Euro Looks Inward and Not Liking What it Sees

GBPUSD – technical overview

This latest impressive run to the topside has stalled out ahead of critical resistance in the form of the December peak at 1.2775. While we could still 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. A daily close below 1.2400 will increase bearish prospects.

• R2 1.2707 – 2Feb high – Strong
• R1 1.2538 – 3Feb high– Medium
• S1 1.2428 – 6Feb low – Medium
• S2 1.2413 – 31Jan low – Strong

GBPUSD – fundamental overview

The Pound has been a little quieter in the early week, letting the Euro take centre stage for the time being. It seems as though the market is more comfortable trading in consolidation mode as awaits the results from the House of Commons vote on the Article 50 bill. We have however seen UK BRC retail sales come in softer on Tuesday which could be factoring a little into the Pound’s softer tone, though most likely, any weakness we are seeing is in sympathy with Euro declines. Looking ahead, lack of meaningful data on the UK calendar will leave the market focused on US data which features US trade and US JOLTS job openings.

USDJPY – technical overview

The recent break below 112.50 strengthens the short-term bearish outlook and could open a deeper drop towards a measured move objective in the 109.50. But ultimately, setbacks are expected to be well supported below 110.00 in favour of that next medium-term higher low and bullish resumption towards 120.00.

• R2 113.49 – 3Feb high – Strong
• R1 112.78– 6Feb high – Medium
• S1 111.50 – Mid-Figure – Medium
• S2 111.36 – 28Nov low – Strong

USDJPY – fundamental overview

The Yen has been reclaiming its status as a safe haven currency in recent days, with the market running back into the Japanese currency on trepidation surrounding Trump policies and an escalation in European political and structural uncertainty. Perhaps one of the only things keeping the Yen from running too far is the fact that US equities continue to track near record highs despite all of this stress in the market right now. Looking ahead, the focus will be on this broader risk and some US data featuring trade and JOLTS job openings.

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 1.0708 – 3Feb high – Medium
• S1 1.0638 – 30Jan low – Medium
• S2 1.0624 – 24Jun/2016 low – Strong

EURCHF – fundamental overview

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. 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. Of course, the reemergence of Eurozone political risk and structural deficiencies is only adding to SNB stress, with the Franc finding even more demand on the back of these developments.

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 0.7697 – 2Feb high– Medium
• S1 0.7578 – 2Feb low – Medium
• S2 0.7512 – 27Jan low – Medium

AUDUSD – fundamental overview

The Australian Dollar has held up well on Tuesday after the RBA left policy on hold as expected. The RBA repeated its usual mantra that a rising Australian Dollar could complicate the economic adjustment and that inflation was expected to remain low for some time. It seems the fact that the statement offered mild hints the central bank could now be done cutting rates was enough to give the currency a prop in early Tuesday trade. Looking ahead, broader macro themes and US data featuring trade and JOLTS job openings will be the key standouts for the remainder of the day.

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 1.3136 – 6Feb high – Medium
• S1 1.3000 – Psychological – Medium
• S2 1.2969 – 31Jan low – Strong

USDCAD – fundamental overview

A recent run in the Canadian Dollar on the back of solid Canada data and broad based US declines from Trump uncertainty could be coming to an end, after USDCAD has proven to be very well supported around psychological barriers at 1.3000. The Canadian Dollar was actually a relative underperformer on Monday, despite the lack of any clear catalyst for the Loonie’s weakness. Perhaps that familiar correlation with OIL is what spooked the Loonie, after OIL came back under pressure. Of course, we’ve also heard a lot out from the Bank of Canada relating to its concern about a stronger Loonie and this could also be factoring as medium players looking to sell Canadian Dollars at more attractive levels. Looking ahead, Canada trade and Ivey PMIs are in focus along with US data featuring trade and US JOLTS job openings.

NZDUSD – technical overview

Despite this latest upside correction in 2017, 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 0.7376 – 7Feb high – Medium
• S1 0.7303 – 7Feb low – Medium
• S2 0.7222 – 26Jan low– Strong

NZDUSD – fundamental overview

The New Zealand Dollar has done a wonderful job absorbing last week’s unimpressive employment data, with the currency still extending its impressive run in 2017. The combination of this latest US employment report which has reduced odds for a Fed March hike on account of softer hourly earnings, and this latest rise in RBNZ inflation expectations, have helped to bolster Kiwi in the early week. Still, this market has seen a nice run and it’s possible the RBNZ will be getting ready to comment on its displeasure with a local currency that is too strong when it meets early Thursday. Looking ahead, broader macro flows and US data featuring trade and US JOLTS job openings will be the focus for the remainder of the day.

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 there could be signs of exhaustion on the horizon, 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. The fact that monetary policy around the rest of the globe is exhausted with very little left in the tank to artificially support risk assets is yet another major concern and the reemergence of European political and structural risk only adds to this concern.

GOLD (SPOT) – technical overview

The market has been very well supported since basing out around 1120 in 2016. This latest break through 1220 confirms a fresh higher low at 1180 and opens 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 1260.00 – Measured Move – Strong
• R1 1240.00 – Round Number – Medium
• S1 1200.00 – Psychological – Medium
• S2 1180.60 – 27Jan 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 and this latest Dollar weakness in early 2017 on Trump soft Dollar talk are only making GOLD that much more attractive.

Feature – technical overview

USDMXN has been in the process of correcting out from recent record highs earlier this year. The market is now coming back into critical psychological support in the 20.00 area and is expected to be well supported around the barrier in favour of a resumption of the uptrend and push back through the record high just over 22.00. Only a daily close below 20.00 would give reason for pause and open the possibility for a more meaningful structural shift.

• R2 22.0380 – 11Jan/Record – Strong
• R1 21.3900 – 11Nov high – Medium
• S1 20.1290 – 17Nov low – Medium
• S2 20.0000 – Psychological – Strong

Feature – fundamental overview

The combination of a market that thinks it has priced in the worst case scenario from Trump’s protectionist policies, specifically targeted at Mexico, and broad based US Dollar declines in early 2017 on the back of Trump’s soft US Dollar talk, have been the driving forces behind the Mexican Peso’s recovery from January record lows. Still, with all that said, the Mexican economy is struggling and Trump has every capability of reigniting concerns about Mexico’s relationship with the US. And so, Thursday’s Banxico’s meeting will be an important event to watch. The market is looking for 50bps of tightening to help offset inflation and the decline in the Peso on the back of the Trump factor, and anything less could prove to be a major disappointment, inviting renewed downside pressure on the emerging market currency. Also keep an eye on risk sentiment, which looks increasingly shaky in 2017, with any downside pressure on US equities to weigh heavily on the risk correlated emerging market currency.