US Tax Reform and Brexit Divorce Bill

GBPUSD – technical overview

The market has broken out to the topside, signaling the end to a range that had defined price action since early October. The push back above 1.3340 now suggests the market is poised for a continuation of the 2017 uptrend, with a higher low in place at 1.3027, to be confirmed on a break of the 2017 high at 1.3658. This will then open the door for a measured move upside extension back above 1.4000 and towards 1.4200 into 2018. Any setbacks should now be well supported into that previous range resistance now turned support at 1.3340.

• R2 1.3658– 20Sep/2017 high – Strong
• R1 1.3549 – 30Nov high – Medium
• S1 1.3406 – 30Dec low – Medium
• S2 1.3338 – 13Oct low – Strong

GBPUSD – fundamental overview

Plenty of optimism surrounding the Pound right now, with the UK currency bid up as Britain and the EU look to move past the Brexit bill and onto the next stage of the negotiation process. The Brexit bill terms have not been formalized as of yet and PM May and EC President Juncker will sit down today in an effort to wrap it up and move forward to trade and transition talks. But as of now, all things point to the outstanding issues getting worked out. At the same time, the Pound has come off a little into Monday, mostly on optimism surrounding US tax reform and the latest progress in the US Senate. Looking ahead, the market will keep an eye on developments relating to both Brexit and US tax reform while taking in UK construction PMIs and US factory orders.

USDJPY – technical overview

The major pair has been confined to a range trade for much of 2017, with rallies well capped ahead of 115.00 and dips well supported below 108.00. The latest break below 111.65 reaffirms this outlook, encouraging the next big drop all the way back to the range lows in the 107-108 area. Look for rallies to be well capped below 113.50.

• R2 113.44 – 6Oct high – Strong
• R1 113.00 – Figure – Medium
• S1 111.41 – 1Dec low – Medium
• S2 110.84 – 27Nov high – Strong

USDJPY – fundamental overview

Another record run in US equities has helped to prop up the major pair into Monday. The Yen continues to trade off broader macro themes and traditional correlations. And right now, those broader themes are supportive of the US Dollar as the market buys the Buck aggressively on the latest tax reform progress on US tax reform after the Senate passed its tax bill. At the same time, there has also been a wave of broad based negative sentiment for the US Dollar in 2017, while a highly extended US equity market could soon be on the verge of rolling over, with so many positives already priced. This would leave the US Dollar vulnerable and the Yen in position to find a strong bout of renewed demand. Looking ahead, the market will continue to monitor sentiment, while taking in US factory orders later on.

EURCHF – technical overview

A period of multi-day consolidation has been broken, with the market pushing up to a fresh 2017 high. The bullish break could now get the uptrend thinking about a test of that major barrier at 1.2000 further up. In the interim, look for any setbacks to be very well supported ahead of 1.1400, while only back below 1.1260 would delay the overall constructive tone.

• R2 1.1800 – Figure – Strong
• R1 1.1738 – 1Dec/2017 high – Medium
• S1 1.1544 – 5Nov low – Medium
• S2 1.1485 – 17Oct low – Strong

EURCHF – fundamental overview

The SNB will need to be careful right now as its strategy to weaken the Franc could face headwinds from the US equity market. The record run in the US stock market has been a big boost to the SNB’s strategy with elevated sentiment encouraging Franc weakness. Of course, the SNB is no stranger to this risk, given a balance sheet with massive exposure to the US equity market. But any signs of capitulation on that front, will likely invite a very large wave of demand for the Franc, which will put the SNB in a more challenging position to weaken the Franc.  And so, we speculate the SNB continues to be active buying EURCHF in an attempt to build some cushion ahead of what could be a period of intense Franc demand ahead.

AUDUSD – technical overview

The market has been under a lot of pressure over the past several weeks, extending declines into the 0.7500s thus far. It’s worth noting technical studies are in the process of unwinding from oversold readings, resulting in this latest minor bounce. But overall, the pressure is on the downside and rallies are viewed as corrective while below 0.7900.

• R2 0.7696 – 10Nov high – Strong
• R1 0.7645 – 27Nov high – Medium
• S1 0.7552– 1Dec low – Medium
• S2 0.7533 – 21Nov low – Strong

AUDUSD – fundamental overview

The Australian Dollar hasn’t been able to take much advantage of a recent slide in the US Dollar against the Pound and Euro, with the currency mostly weighed down on yield differentials and the RBA’s more neutral outlook on monetary policy. Iron ore futures have made a comeback and are helping to support the Australian Dollar off recent lows, but the US Dollar positives from US tax reform updates and apprehension ahead of tomorrow’s RBA decision are keeping a lid on the currency. On the political front, Barnaby Joyce has won Saturday’s by-election and is set to reclaim his positions as Deputy Prime Minister. Nevertheless, the dual citizenship crisis continues to cast a shadow in government, weakening the ability to govern. Looking ahead, we only get US factory order and Aussie will be thinking about US tax reform updates, global sentiment, commodities prices and the early Tuesday RBA decision in which the central bank is expected to leave policy on hold.

USDCAD – technical overview

Clear signs of basing in this pair, with the recovery from plus two year lows back in September extending through an important resistance point in the form of the August peak. This sets the stage for additional upside in the days and weeks ahead, with the immediate focus now on a retest of the psychological barrier at 1.3000. In the interim, any setbacks should now be well supported ahead of 1.2600.

