Death of the US Dollar? What You Need to Know

GBPUSD – technical overview

This latest impressive run to the topside is coming into critical resistance in the form of the December peak at 1.2775. Ultimately however, while we could see a test and overshoot beyond 1.2775 in the sessions ahead, the market would need to establish a weekly close above this level to suggest a major base in place and force a bullish structural shift. Until then, expect any moves into or through 1.2775 to stall out, especially with this run starting to look extended on the daily chart.

• R2 1.2775 – 6Dec high – Strong
• R1 1.2680 – 1Feb high– Medium
• S1 1.2543 – 1Feb low – Medium
• S2 1.2413 – 31Jan low – Strong

GBPUSD – fundamental overview

The Pound has just run through what should have been a solid day for the US Dollar, on robust US ADP employment, better than expected US ISM manufacturing and a slightly more upbeat Fed decision. The source of the Pound’s outperformance is not easily identifiable, though it’s possible that solid UK manufacturing PMIs and some optimism relating to Brexit have helped to lift the currency. The market also seems to want to test that December peak at 1.2775 and the broad based selloff in the US Dollar is helping this cause. As far as today goes, the big focus is on the Bank of England policy decision and quarterly inflation report. No change to policy is expected but the market will be looking to see if the BOE upgrades its economic assessment and inflation forecasts and what the central bank has to say about downside risks relating to Brexit and the global economy. UK construction PMIs and US initial jobless claims won’t factor.

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 112.50 strengthens this outlook and could open a deeper drop towards a measured move objective in the 109.50. But ultimately, any additional setbacks below 112.50 are expected to be well supported below 110.00 in favour of that next higher low and bullish resumption towards 120.00.

• R2 113.96 – 31Jan high – Strong
• R1 113.50– Mid-Figure – Medium
• S1 112.08 – 31Jan low – Medium
• S2 111.36 – 28Nov low – Strong

USDJPY – fundamental overview

Japanese PM Abe has removed any ideas the market should be expecting imminent intervention to weaken the Yen after saying Japan had not been active in FX and would only do so if there was an emergency. The PM went on to add that it wasn’t appropriate for leaders to bicker over FX movement at summit meetings, while rejecting ideas for a currency clause in bilateral trade agreements. This could be factoring into renewed Yen demand on Thursday, though broad based US Dollar selling and risk liquidation flows would also account for Yen strength. Another story getting attention was the government’s denial of a Nikkei report that said GPIF would invest in US infrastructure bonds as part of a bilateral economic cooperation. Looking ahead, the Yen will continue to focus on broader risk themes, while also reacting to any fallout from the Bank of England policy decision. US initial jobless claims aren’t expected to move markets.

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 – Figure – 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 0.7779 – 8Nov high – Strong
• R1 0.7652 – 2Feb high– Medium
• S1 0.7578 – 2Feb low – Medium
• S2 0.7512 – 27Jan low – Medium

AUDUSD – fundamental overview

The Australian Dollar is getting a major boost into Thursday, initially on continued US Dollar selling in the aftermath of the as expected Fed decision and then on a blowout Aussie trade print, producing a much bigger surplus than expected. Aussie building approvals eased but this was also a positive as the data eased by less than expected. Meanwhile, a rotation into the AUDNZD rate was another source of Aussie demand, with the New Zealand Dollar suffering from recent disappointing employment data and this latest news of cattle tuberculosis. Looking ahead, Aussie will spend most of its time focusing on broader risk themes including developments out of the White House and fallout from today’s Bank of England decision. US initial jobless claims are due but won’t get much attention.

USDCAD – technical overview

The latest break below the 1.3000 psychological barrier could delay bullish prospects for this market, though we would need to see a daily close below 1.3000 to confirm such a structural shift. Until then, look for the market to continue to be well supported around the barrier ahead of the next major upside extension back towards and through the December peak at 1.3600. In the interim, a push above 1.3170 will officially take the immediate pressure off the downside.

• R2 1.3170 – 30Jan high – Strong
• R1 1.3100 – Figure – Medium
• S1 1.2969 – 31Jan low – Medium
• S2 1.2823 – 7Sep low – Strong

USDCAD – fundamental overview

Canada has seen a nice run of economic data this week, with impressive GDP numbers followed up on Wednesday by a solid manufacturing print. This has helped the Canadian Dollar run, while ongoing broad based selling in the US Dollar is clearly the more prominent driver at the moment, with the market continuing to pay close attention to Trump protectionist policy talk which includes softer US Dollar comments. Looking ahead, lack of Canada data on Thursday will leave the Loonie trading on broader flows. US initial jobless claims data won’t factor into trade and the market will spend more time watching developments out of the White House and taking in any ripples from the Bank of England policy decision.

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 0.7400 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 0.7350 – 31Jan high – Medium
• S1 0.7222 – 26Jan low – Medium
• S2 0.7209 – 24Jan low– Strong

NZDUSD – fundamental overview

Although the New Zealand Dollar is up against the Buck over the past week, the price action is deceptive, with the currency underperforming against its peers and only benefitting from broad based US Dollar weakness, albeit marginally. Disappointing Kiwi employment data and this latest news of cattle tuberculosis have weighed on the commodity currency, while risk off flow is also keeping the market capped into rallies. Moreover, the RBNZ isn’t likely to be pleased with the appreciation in the exchange and will be more justified in adopting a more accommodative policy approach in light of this week’s employment miss. Ongoing subdued inflation is yet another Kiwi negative at the moment. So while there could be risk for additional Kiwi gains on Dollar selling themes, it looks like the currency could continue to outperform relative to its peers. Looking ahead, broader macro themes will dictate flow, including headlines out of the White House and fallout from the Bank of England decision.

US SPX 500 – technical overview

The latest break to yet another record high following a healthy period of consolidation, opens the door for the next big push towards a measured move objective in the 2320-2340 area. While we have seen signs of exhaustion this week, given the intensity of this uptrend, 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 2254.00 – 12Jan low – Strong
• S2 2232.00 – 30Dec 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 focusing more on protectionist policies that threaten prospects for stability and 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 been very well supported since basing out around 1120 in 2016. Look for a higher low in place at the recent 1180 low, with a push back above 1220 to confirm and open the next major upside extension towards a measured move into the 1260 area. Only back below 1180 would delay the constructive outlook, while ultimately, below 1120 would be required 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 on dips, 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. Meanwhile, soft US Dollar policy talk out from the US administration is also factoring into demand.

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

All of this broad based US Dollar selling on soft US administration US Dollar policy talk and yet not much of an appreciation in the beaten down Lira. Overall, recent measures from the CBRT to slow the depreciation in the Lira haven't done much to dissuade the market from  selling the Lira at every turn. 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, despite the CBRT’s reluctance to use the benchmark as a tool to combat FX moves, as once again hinted at in the latest Minutes. But Erdogan could be forced to advise his central bank to go the more direct route to slowing TRY depreciation via the benchmark rate. Erdogan has been vehemently against the idea of raising the benchmark given its strain on the local economy, yet if the USDTRY rate pushes through 4.00, he will likely be forced to reconsider this stance.