29 December 2017 at 14:44 GMT
By John J Hardy
Key developments in FX this week:
- The only real salient observation in the major currencies is that the USD is ending the month and year on a sour note and bumping up into pivotal areas in key pairs - most notably the key 1.2000 area in EURUSD. Elsewhere, the USD decline has been rather steep as well - notably against the commodity dollars, while USDJPY volatility has lagged as the yen is also weak.
- The first few trading days of the New Year will be critical for judging the quality of this USD move as liquidity returns with the roll of the calendar year next week, as we discuss in the USD charts below.
EURUSD is ending the year up against the pivotal and big round 1.2000 level - the rough stopping point of the prior rally into early September. We'll call this the bull-bear line, even if the nominal highs are closer to 1.2100. A strong weekly close this week looks technically bullish, only somewhat tempered by the timing of the move here at year-end (let's recall the calendar pivot last year in EURUSD and on a few prior occasions as well-when the switch to a new calendar year meant the sudden end of trends).
EURJPY is looking at actual new highs for the cycle after the very persistent prior range between 131.50 and 134.50 after the Bank of Japan insisted that it will maintain its policy course last week while the ECB will taper its asset purchases by 50% starting in January. The upside looks wide open if the price action above 134.00/40 is maintained and especially if long bond yields look higher to start the year. Next upside targets would start at around 140.00.
AUDUSD is fairly typical of the commodity dollars, all of which have squeezed sharply higher versus the greenback at the end of the year. Structurally, we are arguably still focused on the downside as long as we remain below the 61.8% Fibo retracement up just under 0.7900, but bears will want to see a quick and fairly decisive turnaround early next year to get the downside back on the agenda.
EURSEK has explored the full extent of the range, but has managed to avoid a break of the 9.80-85 pivot zone - which is the downside trigger for bears in trading next week, a move that could open up for 9.50 in the first months of 2018.
XAUUSD - weekly
Gold has fully reversed the prior bear move, a development that neutralises the downside for now. 1300. The 1300-50 zone is still a heavy bit of range resistance that must be traversed before the bigger picture heats up for the bulls.
– Edited by Clare MacCarthy
John J Hardy is head of FX strategy at Saxo Bank