The EURUSD tripped into 2017 under pressure with prices cutting back below 1.0500 as parity expectations encouraged bearish investors to pounce. The divergence in monetary policy between the Federal Reserve and European Central Bank has made the EURUSD fundamentally bearish. With political instability and uncertainty in Europe haunting investor attraction towards the Euro, any extreme upside gains on the EURUSD should be capped. A strengthening Dollar from the revived rate hike speculations could send prices back towards 1.0400 in the shorter term. From a technical standpoint, previous support around 1.0500 may transform into a dynamic resistance which could open a path towards 1.0350 in the medium term.
Sterling pressured below 1.2350
The Brexit woes made Sterling a loser amongst other major currencies in 2016 with the negative momentum likely to rollover into 2017. Uncertainty remains the driver behind Sterling’s losses with weakness expected to become a dominant theme as the EU exit negotiations take place. While there is no clear divergence in monetary policy between the BoE and Fed, a cautious Bank of England could expose Sterling to steeper losses. Technical traders may observe how prices react to the 1.2350 resistance level which if defends could open a path lower towards 1.2000. Lagging indicators such as the moving averages and MACD all point to the downside. Bearish investors may also pay attention to if prices breach the 1.2200 support.
USDJPY bulls eye 120.00
A resurgent Dollar was the driver behind the USDJPY phenomenal gains in the final quarter of 2016. This pair is heavily bullish on the daily timeframe as there have been consistently higher highs and higher lows. Prices are trading firmly above the 20 moving averages while the MACD also trades to the upside. A decisive breakout and daily close above 118.50 could encourage a further incline higher towards 120.00. With Dollar strengthen potentially becoming the new norm; investors may exploit any technical corrections to propel the USDJPY higher.
WTI hover around $54
The prospects of major oil producers cutting oil production by nearly 1.8 million barrel provided a lifeline for oil markets in the final quarter of 2016. As we enter the New Year, investors may direct their attention towards the OPEC and non-OPEC production cut agreement which came into action on Sunday. While the current direction for oil points to the upside, gains could be limited if any complications arise from the proposed cut deal. A situation where overall output fails to recede could rekindle the oversupply fears consequently exposing oil prices to sharp losses. From a technical standpoint, weakness below $52 could open a path towards $50.
Commodity spotlight – Gold
Gold may be instore for a rollercoaster ride this year as the explosive combination of uncertainty in Europe, Brexit woes, prospects of higher rates and a strengthening Dollar create extreme levels of volatility. While risk aversion from uncertainty could propel Gold prices, rising US rates may ensure the metal remains depressed for prolonged periods. Traders may take advantage of the technical bounces to send Gold price much lower in the short term. From a technical standpoint, a breakdown back below $1130 could open a path lower towards $1100.