Waiting on Brexit Details

GBPUSD – technical overview

The market remains pressured to the downside with this latest break back below 1.2000 exposing a direct retest of the +30 year low from October at 1.1840. At this point, we would need to see a break back above the 2017 high at 1.2433 at a minimum to take the immediate pressure off the downside.

• R2 1.2233 – 13Jan high – Strong
• R1 1.2121 – 13Jan low – Medium
• S1 1.1987 – 16Jan low – Medium
• S2 1.1840 – 7Oct +30-Year low – Strong

GBPUSD – fundamental overview

The Pound has already managed to fill the gap lower from the Monday open as the market squares up ahead of today’s highly anticipated Brexit speech from the UK PM. Details in the lead up to the speech have been Sterling negative, with the reports talking about a hard Brexit speech in which the PM talks about an exit from the single market, putting more priority on immigration than on the short term economic outlook. On any other day, UK CPI data would be getting a lot more attention and is something that should not be overlooked. As far as the North American session goes, US empire manufacturing and speeches from Fed’s Dudley and Brainard are the main standouts.

USDJPY – technical overview

Daily studies have been unwinding from stretched levels which suggests additional upside could be limited in favour of a more significant healthy corrective pullback. The recent bearish break below 116.00 confirms and could open a deeper drop towards 112.00. But ultimately, any setbacks are expected to be well supported ahead of 110.00 in favour of that next higher low and bullish resumption towards 120.00.

• R2 116.87 – 11Jan high – Strong
• R1 115.51 – 12Jan high – Medium
• S1 113.00 – Figure – Medium
• S2 112.87 – 5Dec low – Strong

USDJPY – fundamental overview

Although you wouldn’t know it from still elevated global equities prices, traders have been finding a renewed appetite for Yen in early 2017 as a wave of uncertainty and risk aversion creeps in. Systemic risk associated with a hard Brexit is one of those themes that could be factoring into this price action. There has also been a bout of profit taking across the board on long US Dollar exposure which is yet another variable playing into the Yen’s recent recovery. As an additional note, the Yen had seen a major depreciation in late 2016 and at this stage, this Yen rise can also be classed as a necessary bounce within a more prominent downtrend. As far as today’s calendar goes, the market will be watching the UK PM speech before taking in US empire manufacturing and appearances from Fed’s Dudley and Brainard.

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 additional declines towards the 2016 low at 1.0624. At this point, a daily close back above 1.0900 would be required to take the immediate pressure off the downside.

• R2 1.0900 – 8Dec high – Strong
• R1 1.0763 – 30Dec high – Strong
• S1 1.0675 – 2Jan low – Strong
• 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. 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, even with global equities elevated, the Franc is still not depreciating as much as the SNB would 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. Certainly a scenario resulting in a hard Brexit is one of those systemic risks that could be a headache for the SNB.

AUDUSD – technical overview

The market has entered a healthy corrective phase after setbacks stalled shy of key medium-term support at 0.7145 in late December. Still, overall, the broader downtrend remains intact, with only a daily close back above 0.7525 to compromise this outlook. Look for the market to struggle after poking above 0.7525 on Tuesday, setting up a fresh lower top and renewed downside.

• R2 0.7582 – 15Nov high – Strong
• R1 0.7537 – 17Jan high– Medium
• S1 0.7430 – 12Jan low – Medium
• S2 0.7353 – 11Jan low – Strong

AUDUSD – fundamental overview

Upbeat Aussie home loans data which came in at 0.9% versus the consensus calls for 0.1% have certainly helped to give an already well bid Australian Dollar in 2017 an added boost. Aussie has just poked above some meaningful resistance at 0.7525 and is getting another lift from broad based profit taking on US Dollar long exposure and rallying base metals. But the market may soon start to find offers from medium-term players still looking at the monetary policy divergence theme and more hawkish Fed trajectory. There has also been an added wave of uncertainty this year, with systemic risk associated with Brexit, worry about the Trump administration and fear of a slowing China all arguing for a less optimistic take on the Australian Dollar. Looking ahead, we get the anticipated UK PM Brexit speech, US empire manufacturing and appearances from Fed’s Dudley and Brainard.

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 above 1.3000 in favour of the next major upside extension towards a measured move objective into the 1.4000 area. Ultimately, only a daily close below 1.3000 would delay the constructive outlook.

• R2 1.3295 – 11Jan high – Strong
• R1 1.3190 – 17Jan high – Medium
• S1 1.3081 – 14Dec low – Medium
• S2 1.3030 – 12Jan low – Strong

USDCAD – fundamental overview

The Canadian Dollar’s run in early 2017 has been super impressive, with the Loonie mostly benefitting from a market that is reconsidering its macro view on the US Dollar. OIL’s ability to hold up on dips has also been a prop to the Loonie. However, overall, yield differentials and monetary policy divergence have not gone away and should once again invite renewed sell interest in the Canadian Dollar. With that said, we’ve already been hearing about the emergence of heavy buy interest in USDCAD towards 1.3000. Looking ahead, an empty Monday Canada calendar will leave this market trading on broader themes including systemic risk associated with a hard Brexit, Fed policy and the incoming US administration. The Canadian Dollar is also starting to think about positioning into Wednesday’s Bank of Canada decision. The BoC is widely expected to leave rates unchanged while taking a cautious approach given all of the mixed signals of late. On the one side, recent GDP data has been concerning, while on the other side, trade data and employment readings have come in much stronger.

