Beware of the Thinner Holiday Trade

GBPUSD – technical overview

The market has seen a sizable correction towards major resistance at 1.2800 over the past several days. Ultimately, however, while the market holds below 1.2800, the downtrend remains intact and a lower top is sought out in favour of a bearish resumption back towards 1.2000. Only a weekly close above 1.2800 would compromise the structure. A daily close below 1.2300 will put the immediate pressure back on the downside.

• R2 1.2568 – 15Dec high – Strong
• R1 1.2511 – 16Dec high – Medium
• S1 1.2376 – 15Dec low – Medium
• S2 1.2302 – 18Nov low – Strong

GBPUSD – fundamental overview

The Pound took a big hit last week on the back of the more hawkish Fed decision, but has since found some support, perhaps helped along by profit taking on short term long USD positions and on Friday’s softer US housing data. But with the BOE highlighting the fact that a stronger Pound has reduced the risk of inflation overshooting next year and with Fed Lacker leaving the door open for the possibility of 4 rate hikes next year, any rallies are likely to find formidable offers. Looking ahead, the economic calendar is exceptionally thin and the Pound will like trade off broader macro flow.

USDJPY – technical overview

The major pair has seen an intense bullish shift in recent days, with the most recent break above 110.00 exposing fresh upside towards next meaningful resistance in the 120.00 area. However, daily studies are looking stretched which suggests that additional upside could be limited  in favour of a more significant healthy corrective pullback. But ultimately, any setbacks are expected to be well supported above previous resistance at 110.00.

• R2 119.00 – Figure – Strong
• R1 118.67 – 15Dec high – Medium
• S1 117.01 – 15Dec low – Medium
• S2 116.13 – 12Dec high – Strong

USDJPY – fundamental overview

It’s clear that with this major pair having run so far and fast in recent weeks, some form of healthy profit taking was likely to kick in. This is the way it’s been early Monday, with market participants happy to lighten up long Dollar exposure, particularly ahead of tomorrow’s Bank of Japan policy decision. Earlier today, we also got some better than expected Japan trade data which could also be factoring into some of the Yen demand. Looking ahead, the economic calendar is exceptionally thin for the remainder of the day.

EURCHF – technical overview

A recent close below 1.0800 which had been defined as the bottom of a multi-week range strengthens the bearish outlook and opens the door for an acceleration of declines towards the 2016 low at 1.0624. At this point, a daily close back above 1.0900 would now be required to take the immediate pressure off the downside and suggest the market is once again looking settle back into the previous range.

• R2 1.0900 – 8Dec high – Strong
• R1 1.0799 – 9Dec high – Strong
• S1 1.0687 – 18Nov low – Medium
• S2 1.0624 – 24Jun/2016 low – Strong

EURCHF – fundamental overview

The SNB has unquestionably had a challenging time of late, with the central bank forced to contend with an ongoing wave of demand for the Swiss Franc, mostly recently on the back of December’s dovishly perceived ECB decision. The central bank has been committed to its mandate of ensuring the Franc does not appreciate further through monetary policy and intervention tools. Though despite all efforts, the Franc continues to want to appreciate against the Euro. It seems the strategy has been to buy Euro when risk comes off and to do nothing when risk is back on and natural flows should be CHF bearish. But the trouble is, with risk on and global equities elevated, the Franc is still not depreciating as much as the SNB would probably like to see and if global risk sentiment deteriorates, it could invite a massive wave of demand for the Franc that the SNB will be unable to offset.

AUDUSD – technical overview

The latest break below 0.7400 is a significant development and now opens the door for deeper setbacks towards next key support at 0.7145 in the days ahead. At this point, look for any rallies to be well capped ahead of 0.7500. Only back above 0.7525 delays the bearish outlook.

• R2 0.7431 – 15Nov high – Strong
• R1 0.7370 – 16Dec high– Medium
• S1 0.7267 – 16Dec low – Medium
• S2 0.7145 – 24May low – Strong

AUDUSD – fundamental overview

Australia’s mid-year economic and fiscal outlook has come out and while the report has been rather balanced in its assessment, it seems the Australian Dollar is finding some comfort in the fact that the trade deficit is expected to narrow and this could take the pressure off any worries over a rating agency downgrade. Still, overall, the balance of risks remains tilted in the US Dollar’s favour with a shakier global growth outlook and more hawkish Fed to fuel demand for the Buck. Looking ahead, the economic calendar is exceptionally thin in Monday trade.

USDCAD – technical overview

This market looks to be in the process of carving out a longer-term base off the 1.2461, 2016 low. Look for any additional weakness to be supported well ahead of 1.3000 in favour of the next major upside extension towards a measured move objective into the 1.4000 area. Ultimately, only back below 1.3000 would delay the constructive outlook.

