The Curious Case of Market Head Scratching

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

Data hasn’t exactly been supportive of the Pound this week, with UK CPI softer and UK wage growth subdued. Meanwhile, Brexit remains a big concern and US economic data has been strong as reflected in hot CPI and strong retail sales. And yet, the Pound has done a great job holding up into Thursday, seemingly on the back of a market that does not want to get too aggressive with US Dollar long bets in the face of Trump protectionism and Trump uncertainty. Looking ahead, absence of first tier UK data puts the focus on US data that includes building permits, housing starts, initial jobless claims and the Philly Fed. Elsewhere, the G20 summit kicks off and headlines out from the event should be monitored.

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 115.62 – 19Jan high – Strong
• R1 114.96– 15Feb high – Medium
• S1 113.25 – 14Feb low – Medium
• S2 111.59 – 7Feb low – Strong

USDJPY – fundamental overview

The Yen is finding renewed bids following a wave of declines on hawkish Fed expectations. It seems the Yen has been coming back into demand on the back of broad based US Dollar selling from a nervous market that doesn’t want to get overly aggressive long US Dollars given all of the Trump uncertainty. Meanwhile, with equity markets so stretched, there is also the anticipation of risk off flow ahead that is benefiting the traditional safe haven Japanese currency. Looking ahead, the focus is on US data that includes building permits, housing starts, initial jobless claims and the Philly Fed. Elsewhere, the G20 summit kicks off and headlines out from the event should be monitored.

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 0.7600 to officially put the pressure back on the downside.

• R2 0.7779 – 8Nov high – Strong
• R1 0.7733 – 15Feb high– Medium
• S1 0.7606 – 7Feb low – Medium
• S2 0.7578 – 2Feb low – Medium

AUDUSD – fundamental overview

The Australian Dollar has benefited of late from stronger local data, broad based selling in the US Dollar, rallying base metals and a rotation back into the long side of the AUDNZD trade. But the currency is starting to look overdone after breaking above 0.7700 and could be on the verge of rolling back over. While Thursday’s better headline print from Aussie employment opened a fresh 2017 high, the market has since pulled back after a closer glance at the data revealed slumping full time jobs. Looking ahead, the focus is on US data that includes building permits, housing starts, initial jobless claims and the Philly Fed. Elsewhere, the G20 summit kicks off and headlines out from the event should be monitored.

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 1.3025 – 14Feb low – Medium
• S2 1.3000 – Psychological – Strong

USDCAD – fundamental overview

Mixed data out of Canada on Wednesday with manufacturing beating and existing home sales disappointing. The wash translated into less interest on the Canada side, with the Loonie left trading on US fundamentals and broader macro flow. Ultimately, has been supported on broad based US Dollar weakness despite impressive US readings and a hawkish Fed as market participants worry about getting too aggressive long USD in a world of Trump uncertainty. Looking ahead, absence of Canada data will leave the focus on US data that includes building permits, housing starts, initial jobless claims and the Philly Fed. Elsewhere, the G20 summit kicks off and headlines out from the event should be monitored.

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 0.7243 – 15Feb high – Medium
• S1 0.7135 – 14Feb low – Medium
• S2 0.7130 – 100-Day SMA– Strong

NZDUSD – fundamental overview

Though Kiwi has bounced into Thursday on broad based US Dollar weakness, there has been a notable shift in sentiment towards the currency. Softer local employment data, a more dovish RBNZ, the revival of the Trump reflation play, a rotation into AUDNZD and this latest hawkish Fed Chair testimony leaving the door open for a March hike are some of the major drivers behind the Kiwi bearishness. Of course, an ongoing bid for equities and rallying commodities have been helping to slow Kiwi declines. But ultimately, if the US Dollar pushes back on Trump reflation and hawkish Fed policy, and if US equities falter, we could very well see a more intense liquidation of Kiwi longs. Looking ahead, we get plenty of first tier data out of the US, with retail sales, CPI and empire manufacturing due. Fed Yellen is also back on the wires, this time testifying before the House panel. Looking ahead, the focus is on US data that includes building permits, housing starts, initial jobless claims and the Philly Fed. Early Friday, we get Kiwi retail sales. Elsewhere, the G20 summit kicks off and headlines out from the event should be monitored.

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 24000. While technicals are severely stretched and there are definitive 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 2400.00 – Psychological – Strong
• R1 2354.00 – 15Feb/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 leaves financial markets vulnerable to any shocks and exposed to intense periods of 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 also been Peso supportive, showing a trimming down of Peso shorts. Still, the Peso is far from out of the woods, with Trump uncertainty running high and the Fed Chair leaving the door open for a March hike in her Tuesday testimony. Looking out, the market is pricing another 100bps of Banxico hikes in 2017.