New York Forex Report: GBP Whipsaw Continues

New York Forex Report: GBP Whipsaw Continues

New York Forex Report: Following last week’s volatility, this week has underlined the erratic nature of the current trading environment, with conditions somewhat topsy-turvy. It began with GBPUSD on Monday, which saw a near 250-point round trip (from 1.3420 to 1.3540 and back again), reacting to headlines and speculation around Brexit negotiations. Ultimately, price action remains at the mercy of headlines and politically centric developments. This is well reflected in the option market with 1w GBPUSD volatility at its highest level since Jun and GBPUSD risk reversals moving in favour of puts (warning of the downside potential). We have also experienced sharp moves in AUDUSD and USDCAD in response to the RBA and BoC interest rate announcements this week, in spite of the realisation of widely expected outcomes and little change in central bank sentiment. The latter in particular was, arguably, overly enthusiastic in rallying 160 points from its pre-announcement low (1.2650 to 1.2810), given the lack of any new information – interestingly, short-dated risk reversals show option sentiment moving in the opposing direction. We hear from BoC Governor on Dec 14. It is worth noting that the usual drying up of liquidity over the festive period could exacerbate the unreliable price action. Data wise, it is a quiet day, with only second tier releases, which are unlikely to be market moving. However, we remain at risk of volatile intra-day moves as witnessed during the European session with statements/updates relating to Brexit and the rapidly approaching US fiscal deadline (Congress has until the end of tomorrow to pass a ‘continuing resolution’ for this year’s Federal Budget – failure will trigger a partial government shutdown). In addition, there may be interest in the German Social Democrat Party convention, as to whether they are prepared to support a governing coalition led by Chancellor Merkel.

NORTH AMERICA Employment as tracked by US ADP increased 190k in Nov, as widely expected. Despite being down from 235k in Oct, the figure remains decent amid continued tightening of the labour market. In a separate data, MBA reported that mortgage applications rose 4.7% WOW in the week ended 1 Dec after dipping 3.1% the week before

EUROPE In Eurozone, growth in retail sector accelerated in Nov, lifting the PMI to 52.4 from 51.1 previously. Sales at retailers decent amid continued expansion in purchasing activity, employment and business sentiment, all of which bode well for the economic outlook

ASIA Growth outlook of Australia was dented by another data miss; 3Q GDP grew 0.6% QoQ, slowing from 0.9% in 2Q and missed expectations of a 0.7% increase. Even though GDP grew 2.8% YoY in 3Q, which is an acceleration from 1.9% in 2Q, the point of contention was that household spending grew a meagre 0.1% in 3Q, slowest since 2008. This accentuated recent weak retail sales data while pointing to continually slow wage growth that hampers spending and weighs down on inflation. Meanwhile, AiG’s construction index rose to 57.5 in Nov from 53.2, indicating that the sector grew at the quickest pace in 4 months.

EURUSD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – 1.2092 cycle high vulnerable to retest, near term upside hurdle sited at 1.2010/30, near term support at 1.18 being eroded, sustained push sub 1.1770 suggests a false upside break an opens a retest of 1.17

1-3 Week View – 1.2130 the next upside objective. Weekly close below 1.16 neutralises bullish objectives opening a test of 1.14
Retail Sentiment: Neutral
Trading Take-away: Neutral

GBPUSD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – 1.3460 achieved, through here opens prior cycle highs at 1.3650 near term support sited at 1.3340 only below 1.3230 concerns bullish bias

1-3 Week View – 1.3263 achieved as this acts as support 1.3836 is the next upside objective only a close back below 1.30 would jeopardise the bullish advance.
Retail Sentiment: Neutral
Trading Take-away: Neutral

USDJPY
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish

Technical: 1-3 Day View – Initial 110.85 test prompts profit taking , near term resistance moves to 113.30, a breach of this level opens 114.70, below 11.45 opens 109.30/10 as the next downside objectives

1-3 Week View – As 108.40 equidistant swing support survives on a weekly closing basis bulls will look for a grind higher to retest 115, a close below 108 negates the broader bullish theme and opens the psychological 100 magnet
Retail Sentiment: Neutral
Trading Take-away: Neutral

EURJPY
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish

Technical: 1-3 Day View – retest of 134 range resistance underway a closing breach opens 136 as the primary upside objective. Only failure below 130.66 concerns bullish bias and opens pivotal 127.50.

1-3 Week View – 136.10 is the principle upside objective as this area caps the current advance expect a retest of 131.50 to set a base for the next leg higher, a closing breach of 131 concerns the bullish basis.
Retail Sentiment: Neutral
Trading Take-away: Neutral