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Top Trading Opportunities for 2017

December 30, 2016

by the DailyFX Research Team
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Top Trading Opportunities of 2016

December 30, 2016
By the DailyFX Research Team

Indecision ruled much of 2016 – as it had the year before. Global equities and the Dollar carved out broad
ranges rather than extend the trends of previous years. That complacency was shaken however in the
second half of the year. A buildup of major event risk from Brexit to the US Presidential election to the
second Fed rate hike put markets back in action. Will revived trends hold true into the New Year or is
volatility the only holdover to depend on? These are the DailyFX Team’s top trade opportunities for 2017.

John Kicklighter, David Song,
Chief Strategist Currency Analyst
GBP/JPY Combines a Depressed Pound and Risk Tracking Key Market Themes Beyond Monetary
Trends Policy

Jeremy Wagner, Paul Robinson,
Head Trading Instructor Currency Analyst
A Typically Quiet EUR/GBP May Provide an NZDUSD, Gold/Silver Setting Up for More Losses
Outsized Move Before Hitting a Low

Tyler Yell, CMT,
Jamie Saettele, CMT,
Forex Trading Instructor
Senior Technical Strategist
Awaiting Aggressive Bullish Bounce In Gold From
Cyclical USDZAR Downswing May Be at Hand
Higher-Low

Ilya Spivak, Walker England,
Currency Strategist Forex Trading Instructor
Avoiding the Trump Trade Rollercoaster - Short Finding Potential Trading Opportunities in
EUR vs. GBP, JPY EUR/GBP

Christopher Vecchio, Martin Essex,
Currency Strategist Market Analyst and Editor
Short EUR/USD, Long USD/JPY Buying Dips in the AUD/USD and ASX 200

Michael Boutros, David Cottle,
Currency Strategist Market Analyst
AUDJPY | Breakout at Initial Resistance- What if the Fed has Under-Gunned its Rate Hike
Constructive Above 80.60 Call?

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DailyFX

James Stanley, Oliver Morrison,
Currency Analyst Market Analyst
Long EUR/AUD – Buy Support, Sell Resistance British Pound Set for Further Gains on Japan’s Yen

Nick Cawley ,
Market Analyst
GBP Recovery Against EUR Likely on the Cards
in 2017

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DailyFX

4 DailyFX . The Sterling component of this setup is relatively straightforward. but it is very unlikely to be the crisis state that is currently priced in. All Yen crosses are highly correlated to market-wide risk appetite. it is important to find opportunities that can contain the widest array of favorable outcomes and the greatest amplitude with a positive course. The UK’s currency has suffered an unceremonious devaluation with the country’s vote to withdrawal from the European Union. the Yen poses a near- term risk to a bullish view. With its current bearings. However. The speculative bias behind the Pound offers up a number of appealing opportunities (including EUR/GBP which sees the Euro showing little tangible appreciation of its own loss in this divorce). timing is very important to trading GBP/JPY. 10-year government bond yield divided by an FX volatility index). It is likely that negotiations between the two sides will be tense and the United Kingdom’s economy will be worse off on a number of aspects. but GBP/JPY leverages that fundamental opportunity by adding a second fundamental theme with a particular skew: risk trends. heavily-skewed themes: Sterling depressed by Brexit uncertainty and an evolution of risk trends. Chief Currency Strategist GBP/JPY Combines a Depressed Pound and Risk Trends There are a number of glaring fundamental themes that will need to be addressed in 2017 from the market’s continuous discount of the Fed’s forecast to the rise of trade boundaries in a shift towards protectionism. Below is a chart showing a risk favorite S&P 500 US equity index versus a basic ‘Risk-Reward Index’ (an aggregate G-10. This sustained depression reflects uncertainty and worst-case-scenario assumptions in the absence of clear procedures to navigate the divorce. While the Sterling’s contribution to this situation is already grounded by speculative excess. We will start to reassess the balance of fear the maintains in the first quarter of 2017 with the Prime Minister laying out plans for negotiation and should she stick to the planned time frame for invoking Article 50 to start the procedure at the end of March. As it stands.John Kicklighter. Given that trading is largely the smart management of probabilities. A long GBP/JPY view appeals to me because it speaks to two critical. speculative reach is excessive across many assets and on most fundamental measures. many of these overbearing threats have neither a significant skew between potential and probability nor are they attached to a clear fundamental trigger that can offer a reasonable sense of timing for resolution.

