Will the US Dollar Hold Up on Busy Tuesday?

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 1.2440 – 10Feb low – Medium
• S2 1.2346 – 7Feb low – Strong

GBPUSD – fundamental overview

The Pound will be looking to build on its bullish momentum following a recent run of impressive local data when it takes in UK CPI today. Anything on the hotter side of expectation will likely give the currency another boost against the Buck. Still, Brexit risk is never far behind, while the market is also consumed with developments out of the White House and the Fed policy trajectory. Later today, the Fed Chair steps in to offer her semiannual testimony in front of the Senate banking committee which is expected to move the market.

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 114.17– 13Feb high – Medium
• S1 112.86 – 10Feb low – Medium
• S2 111.59 – 7Feb low – Strong

USDJPY – fundamental overview

Earlier today, BOJ Governor Kuroda was on the wires stressing the fact that even though global yields were rising, the BOJ had no intention of altering its yield curve control strategy. But the market has shrugged off these comments, seemingly focusing more on a wave of risk off flow into Tuesday. Looking ahead, plenty of volatility is expected on Tuesday with a busy economic calendar leading up to anticipated Fed Chair Yellen testimony late in the day before the Senate banking committee.  

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 sell Francs 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. This is an added concern with the SNB’s holding of US equities hitting a fresh record of its own at $63.4 Billion. Of course, the reemergence of Eurozone political risk is only further contributing 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 been a formidable currency in recent sessions, with Aussie boosted on Tuesday on the back of solid Aussie business confidence and business conditions readings. Another prop to Aussie has also come by way of the hotter China CPI print and some broad based selling in the Buck. But looking ahead, the picture could change, with plenty of first tier data out on the Tuesday calendar, capped off with the highly anticipated event risk in the form of Fed Chair Yellen testimony.

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 1.3213 will help take the immediate short-term pressure off the downside.

• R2 1.3213 – 7Feb high – Strong
• R1 1.3169 – 9Feb high – Medium
• S1 1.3050 – Mid-Figure – Medium
• S2 1.3000 – Psychological – Strong

USDCAD – fundamental overview

The Canadian Dollar has been feeling better about itself since this past Friday, when headline Canada employment came in well above forecast. Monday’s ‘wonderful’ Trudeau meeting with Trump as described by Trump himself may have helped to maintain the Loonie’s bid. Still, participants need to be reminded the Bank of Canada has expressed concern over the rise in the Canadian Dollar and upon closer glance, the fact that wage growth was much softer in this past Friday’s data, sitting at record lows, is something that should be more of a concern for Canadian Dollar bulls, especially with sizable USDCAD bids reported in the 1.3000 area. Looking ahead, second tier Canada data and US producer prices are unlikely to factor into trade, with broader themes and the Yellen testimony late in the day to be the main attractions.

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 0.7265 – 9Feb high – Strong
• R1 0.7218 – 13Feb high – Medium
• S1 0.7156 – 13Feb low – Medium
• S2 0.7130 – 100-Day SMA– Strong

NZDUSD – fundamental overview

The New Zealand Dollar is sitting at the bottom of the pack as far as performance in the developed currencies goes over the past week. The currency has taken hits from all sides. Softer local employment data, a more dovish RBNZ, the revival of the Trump reflation play and a rotation into AUDNZD are some of the major drivers behind the Kiwi underperformance. The market is still trying to figure out which way the broad US Dollar Index is going to go and if the Buck turns lower, this could support Kiwi dips. Of course, an ongoing bid for equities has also supported the risk correlated currency. However, at the same time, if the US Dollar runs higher on Trump reflation or hawkish Fed policy and if US equities falter, we could see a more intense liquidation of Kiwi longs. Looking ahead, we get plenty of first tier data out of Europe, ahead of the highly anticipated Fed Chair Yellen testimony late in the day.

US SPX 500 – technical overview

The latest break to yet another record high following a healthy period of consolidation, has opened the door for the next big push towards 2350. While there could be signs of exhaustion on the horizon, given the intensity of this uptrend, a break back below 2300 would be required at a minimum to alleviate immediate topside pressure.

• R2 2350.00 – Psychological – Strong
• R1 2332.00 – 13Feb/Record high – Medium
• S1 2300.00 – Psychological – Strong
• S2 2254.00 – 12Jan low– Medium

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 lacking the type of stability that would inspire confidence. This latest Flynn resignation and an ongoing focus on protectionist policies should not be encouraging to stocks. 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, last week’s Trump’s comments relating to tax reform and the revival of the Trump reflation play have been behind this latest record high push, but overall, there are plenty of red flags out there, warning of a major capitulation ahead.

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% this past Thursday. 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 has managed to strengthen moderately in the aftermath of the decision, also benefiting from a wave of risk on flow as Trump turns away, at least for a moment, from focusing on protectionist policies threatening prospects for the Mexican economy. CFTC positioning has been Peso supportive showing a trimming down of Peso shorts. Looking out, the market is pricing another 100bps of hikes in 2017.