The US dollar initially extended its strong recovery against the Canadian dollar but ran out of steam in front of CAD1.36, where it peaked in November. The pullback in the last two sessions of 2016 was sharp. It retraced 38.2% of the nearly three-week rally to almost the tick in front of CAD1.3400.  The RSI has turned lower, and the MACD and Slow Stochastics appear set to turn lower in the coming days. The 50% retracement objective is near CAD1.3340.

The Australian dollar reached almost $0.7250 before the New Year, but proceeded to sell-off, briefly dipping below $0.7200 and posted a poor close. Nevertheless, the technical indicators suggest the near-term risk is on the upside. The downside momentum that pushed the Aussie from $0.7525 in mid-December faded in the $0.7160-$0.7175 area. This band is an important support.  The MACDs and Slow Stochastics are turning higher. The $0.7250 area needs to be taken out, and the next target is near $0.7300, though the correction may extend toward $0.7350-$0.7380.  

Oil prices are firm but are moving broadly sideways. The February light sweet crude futures contract has been largely confined to a $51-$54 range last month. The contract has not traded below its 20-day moving average since November 30. It is found a little below $53. The technical indicators are not generating a strong signal, but while we suspect a top is close, there is risk of another push higher first.

The US 10-year yield rose from 1.77% to 2.64% in a six-week rally that began after the jobs data in early November. However, in the past two weeks, the yield has pulled back to 2.43%.  The pullback may not be complete. The 2.35%-2.40% area offers better value. The March note futures finished 2016 with two consecutive closes above the 20-day moving average. The five-day moving average will likely cross above the 20-day moving average in the days ahead for the first time since the end of September.  The technical indicators point to additional near-term gains. After finishing 2016 at 124-09, there is potential toward 125-00 to 125-16.

Year-end profit-taking may have prevented the Dow Jones Industrials from going through 20k and saw the S&P 500 finish the year below its 20-day moving average for the first time since November 4 when it recorded a four-month low. The sell-off gave back nearly half of December's gain (~2232.50). The technical indicators we use warn of additional losses. The 2200 area offers initial support, but near-term potential may extend to 2160. The 200-day moving average is near 2135, and a test on it often brought in new buyers last year.

Marc Chandler‚Äč
Global head of currency strategy at BBH
Brown Brothers Harriman