• R2 1.3500 – Figure – Medium
• R1 1.3418 – 15Dec high – Strong
• S1 1.3268 – 15Dec low – Strong
• S2 1.3200 – Figure – Medium

USDCAD – fundamental overview

The Canadian Dollar had enjoyed a very nice run in recent weeks before that recovery was put down hard in the previous week. Stronger data out of Canada, higher OIL and doubts about the Fed outlook had all factored into the Loonie’s impressive rally, but with the Fed coming out more hawkish last Wednesday, it proved to be a game changer, putting the Loonie right back within a broader downtrend. It seems yield differentials and monetary policy divergence themes are far too strong to deny, while fear of a protectionist Trump administration could also be adding to downside pressure in the Canadian Dollar. Looking ahead, the economic calendar is exceptionally thin.

NZDUSD – technical overview

The overall pressure has shifted back to the downside with the market now expected to be very well capped on rallies ahead of 0.7200. The recent break below 0.6972 confirms a fresh lower top at 0.7239 opening the next major downside extension towards medium-term support at 0.6676.

• R2 0.7122 – 15Dec low – Strong
• R1 0.7050 – 16Dec high – Medium
• S1 0.6931 – 16Dec low – Medium
• S2 0.6900 – Figure– Strong

NZDUSD – fundamental overview

The New Zealand Dollar is doing its best to shake off the latest wave of declines on the back of Hawkish Fed Lacker comments that there could be as many as four rate hikes next year. Stronger than expected early Monday data out of New Zealand could be helping to support this latest round of setbacks after building permits and business confidence readings were both healthy. Looking ahead, the economics calendar is exceptionally thin in Monday trade.

US SPX 500 – technical overview

While this latest surge back to a fresh record high could compromise what has been the possibility for a toppish structure, the risk is still tilted to the downside if the market fails to establish above 2200 on a monthly close basis. But ultimately, at this point, any topside failure will also need to be met with a break back below 2100 to once again encourage the possibility for a bearish structural shift. Next resistance comes in at 2300, while initial support comes in at 2180, with a break below to take the immediate pressure off the topside.

• R2 2300.00 – Psychological – Strong
• R1 2278.00 – 13Dec/Record high – Medium
• S1 2180.00 – 5Dec low – Medium
• S2 2156.00 – 25Oct high– Strong

US SPX 500 – fundamental overview

The ongoing support for US equities has been more than impressive, particularly at a time when the Fed is embarking on a more hawkish path to policy normalisation as reflected in Wednesday’s decision. This leaves financial markets vulnerable to any shocks and exposed to intense periods of additional risk liquidation going forward, especially at a time when monetary policy around the rest of the globe is exhausted with very little left in the tank.

GOLD (SPOT) – technical overview

Setbacks in this market have been extreme over the past few weeks, with the weakness potentially compromising any possibility for a longer term base. But the market has dropped into critical support in the form of a 78.6% fib retracement off of the 2015-2016 low-high move, and a hold above this level will keep the basing outlook intact. Daily studies are also well overextended warning of a major reversal.

• R2 1197.70 – 28Nov high – Strong
• R1 1165.90 – 12Dec high – Medium
• S1 1122.75 – 15Dec low – Medium
• S2 1120.00 – 71.8% Fib  – Strong

GOLD (SPOT) – fundamental overview

GOLD has suffered quite a blow over the past few weeks, with the yellow metal unable to ignore the intense rotation into the US Dollar. However, solid demand from medium and longer-term players continues to emerge on dips despite the setbacks, with these players more concerned about the limitations of exhausted monetary policy, extended global equities, systemic risk and a bet that record low inflation will turn up even faster in a Trump presidency. All of this will almost certainly continue to keep the commodity in demand, even if the Buck is propped, 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

USDSGD has pushed up to a fresh 2016 high, taking this market to its highest levels since 2009. However, daily studies are starting to look a little stretched which warns additional upside could be limited for now, in favour of a healthy corrective decline. Still, any setbacks should be well supported above 1.3700 in favour of the next higher low and bullish resumption.

• R2 1.4500 – Psychological – Strong
• R1 1.4488 – 16Dec/2016 high – Medium
• S1 1.4355 – 15Dec low – Medium
• S2 1.4148 – 8Dec low – Strong

Feature – fundamental overview

The market isn’t really caring much about domestic fundamentals at the moment and continues to puts all of its focu on monetary policy divergence between the MAS and Fed and the impact this is having on yield differentials. Last week, we got strong NODX data out of Singapore and yet, the Singapore Dollar could only muster a very small rally. Interestingly, the Singapore Dollar hasn’t been influenced by an early Monday rally in the Yen, with the Singapore Dollar behaving more like an emerging market currency worried about broader risk appetite.