A deeply discounted Pound with a recovering UK GDP and Bank of England not too far off from normalizing policy will lay an appealing landscape for such appetite. and the GBP/JPY is unlikely to escape the downdraft. the candlestick price asset is GBP/JPY and the pale red is GBP/EUR (EUR/GBP inverted).Data Source: Bloomberg. the market will be less fixated on jumping on a bandwagon hollow momentum and instead prize genuine potential for return on depressed assets. The technical appeal relative to other Yen and Sterling crosses is worth taking a look at. but it is the fundamental scenarios behind GBP/JPY that truly speak to its bullish potential over the medium to long-term. After the painful but necessary risk scourge however. the flush is not going to find an excess of speculative loiters holding a long position given exchange rate’s extraordinary low and the absolute lack of carry the pair offers. Prepared by John Kicklighter A risk correction is overdue. 5 DailyFX . That is why it is at the top of my list for trade opportunities in 2017. In the chart below. That said.

Charts: Tradingview. Prepared by John Kicklighter 6 DailyFX .

Senior Technical Strategist Cyclical USDZAR Downswing May Be at Hand Yearly Chart Since the end of the Bretton Woods era. The ‘blow-off’ portions of the rallies occur following breaks through the top of a channel. 7 DailyFX . This point is defined as the level where price last touched the support line. The circles on the chart denote the origin points. we’re looking at yearly closes). 7 years after 2008 is 2015 (remember. The only notable peaks on this chart are 2001 and 2008.9070.Jamie Saettele. a reversal is considered underway towards the point from which the blow-off advance originated. 1980. Once the market comes back into the channel. USDZAR has more or less gone straight up. which are 7 years apart. and 1973 are pivot lows (1994 was nothing). 2008. It’s possible that 2016 is the first year of another decline. ‘Blow-off’ Tops The tops in 2001. The target in this case is 10. and 2015 are ‘blow-off’ tops. CMT. The decline from 2001 lasted 3 years and the decline from 2008 lasted 2 years. Work backwards in 7 year cycles and you’ll notice that 1987.

It’s critical that shorts are not established until the long term trendline is broken. Especially 2001 USDZAR fell in 3 waves from December 2001 to June 2002 and then rallied in 3 waves from June 2002 to August 2002.Similarities to Previous Tops. 8 DailyFX . Weakness then accelerated through 2004. USDZAR fell in 3 waves from January 2016 to August 2016 and has traded sideways for 4 months. Weakness then accelerated through 2010. USDZAR fell in 3 waves from October 2008 to January 2009 and then rallied in 3 waves from January 2009 to March 2009. A break below the trendline and subsequent ‘check’ on the trendline from below as resistance would be even better for entry.

JPY Reality humbled smug prognosticators convinced that UK voters will vote to stay in the European Union. Much will depend on how the Fed will react to the as-yet unknown impact of policies put forward by the Trump administration. It is impossible to say with confidence that a boost from infrastructure spending. that Hillary Clinton will win the US presidential election. Pretending this is not a possibility looks like wishful thinking. The road ahead looks no less treacherous and attempting to divine where it may lead seems no less foolish. That means that answering this question will set direction for nearly every benchmark asset across the financial markets.Ilya Spivak. 9 DailyFX . but no really one knows for sure. Will “big-league” fiscal stimulus really goose up growth. Selling the Euro against the British Pound and the Yen seems to fit the bill. The US economy is the single largest engine of global demand and the US Dollar is the world’s undisputed reserve currency. GBP. spur inflation and steepen the on-coming rate hike path? The markets seem to think so. serving as the medium of exchange for close to 80 percent of all transactions. and that OPEC will fail to strike an output cut deal yet again. Currency Strategist Avoiding the Trump Trade Rollercoaster .Short EUR vs. tax cuts and deregulation will not be offset if the President- elect gives in to his protectionist streak. at least for now. it seems prudent to look for opportunities that sidestep them altogether. Instead. Crafting a robust strategy for the year against this backdrop will mean avoiding trades that force investors to take bets on world-changing outcomes.

