Revival of Trump Reflation Bets

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 1.2583 – 9Feb high– Medium
• S1 1.2400 – Confluence – Strong
• S2 1.2346 – 7Feb low – Medium

GBPUSD – fundamental overview

The Pound has held up well over the past week, with the currency even doing a good job absorbing US Dollar demand from Thursday on the back of the revival of Trump reflation bets after the President announced to expect something spectacular on tax reform in the weeks ahead. Trumponomics and Brexit related headlines will continue to be the primary driver of flow here, though for today, there’s a heavy stack of UK data that will need to be taken in, that could factor into price action. Friday’s UK docket features trade, industrial and manufacturing production, construction output, and GDP estimates. Later in the day, US Michigan sentiment is due along with a speech from Fed Fischer.

USDJPY – technical overview

The market has seen a nice bounce, though the short-term pressure remains on the downside despite this bounce in light of a recent break of multi-session consolidation that projects weakness into the 109.50 area in the days ahead. At this point, it would take a push back above 115.62 to officially alleviate short-term downside pressure and as such, the current rally is expected to stall out ahead of 115.00.

• R2 115.00 – Psychological – Strong
• R1 113.95– 1Feb high – Medium
• S1 113.00 – Figure – Medium
• S2 111.59 – 7Feb low – Strong

USDJPY – fundamental overview

President Trump’s announcement of big plans for US tax reform in the weeks ahead did a good job reviving reflation bets and the Yen was the hardest hit on the news. This in conjunction with impressive China trade data and a more conciliatory Trump towards China have also factored into Yen weakness given the prop to broader sentiment. Looking ahead, the Trump-Abe summit kicks off today and the market will be watching closely to see if anything comes out by way of trade deal or currency talk. Otherwise, the market will also take in US Michigan sentiment and a speech late in the day from Fed Fischer.

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 1.0633 – 8Feb 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 barely depreciating, if at all. Of course, the reemergence of Eurozone political risk is only adding to SNB stress, with the Franc finding even more demand on the back of these developments. Into Friday, the Franc has found some weakness on the resurgence in risk appetite spurred on by Trump tax reform talk and strong China trade data.

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

Two relatively big developments for the Australian Dollar over the past 24 hours. Initially, Aussie was weighed down on the revival of US Dollar supportive Trump reflation bets, though Aussie has since more than recovered from these setbacks on the surge in risk sentiment brought on by this Trump news, along with stronger China trade data and Trump’s more conciliatory tone towards China. Looking ahead, the Trump-Abe summit will be watched closely as it relates to risk, while the market will continue to focus on additional headlines out of the White House. US Michigan sentiment is due later in the day, with Fed Fischer also slated to speak.

USDCAD – technical overview

Despite recent setbacks, look for the market to continue to be well supported on dips into the 1.3000 area ahead of the next major upside extension back towards the December peak at 1.3600. In the interim, a daily close back above 1.32000 will help take the immediate short-term pressure off the downside.

• R2 1.3300 – Figure – Medium
• R1 1.3213 – 7Feb high – Medium
• S1 1.3075 – 7Feb low – Medium
• S2 1.3000 – Psychological – Strong

USDCAD – fundamental overview

The combination of an impressive recovery in the price of OIL and a rally in risk sentiment on the back of solid China trade data and the reemergence of the Trump reflation bet, have helped to limit Canadian Dollar setbacks into Friday. At the same time, any news relating to Trump tax reform is ultimately US Dollar supportive, which should also cap Loonie strength. The net result is a Loonie mostly sideways into Friday and probably thinking more about it’s own economic calendar, with a very important Canada employment report due. We also get Michigan confidence and a speech from Fed Fischer late in the day.

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 continue to roll over in favour of that next lower top. A weekly close below 0.7200 will help strengthen this outlook.

• R2 0.7376 – 7Feb high – Strong
• R1 0.7265 – 9Feb high – Medium
• S1 0.7173 – 9Feb low – Medium
• S2 0.7130 – 100-Day SMA– Strong

NZDUSD – fundamental overview

The New Zealand Dollar tried hard to find upward momentum on the back of the impressive China trade data, but it seems most of that flow was diverted to the Australian Dollar, with Kiwi more concerned about the US Dollar supportive revival of the Trump reflation bet and this week’s decidedly more dovish RBNZ decision. Looking ahead, the focus will be on any headlines out of the White House, US Michigan sentiment and a speech late in the day from Fed Fischer.

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 2330-2340 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 2330.00 – Measured Move – Strong
• R1 2310.00 – 9Feb/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. Of course, Trump’s comments relating to tax reform have been behind this latest record high push, with solid China trade data also helping to support equities. But overall, there are plenty of red flags out there, warning of a major capitulation ahead. Trump uncertainty and systemic risk associated with Brexit and European elections should not be overlooked.

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 1244.80 – 8Feb high – 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.

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

As per the words of the Banxico, in an effort to avoid consumer price contagion following a jump in gasoline prices and to anchor inflation expectations, the central bank went ahead and hiked rates 50bps to 6.25%. The market was expecting this move and was clearly pleased with the action in light of the intense downward pressure on the Peso in the world of Trump. The Peso managed to strengthen moderately in the aftermath of the decision, while also benefitting from a wave of risk on flow as Trump turned away, at least for a moment, from focusing on protectionist policies threatening prospects for the Mexican economy. The market is now pricing another 100bps of hikes in 2017.