NZDUSD – technical overview

Despite this latest upside correction, the overall pressure remains on the downside with the market expected to be very well capped on rallies ahead of 0.7200. A recent break below 0.6972 confirms a lower top at 0.7239, opening the next major downside extension towards medium-term support at 0.6676. As such, expect the market to stall out over the coming sessions.

• R2 0.7239 – 14Dec high – Strong
• R1 0.7161 – 17Jan high – Medium
• S1 0.7046 – 12Jan low – Medium
• S2 0.6949 – 9Jan low– Strong

NZDUSD – fundamental overview

The economic calendar out of New Zealand feels like it has been on sabbatical, with the Kiwi rate far more dependent on external flows. A wave of profit taking on US Dollar longs in early 2017 has helped to give the currency a bit of a boost, though overall, medium-term players continue to look for opportunities to sell Kiwi into rallies. Concerns over the impact of the Trump presidency on the commodity bloc currencies, fear of a slower China, worry over a potential bubble in equity markets and systemic risk associated with a hard Brexit are all negatives for the local currency. Meanwhile, softer inflation and ongoing woes in the dairy sector are only added strains on the domestic front. As far as today’s economic calendar goes, we get the UK PM Brexit speech, Fed speak from Dudley and Brainard and another GDT auction that will be watched closely. Another Kiwi negative driver in 2017 has been talk of AUDNZD related interest with this market showing signs of recovery off longer-term cyclical lows.

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 sustain gains beyond 2200 over the coming weeks. But ultimately, at this point, any topside failure will also need to be met with a break back below 2180 to once again encourage the possibility for a significant bearish structural shift. Next resistance comes in at 2300, while initial support comes in at 2232, with a break below to take the immediate pressure off the topside.

• R2 2300.00 – Psychological – Strong
• R1 2282.00 – 6Jan/Record high – Medium
• S1 2232.00 – 30Dec low – Strong
• S2 2180.00 – 5Dec low– 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 and the Trump administration could bring in policies that threaten prospects for global growth. 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. One of those shocks that could really rattle investor sentiment is the systemic risk associated with a hard Brexit, something investors are really worried about as PM May gets set to deliver on important speech on the UK’s plans. It will also be worth paying attention to today’s speeches from Fed's Dudley who shares similar thoughts on policy to Yellen and Fed Brainard who is one of the more dovish leaning of the bunch.

GOLD (SPOT) – technical overview

The market has bounced out from critical 1120 area support in the form of a 78.6% fib retracement off of the 2015-2016 low-high move, with the hold above this level keeping the longer-term basing outlook intact. Daily studies are confirming, looking increasingly constructive. Monday’s daily close above 1200 strengthens the bullish shift in structure and opens the door for a push back towards the 2016 peak at 1375 in the weeks ahead. Any dips from here should be well supported with only a break back below 1120 to negate.

• R2 1233.10 – 16Nov high – Strong
• R1 1221.10 – 22Nov high – Medium
• S1 1162.95 – 5Jan low – Medium
• S2 1122.75 – 15Dec low  – Strong

GOLD (SPOT) – fundamental overview

Solid demand from medium and longer-term players continues to emerge despite an intense round of setbacks in late 2016, 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, 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

USDTRY has exploded to the topside, with the market extending its violent run of fresh record highs, closing in on critical psychological barriers at 4.0000. The parabolic price action has however inspired the onset of a necessary corrective pullback to allow for severely stretched studies to unwind. The market is extended across the major time frames, with the weekly and monthly charts severely overbought. A break and close back below 3.7000 will likely trigger a more significant correction.

• R2 4.0000 – Psychological – Strong
• R1 3.9410 – 11Jan/Record High – Medium
• S1 3.7200 – 13Jan low – Medium
• S2 3.7000 – Psychological – Strong

Feature – fundamental overview

The Turkish Lira has been in an absolute freefall these past several months, with the currency’s declines accelerating dramatically in early 2017 to fresh record lows. Political instability, terrorist activity and an already vulnerable Turkish economy have contributed to the declines, while on the other side, the Lira isn’t getting any help from the US Dollar, which has been driving higher on favourable interest rate differentials. But this rout in the Lira is finally testing the nerves of President Erdogan who lashed out at the FX market this past Thursday, aliking USD bulls to ‘terrorists with Dollars.’ Erdogan went on to warn that the CBRT had the ability to ‘wreck this game.’ The decision to skip last week’s one week repo auction and a reduction in interbank borrowing limits are more signs of the government’s displeasure with the Lira’s slide and it seems this has helped to cool the Dollar run a little bit. Whether or not this lasts will depend on whether the CBRT takes more action, most likely in the form of an aggressive rate hike. The CBRT next meets on January 24th.