It may turn out that losses against a Trump-ed up US Dollar and an OPEC-driven crude oil rally will finally speed up price growth enough to consider scaling back ECB and BOJ stimulus. The past year ought to have taught investors not to discount the threat of populist insurrection in heretofore bastions of the Western status quo. 10 DailyFX .The Japanese unit and the single currency look similar heading into 2017. The Euro will have to contend with tremendous political uncertainty however as Germany and France head to the polls. meaning that Sterling looks somewhat cheap relative to its Continental counterpart. Anti-establishment forces have gained ground in both countries. In either case. Then again. Another concern is the start of Brexit negotiations. This means worries about election outcomes in the heart of the Eurozone may weigh on the Euro independently of how the big-picture global narrative develops. The Euro soared against the Pound after the Leave campaign emerged triumphant but uncertainty about implementation will almost surely cool growth on both sides of the English Channel. both central banks’ actions would be driven by the same narrative and may turn out be a wash on-net. it may not.

as price corrects this 2015-2016 trend higher. The structure of a correction lower in GBP/JPY develops will help set the tone if we can anticipate a partial correction or move to new lows. That move was nearly 2300 pips so we will look for a bounce higher of approximately 1400 (61.8% of 2300) or possibly 2300 pips. 11 DailyFX .. EUR/GBP is one that as the year progresses it may set up for another strong leg higher. That suggests upside targets near . when broken. Therefore. The move from July 2015 to October 2016 appears to be a 5-wave move to start a new trend.69. If trade prints below the July 2015 low of . If the move develops as a 3 wave corrective move. Wait for price to finish the correction lower.75 . Head Trading Instructor A Typically Quiet EUR/GBP May Provide an Outsized Move Focusing on the technical pictures. we will also be monitoring GBP/JPY and specifically if a correction develops. Keep the Fibonacci retracement levels handy on the chart from July 2015 to October 2016. if price corrects lower. then another pattern is in the works. Join Jeremy for the US Opening Bell webinars to keep up to date on these trends plus other Elliott Wave patterns he is following. Therefore.7810.8% retracement level comes in near . we will look to identifying levels that may support the correction prior to another leg higher.01. then GBP/JPY would be in a similar boat as EUR/GBP in that another strong leg higher may carry it towards 160’s and possibly 175 later in the year.Jeremy Wagner. some cross pairs may surprise in 2017. We wrote about Sterling last year (“More Than Irish Look for the Pot of Gold”) and it followed through as anticipated.92 and possibly 1. We know from Elliott Wave Theory that 5-wave moves to start a new trend typically have a partner in an alternating wave of similar size. Keeping with the Sterling theme. the former resistance line (purple dotted line) crosses near this same level. The 61. We know from support and resistance training that former resistance.78. we will anticipate another move higher of similar size as the July 2015 to October 2016 trend. Coincidentally. we may see a positive reaction near . This year. At that point. can act like new support in the future.

12 DailyFX .

“The broader focus remains weighted to the downside while below this threshold (the upper parallel) with a break below the September low-week reversal close at 85.58/97. A critical longer-term support zone rest lower at 72.47.this level is defined by the 2016 open.” Indeed this critical support barrier marked the low this year with the subsequent rebound in price marking the largest quarterly advance since 4Q of 2012.20. While the immediate long-bias is vulnerable.Michael Boutros.05-74.16.55/64 ahead of the yearly close. targeting subsequent objectives at the 81.60 (also the origin of the Q4 breakout). Bottom line: we’ll be looking to fade weakness 13 DailyFX . a broader bottoming process off previous yearly range lows may be underway here and heading into 2017 the outlook remains weighted to the topside while within this ascending formation with interim support eyed at 81. Currency Strategist AUDJPY | Breakout at Initial Resistance.84-82. the 50% retracement of the 2014 decline and the median-line of the ascending pitchfork extending off the February low.Constructive Above 80.60 AUDJPY Weekly Prepared by Michael Boutros Last year we highlighted a broad descending median-line formation off the 2013 & 2014 highs while noting that. Key confluence support & bullish invalidation rests just lower at the convergence of the 52-week moving average & the 2011 parallel around ~80. The pair has stretched back into key near-term resistance at 87.80 range & the 50% retracement of the advance off the 2008 low at 80.

