanwhile, with risk sentiment looking increasingly shaky at a time when President Trump is introducing protectionist policies and global equities are overinflated, the correlated Kiwi rate should be feeling less secure about periods of appreciation.

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, political uncertainty 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 continue to cite healthy demand on any dips.

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

The Lira has held up exceptionally well in the new week, with the market doing a good job absorbing Friday's Fitch downgrade and this latest S&P decision to turn negative on Turkey's rating. Trump protectionist measures have also been a welcome relief for an ailing Lira, trading just off record lows, with the market selling US Dollars across the board. Still, overall, recent measures from the CBRT to slow the depreciation in the Lira haven't done much to dissuade the market from continuing to look to sell the Lira at every turn, with USDTRY continuing to consider a fresh push to record highs through major psychological barriers at 4.00. Certainly any continuation of risk liquidation like we saw on Monday would only add to downside pressure on the Lira. And so, while the Lira has avoided fresh lows for the moment, alternative forms of restrictive policy may not be enough to do the trick, and a reluctant Erdogan could be forced to advise is central bank to go the more direct route to slowing TRY depreciation via a raising of the benchmark rate. Erdogan has been vehemently against the idea of raising the benchmark given its strain on the local economy, but if the USDTRY rate starts to push through 4.00, he will likely be forced to reconsider this stance.