Next 24 hours: Thursday Wrap Up Call
Today’s report: BOJ Holds, US GDP Readings Due
Both chambers of the US Congress have now passed the unified tax reform bill and now that this is out of the way, the market will be waiting to see if the President signs off before the year is out. The BOJ left policy on hold. US Q3 GDP out later.
Wake-up call
Chart talk: Major markets technical overview video
- consumer confidence
- Green resignation
- BOJ holds
- SNB strategy
- macro themes
- NAFTA risk
- GDP beat
- red flags
- Macro accounts
- USDTRYÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- Three Delusions, J. Hussman, Hussman Funds (December 20, 2017)
- How the Winklevoss Twins Found Vindication, N. Popper,  NY Times (December 19, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
Despite a prolonged period of sideways trade, the outlook for the major pair remains highly constructive. The door is now open for a more immediate resumption of a well defined uptrend that has taken form in 2017. Look for any setbacks to be well supported ahead of 1.1700, for the next major upside extension beyond the current yearly high of 1.2093 and towards the 1.2500 area further up. But ultimately, only a daily close back below 1.1550 will delay this outlook.
EURUSD – fundamental overview
The economic calendar is light in the Eurozone on Thursday with only consumer confidence data standing out. Later in the day we get US initial jobless claims, the Philly Fed survey and a final reading on US Q3 GDP. The US tax reform bill has now been passed and the market is waiting for the President to sign off. A lot of this is contingent on the risk of a government shutdown, with the possibility of President Trump waiting to sign off in 2018, in a bid to buy time to waive automatic cuts to some government programs triggered by the PAYGO law.
GBPUSD – technical overview
The market has been consolidating but ultimately looks poised for a continuation of the 2017 uptrend, with a higher low waiting to be confirmed at 1.3027 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 previous range resistance now turned support in the 1.3300 area.
GBPUSD – fundamental overview
The Pound has come under mild pressure on the back of a slide in UK CBI reported sales and on news of the forced resignation of Damian Green, Theresa May's key ally. The EU commission has come out saying the Brexit transition should be over by December 21, 2020. In the UK, the Brexit date will be put into law after some compromise in the House of Commons, which will allow for the date to be delayed under ‘exceptional circumstances.’ Meanwhile, in the US, the tax reform bill has now been passed and the market is waiting for the President to sign off. A lot of this is contingent on the risk of a government shutdown, with the possibility of President Trump waiting to sign off in 2018, in a bid to buy time to waive automatic cuts to some government programs triggered by the PAYGO law. As far as today’s economic calendar goes, we get some UK public finance data followed by US initial jobless claims, the Philly Fed survey and a final reading on US Q3 GDP.
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 topside failure off the range high strengthens this outlook, though the market will ideally need to break back down below 112.00 to strengthen this prospect.
USDJPY – fundamental overview
The Bank of Japan decision was out earlier and didn't do anything to inspire much volatility, with USDJPY trading around where it opened the day after the central bank left policy as is. The vote came out at 8-1 to leave rates on hold at -0.1%, with only Kataoka dissenting. There were no changes major changes to the outlook or YCC, though the committee was slightly more upbeat on the economy. Later in the day we get US initial jobless claims, the Philly Fed survey and a final reading on US Q3 GDP. The US tax reform bill has now been passed and the market is waiting for the President to sign off. A lot of this is contingent on the risk of a government shutdown, with the possibility of President Trump waiting to sign off in 2018, in a bid to buy time to waive automatic cuts to some government programs triggered by the PAYGO law.
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.
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
Technical studies are in the process of unwinding from stretched readings, resulting in this latest consolidation, which could be well supported for the time being in the 0.7500 area. But overall, the pressure is on the downside and rallies are viewed as corrective while below 0.7900, with the possibility for another downside extension towards 0.7000 not to be ruled out.
