Today’s report: Welcome to the Twilight Zone
We're now in that twilight zone trading period between Christmas and New Year's where desks are super light and volumes on the exchange way down. And yet, it's during this time of year where the market is capable of making big moves in the razor thin trade, which more often than not is in the direction of the trend.
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Chart talk: Major markets technical overview video
EURUSD
GBPUSD
USDJPY
EURCHF
AUDUSD
USDCAD
NZDUSD
US SPX 500
GOLD
Feature
Euro off
UK GDP
economic releases
macro themes
China growth
OIL
NZ exports
Policy divergence
Increased uncertainty
USDSGD
Charts: Technical & fundamental highlights
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EURCHF
AUDUSD
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EURUSD – technical overview
The major pair has finally broken down below the multi-year base from 2015, taking it to its lowest levels since 2003. Next key support comes in the form of a 1997 low at 1.0345, below which exposes an immediate drop to parity. At this point, any rallies should be very well capped, with only a break back above 1.0875 to compromise the bearish outlook.
R2 1.0540 – 15Dec high – Strong
R1 1.0500 – 22Dec high – Medium
S1 1.0400 – Figure – Medium
S2 1.0353 – 20Dec/2016 low – Strong
EURUSD – fundamental overview
The Euro has been drifting lower in the very light holiday trade. Many have been attributing today’s pullback to a relatively large uptick in the price of USDJPY, which has fueled broad based USD demand. Overall, not much is expected from the major pair today. As far as economic data goes, it’s all about the US with Case Shiller, consumer confidence and the Richmond Fed standing out. Looking to Q1 2017, there is risk for more Euro downside towards parity as ECB QE, Germany and France election risk and Italian banking woes all weigh on the single currency.
GBPUSD – technical overview
The recent topside failure ahead of 1.2800 was a significant development as it confirmed the rebound from the +30 year low only corrective and kept the overall pressure on the downside. This has now opened a break back below internal support at 1.2300 which could pave the way for a retest of that 1.1840 critical base from October. Only back above 1.2800 forces a shift in the structure.
R2 1.2410 – 20Dec high – Strong
R1 1.2379 – 22Dec high – Medium
S1 1.2229 – 23Dec low – Medium
S2 1.2206 – 1Nov low – Strong
GBPUSD – fundamental overview
The Pound has come under added pressure into the end of the year, though the recent better than expected UK GDP print has helped to buoy additional setbacks for now. Still overall, diverging economic outlooks and monetary policy divergence should keep a lid on Sterling rallies, while the threat of a hard Brexit and looming invocation of Article 50 could expose the UK currency to additional downside. Looking ahead, US Case Shiller, consumer confidence and the Richmond Fed are the notable standouts on today’s calendar but aren’t expected to factor into trade.
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 118.67 – 15Dec high – Strong
R1 118.00 – Figure – Medium
S1 116.55 – 19Dec low – Medium
S2 116.13 – 12Dec high – Strong
USDJPY – fundamental overview
Tuesday’s tick up in Japan unemployment and drop in overall household spending could be weighing somewhat on the Yen, though it’s more likely the major currency is coming under renewed pressure on the broader macro theme of monetary policy divergence with the Fed. Japan CPI was also out but came in broadline in line with expectation. USDJPY continues to be well supported at every dip and HFT types are the most likely candidates in this week’s thin trade. It seems the market is still not ready to give up on the idea of a 120.00 test before the year is out. Looking ahead, US Case Shiller, consumer confidence and the Richmond Fed are the notable standouts on today’s calendar but aren’t expected to factor into trade.
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 1.0650 – Mid-Figure – 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 0.7313 – 19Dec high – Strong
R1 0.7280 – 21Dec high– Medium
S1 0.7160 – 26Dec low – Medium
S2 0.7145 – 24May low – Strong
AUDUSD – fundamental overview
Declining iron ore prices and this latest news that China has lowered its growth expectations for next year have kept Aussie weighed down on Tuesday, despite its oversold condition. The key focus for this pair is a retest of that 0.7145 May low, which many dealers have been talking about. Overall, the outlook for the Australian Dollar is rather grim with monetary policy divergence, China fears, Trump administration worry and falling commodities prices all a threat to the currency’s outlook. Looking ahead, US Case Shiller, consumer confidence and the Richmond Fed are the notable standouts on today’s calendar but aren’t expected to factor into 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 1.3081 in favour of the next major upside extension towards a measured move objective into the 1.4000 area. Ultimately, only back below 1.3081 would delay the constructive outlook.
R2 1.3589 – 14Nov high – Strong
R1 1.3558 – 23Dec high – Medium
S1 1.3412 – 22Dec low – Medium
S2 1.3358 – 21Dec low – Strong
USDCAD – fundamental overview
The market didn’t seem to care too much about last Thursday’s impressive Canada retail sales print, with softer Canada CPI and a wave of impressive US data leads including GDP, personal consumption and durable goods more than offsetting. The Canadian Dollar has come back under intense pressure over the past several days as monetary policy divergence, yield differentials and fear over the outlook in a world of Trump have all converged to knock the Loonie. Looking ahead, US Case Shiller, consumer confidence and the Richmond Fed are the notable standouts on today’s calendar but aren’t expected to factor into trade. The direction in the OIL market will likely play a larger role on Tuesday, while broader flows and US Dollar sentiment will also dictate trade. There is no data scheduled out of Canada.
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 0.6990 – 19Dec low – Strong
R1 0.6948 – 21Dec high – Medium
S1 0.6862 – 23Dec low – Strong
S2 0.6800 – Figure– Strong
NZDUSD – fundamental overview
The New Zealand Dollar continues to suffer from a convergence of negative drivers that include Fed policy divergence, the China outlook, fear of protectionism from the Trump administration and anti-globalisation that stems from these policies. Meanwhile, with the Australian Dollar comprising a hefty 22% of the New Zealand trade weighted index and the Australian Dollar at longer-term cyclical lows against Kiwi, there are many who feel this will be an additional threat to the New Zealand export economy if the AUDNZD rate remains at depressed levels, which if proven true, could result in more Kiwi relative underperformance in the months ahead. Looking ahead, US Case Shiller, consumer confidence and the Richmond Fed are the notable standouts on today’s calendar but aren’t expected to factor into 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 2248.00 – 14Dec low – Medium
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. Looking ahead, US Case Shiller, consumer confidence and the Richmond Fed are the notable standouts on today’s calendar but aren’t expected to factor into trade.
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 1120 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 – 78.6% 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 1.4000 in favour of the next higher low and bullish resumption.
R2 1.4600 – Figure – Medium
R1 1.4517 – 22Dec/2016 high – Medium
S1 1.4355 – 15Dec low – Medium
S2 1.4148 – 8Dec low – Strong
Feature – fundamental overview
More chatter of MAS intervention along with a consolidation in US Dollar gains across the board, helped to give the Singapore Dollar a bit of breather after the currency had broken to another multi-year low last Thursday. The previous week’s in line CPI and a much better than expected Singapore industrial production print also helped to inspire some profit taking on US DOllar longs. But ultimately, downside pressure on the Singapore Dollar isn’t expected to fade away for any meaningful period of time as the market keeps its eye on striking monetary policy divergence with the Fed and the prospects for slower emerging market growth when the new US administration takes over.
Peformance chart: Five day performance v. US dollar
Wake-Up Call
Suggested reading
Opportunity in Italy’s Banking Crisis, D. Shipley, Bloomberg (December 23, 2016)
Goldman Sachs Christmas Crossword, O. Williams-Grut, Business Insider (December 20, 2016)