• R2 1.2917 – 27Oct high – Strong
• R1 1.2837 – 21Nov high – Medium
• S1 1.2666 – 10Nov low – Medium
• S2 1.2599 – 6Oct high – Strong

USDCAD – fundamental overview

A strong recovery in the Canadian Dollar into the new week, with the Loonie getting a big lift from Friday’s first tier Canada releases. GDP came in as expected, while the Canada jobs data was super impressive, opening an intense pullback in USDCAD. Still, overall, the outlook for the Canadian Dollar is less favourable than this latest run of data leads on, with many still worried about a Bank of Canada that may have been too aggressive with consecutive rates hikes this year and economic data that has deteriorated since. Meanwhile, we believe some of the additional relative weakness in the Canadian Dollar will also come from stress associated with the outlook for NAFTA, a storyline that should get more attention into 2018. Looking ahead, absence of Canada data will leave the focus on US tax reform headlines and US factory orders data.

NZDUSD – technical overview

Medium term studies have turned down sharply after the market pushed up to a plus two year high through 0.7500 in late July. A recent break below 0.7000 has opened a more meaningful reversal that has accelerated declines to fresh 2017 lows below 0.6800. This sets the stage for a fresh downside extension to support from May 2016 at 0.6676, though with daily studies looking stretched, the market is taking time to allow those studies to unwind before making the next move. While below 0.7200, the structure remains bearish.

• R2 0.6945 – 28Nov high – Strong
• R1 0.6913 – 1Dec high – Medium
• S1 0.6817 – 1Dec low – Medium
• S2 0.6780 – 17Nov/2017 low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar hasn’t been able to recover much off recent 2017 lows, with the currency contending with US Dollar optimism from US tax reform and less encouraging news on the local front. Last week, business confidence readings sunk to their lowest levels since March 2009, while FinMin Robertson warned of a growth slowdown. Overall, we would caution against getting optimistic about Kiwi’s prospects. Economic data has been less than impressive on the whole and this should keep the RBNZ erring on the side of accommodation. Looking ahead, we only get US factory order and Aussie will be thinking about US tax reform updates, global sentiment, commodities prices.

US SPX 500 – technical overview

The market continues to shrug off overextended technical readings, with any setbacks quickly supported for fresh record highs. Still, technical readings are tracking well overbought and are in desperate need for a period of healthy corrective action.Ultimately however, it will take a break back below 2557 at a minimum to alleviate immediate topside pressure.

• R2 2700.00 – Extension Target – Strong
• R1 2663.00 – 4Dec/Record high – Medium
• S1 2599.00 – 28Nov low – Strong
• S2 2557.00 – 15Nov low – Strong

US SPX 500 – fundamental overview

The US equity market continues to be well supported on dips, pushing further into record high territory. It seems, on a macro level, the combination of blind momentum, expectation US tax reform will ultimately work out well and the appointment of Jerome Powell as the next Fed Chair are helping to keep the move going. But at the same time, there’s a clear tension out there as the VIX sits at unnervingly depressed levels. The fact that Fed policy is normalising, however slow, could start to resonate a little more, with stimulus efforts exhausted, balance sheet reduction coming into play and another rate hike still on the cards this year. But for now, it’s more of the same. At this point, it will take a breakdown in this market back below 2500 to turn heads.

GOLD (SPOT) – technical overview

Setbacks have been well supported over the past several months, with the market continuing to put in higher lows and higher highs, opening a recent push to a fresh 2017 high up around 1357. And so, look for this most recent dip to round out that next higher low around 1260 in favour of a bullish continuation towards a retest of the 2016 peak at 1375 further up. Ultimately, only a drop back below 1200 would negate the outlook.

• R2 1334.35 – 15Sep high – Strong
• R1 1316.10 – 20Sep high – Medium
• S1 1260.70 – 6Oct low – Medium
• S2 1251.45 – 8Aug 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 exhausted monetary policy, extended global equities, political uncertainty, systemic risk and geopolitical threats. All of this should continue to keep the commodity well supported, with many market participants also fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax. Certainly the US Dollar under pressure in 2017 has added to the metal’s bid tone as well, but there is a growing sense that even in a scenario where the US Dollar is bid for an extended period, GOLD will hold up on risk off macro implications. Dealers are now reporting demand in size ahead of 1260.

Feature – technical overview

USDTRY has extended its record run, with the market contemplating the establishment above major psychological resistance at 4.0000. At the same time, with medium technical studies looking extended, risk is building for a healthy corrective reversal in the sessions ahead. Ultimately, any setbacks should be well supported ahead of 3.6500, with only a break back below this level to force a shift in the structure.

• R2 4.0000 – Psychological – Strong
• R1 3.9820 – 22Nov/Record – Medium
• S1 3.8500 – 20Nov low – Medium
• S2 3.7660 – 30Oct low – Strong

Feature – fundamental overview

The CBRT is in that awful position of needing to decide between reacting to a free fall in the currency through tightening measures or reacting to a sluggish economy that is strained by the removal of any accommodation in place. Of course, the situation is even more stressful for the CBRT, with President Erdogan consistently calling for more accommodation. Tensions with the US in recent week’s revolving around Turkish businessman Reza Zareb, accused of evading sanctions against Iran, have only intensified negative sentiment towards the emerging market currency, while inspiring a wave of Lira outflows. There have been calls for as much as 400bps of rate hikes, but the CBRT isn’t expected to make any decisions until it gets a look at the November CPI release due December 4th. We did hear from Erdogan’s advisor the other day, who said the CBRT could take more action, something that would give the CBRT a green light to move ahead. Nevertheless, the fact that the CBRT is faced with constant pressure from the President, does not make for an ideal situation.