AUDUSD – fundamental overview
All has been quiet in Australia, with all of that first tier Aussie data out of the way for the remainder of the year and the market to take its cues from the US Dollar side of things and broader macro flow. Into Thursday, the big news comes out of the US after both chambers of the US Congress have now passed the unified tax reform bill and now that this is out of the way, the market will be waiting to see if the President signs off before the year is out. A lot of this is contingent on the risk of a government shutdown,  with the possibility of President Trump waiting to sign off in 2018 in a bid to buy time to waive automatic cuts to some govt programs triggered by the PAYGO law. Looking at the calendar from the remainder of the day, we get a batch of data out of the US that includes initial jobless claims, the Philly Fed survey and a final read on Q3 GDP.
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.
USDCAD – fundamental overview
Looking out to 2018, there could be more downside risk to the Loonie as the fate of NAFTA comes back into the spotlight, with any talk of a breakup to put more pressure on the Loonie. The Canadian Dollar has also not been able to benefit from a recovery in the OIL market in 2017, but has felt the pressure of pullbacks when they happen. And when considering the performance post the dovish December Fed decision and broad based US Dollar outflows, it’s clear just how much the market isn’t feeling too great about the Loonie. Looking ahead, we get some important Canada CPI data, along with a batch of releases out of the US that include, initial jobless claims, the Philly Fed survey and a final read on Q3 GDP. Both chambers of the US Congress have now passed the unified tax reform bill and now that this is out of the way, the market will be waiting to see if the President signs off before the year is out. A lot of this is contingent on the risk of a government shutdown, Â with the possibility of President Trump waiting to sign off in 2018 in a bid to buy time to waive automatic cuts to some govt programs triggered by the PAYGO law.
NZDUSD – technical overview
The market is turning up after recently trading down to a fresh 2017 low in November. The price action has taken the form of a kind of inverse H&S pattern, with the break back above 0.6980 strengthening this prospect and opening the door for a more pronounced recovery into the 0.7200 area. For now, setbacks are expected to be supported ahead of 0.6850 to encourage the outlook.
NZDUSD – fundamental overview
The New Zealand Dollar is outperforming on Thursday after Kiwi GDP readings came in above forecast, while producing upward revisions to the previous print. This is helping the commodity currency in its efforts to extend its recovery campaign out from recent 2017 lows against the Buck. Other news into Thursday comes out of the US after both chambers of the US Congress have now passed the unified tax reform bill and now that this is out of the way, the market will be waiting to see if the President signs off before the year is out. A lot of this is contingent on the risk of a government shutdown,  with the possibility of President Trump waiting to sign off in 2018 in a bid to buy time to waive automatic cuts to some govt programs triggered by the PAYGO law. Looking at the calendar from the remainder of the day, we get a batch of data out of the US that includes initial jobless claims, the Philly Fed survey and a final read on Q3 GDP.
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.
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 a belief the Fed will remain super accommodative under Jerome Powell are all factoring into the relentless bid. Nevertheless, investor immunity to downside risk is not looking as strong these days and 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 the Fed finally following through with forward guidance erring on the side of policy normalisation. But for now, it’s more of the same, with the market shrugging off any red flags. 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 in favour of a bullish continuation towards a retest of the 2016 peak at 1375 further up. Utimately, only a drop back below 1200 would negate the outlook.
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 1200.
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.
Feature – fundamental overview
The CBRT did a fabulous job disappointing investor expectation for what was believed to be a much bigger adjustment to rates than the one the market got last week. The Turkish central bank opted to only raise by a modest 50bps in the LLW. This is viewed as a knock on CBRT credibility, with the central bank clearly influenced by the ongoing pressure from the Erdogan government to keep policy as loose as possible. The Lira could be poised for a fresh record low in the days ahead, with USDTRY considering a break of the massive psychological barrier at 4.00. The emergence of new stress in the global economy could add to the Lira strain if we see a global reduction in risk appetite that ultimately drags the entire emerging market space.