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04 Jan 2017

Dollar Index chart

So far as major FX directional influences are concerned U.S. Dollar buying interest remains predominant at the start of 2017. Indeed in one scenario it is possible even to imagine an acceleration of this behavioural tendency over coming months as prices build upon previous compression to break strongly and more importantly sustainably out of prior ranges. However at this juncture the preferred outcome is still one of a relatively short-lived USD advance followed by reversal at some point in Q1. Additional evidence would be needed before this exhaustive argument can be confirmed though the outcome would mean in effect a beginning of another macro cycle but with Dollar weakness the major driving force - much as was seen in 2001/02 or indeed 1985/86. From the point of view of historical convention an extension of EUR/USD and GBP/USD weakness much into Q2 this year would actually represent a break from longer term norms -whereby 5 or so years of positive U.S. Dollar price action (such as has just been seen from 2011) is followed by a decade or so of bearishness. Moreover the improvement apparent in multiple JPY cross pairs toward the end of last year -assuming this is continued in 2017- is much more typically supportive for other currencies against the Dollar. In fact it would be much more difficult to imagine a protracted EUR/USD turnaround for example without at least some accompanying gains for EUR/JPY etc. In any case for the next few weeks at least both narratives call for essentially the same thing -an extension of market behaviour witnessed during the latter stages of 2016. Sterling is continuing to play its traditional role of lagging developments already seen elsewhere and so if the Euro does indeed sell-off aggressively against the Dollar it follows the Pound would at some stage follow suit with any GBP cross gains ultimately being unwound. Otherwise despite a particularly poor year performance-wise for Cable in 2016 it is feasible to imagine values ending 2017 in much better shape even if room still exists for another sharp sell-off first/next. 



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An argument could be made for GBP/USD prices remaining range bound (between 1.2750 and 1.2000) for now but broader technicals remain negative and thus a re-test of prior cyclical lows around 1.1500 is nonetheless still likely looking further ahead. Indeed this latter point should give way as well going forward as 1.1000 and lower targets become readable later on into Q1. Rebounds beforehand are thus seen as corrective only and while resistance is thin until 1.2350 or so initially more substantial selling pressure begins around the 1.2550 zone.


Primary Support

Primary Resistance

Short Term Trend

Medium Term Trend