Today’s report: USD, Commodities, Stocks and Bitcoin
We're into the final 2017 trading day and conditions will be even thinner than the ones we've seen all week. Whether or not this results in volatility remains to be seen. Things did get a little more interesting on Thursday, with the major pairs starting to make some moves.
Wake-up call
Chart talk: Major markets technical overview video
- German inflation
- Brexit updates
- economic data
- SNB strategy
- Australia outlook
- NAFTA risk
- rebalancing flow
- red flags
- Macro accounts
- USDTRYÂ
Peformance chart: 2017 performance v. US dollar
Suggested reading
- FT Forecasts 2018: A US-China Trade War?, G. Rachman, Financial Times (December 27, 2017)
- Bitcoin Is an Implausible Currency, M. McArdle, Bloomberg (December 26, 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
Year end rebalancing flows have been Euro supportive, with the market selling the US Dollar across the board. The only standout on this final trading day for 2017 comes in the form of some German inflation data, though this isn’t expected to make any waves.
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
Year end rebalancing flows have been Sterling supportive, with the market selling the US Dollar across the board. Absence of economic data on Friday will leave the market continuing to trade on the end of year flow, though any Brexit headlines could also factor on the final trading day of the year.
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 combination of impressive data out of Japan this week along with broad based US Dollar selling against the developed currencies on year end rebalancing flow, has opened the door for renewed Yen demand this week. The economic calendar is empty on this final trading day of the year and the focus will be on the broader macro themes and flow.
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 into the new year, 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 turning up, with the market in the process of recovering after trading down to a fresh multi-day low around the 0.7500 barrier. Overall however, the pressure remains on the downside and additional upside could be difficult into solid internal resistance in the 0.7800-0.7900 area.
AUDUSD – fundamental overview
The Australian Dollar has broken up to two month highs, with the currency extending its recovery off multi-week lows. The combination of surging commodities prices, a broad based wave of US Dollar outflow into year end and a more upbeat outlook for the Australian economy into 2018 have been behind this week’s accelerated run of gains. The economic calendar is empty on this final trading day of the year and the focus will be on the broader macro themes and flow.
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 next focus on a retest of the psychological barrier at 1.3000. In the interim, any setbacks should now be well supported ahead of 1.2500.
USDCAD – fundamental overview
The Canadian Dollar has been better bid of late on the back of some solid retail sales and hot CPI data in the previous week, this latest surge in the price of OIL, better bid commodities across the board and some broad based US Dollar outflows into year end. Nevertheless, looking out to 2018, we see 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 Canadian Dollar. The economic calendar is empty on this final trading day of the year and the focus will be on the broader macro themes and flow.
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 has broken up to two month highs, with the currency extending its recovery off the 2017 low from November. The combination of surging commodities prices and a broad based wave of US Dollar outflow into year end have been behind this week’s accelerated run of gains. The economic calendar is empty on this final trading day of the year and the focus will be on the broader macro themes and flow.
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 in 2018, excitement around infrastructure plans 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 is in the process of correcting off the record highs in November to allow for extended studies to unwind. However, the uptrend remains firmly intact and a fresh higher low is now sought out ahead of the next big push through the massive psychological barrier in the form of the 4 handle. Ultimately, any setbacks should be well supported ahead of 3.6500, with only a break back below this level to delay the outlook.
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 earlier this month. 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.