23 & 96. 14 DailyFX .64-91.34.towards these levels early in the year with a breach above key resistance targeting subsequent topside objectives at 90.

the price of Gold has fallen ~17% or nearly $230s/oz by mid-December. There appears to be no more hated asset class going into 2017 than Gold as per the Daily Sentiment Index. there were aggressive calls for the price of crude oil to drop $10 a barrel and the US dollar to push ever higher while equity markets were hated asset class.340/oz. 2016. However.6% in a month’s time. since the November 9 intra-day high on XAU/USD just north of $1.S.Tyler Yell.3% in the first month of trading 2016. The main components that lead me to be on heightened watch for a Bullish Gold reversal are the steep slope of the price decline and the sentiment extremes developing. Election was how wrong many market participants were to anticipate price outcome of a possible Trump victory.618%- 0. a trader should be on the watch for the scene setting up for a Bullish Gold move in early 2017.2 of the December 2015 through July 2016 range) Initial Target 1: $1375/81 per ounce (2016 high and 38. Many traders thought Trump would cause markets to go risk-off and that Gold and JPY would be the big beneficiary of a Trump victory with both appreciating aggressively.046/oz to as high as $1.376/oz.92. DeMark Analytics Point To Initiate Long Trade: $1250 per ounce (the 38. Oil rallied over 111% from February to December and might be pulling away on a bullish head and shoulders pattern that could turn towards $60 a barrel.335 pips as of the time of this writing against. If you look at the start of 2016.2% or $330/oz from $1. 15 DailyFX .786% retracement zone of the December ‘15-July rally that saw the price of Gold rising by ~ 32. The dollar rallied over 11% from the May low of 91. The S&P 500 rose by over 26% from its February low after falling 13. DSI shows in mid-December there are 10% bulls in Gold (90% Bears leading long-term bonds or T- bonds and T-notes in second and third place with 11% and 12% respectively. the Japanese Yen has weakened by 1. Similarly. which is worth a loss of nearly 14.2% retracement of 2009-2015 range) Target 2: $1484 per ounce (50% retracement of 2009-2015 range) One of the seemingly great ironies of the outcome of the U.” -Tom DeMark. the market unexpectedly rallied in a full risk-on mode that lasted well into December. While the market moved aggressively against haven assets and currencies like Gold and JPY. Fast forward to the end of 2016 and the dollar did turnaround after falling 8% from the January high to early May low. After President-elect Trump declared victory in the early hours of November 9. The price of Gold has fallen into the 0. Forex Trading Instructor Awaiting Aggressive Bullish Bounce In Gold From Higher-Low “Markets bottom when the last seller has sold and markets top when the last buyer has bought.

the price will need to be above the daily Ichimoku Cloud along with the lagging line also above the cloud (lagging line = price from 26-periods ago). euphoria in risky assets alongside uncertainty in future global trade and growth potential for equity earnings. While there is euphoria going on with the weak JPY & EUR. However. Also. Before entering a long trade. Gold may be setting up for an early 2017 rally in a similar way it rallied in H1 2016. that’s a move I want to be trading. Yen staying weak. Considering Gold appears to be the most hated asset in the future’s market adds to the appeal that a breakout in 2017 to the upside in Gold may have a lot of room to run higher. the strong USD has some feeling that all is right in global markets. By the time I enter a long Gold position. a downtrend does not automatically equal a buying opportunity. I would like to see momentum and a repricing of markets upon the information that can lead to a good trade. we should remain on the watch in early 2017 that Gold could benefit from a mispriced euphoria.This recent bout of market history is worth remembering as Gold could take the prize for strong reversal alongside with Bonds as trading gets underway in 2017. Gold’s younger digital brother Bit-Coin (BTC/USD). In the current environment with equities at all-time highs. If so. and bond yields rallying. given the stirrings going on in the market with very extreme bearish sentiment and Haven assets being sold off. 16 DailyFX . Other correlated assets to Gold are also in a strong bear market that would need to reverse before entering a long Gold trade in 2017. Awaiting Bullish Entry Cues: Naturally. which is another haven asset has a bullish range for 2016 of 440 USD with a bullish range from low to high of 125%. we will await the right time to be long Gold.

CMT with TradingView 17 DailyFX .Chart Created by Tyler Yell.

we’ll look for a test of parity in Q1’17. the German- US 2-year yield spread has widened out significantly in the past few weeks. With the decision to buy 1-year debt. which should translate into fiscal stimulus for the US economy. Another 50-bps of widening in the German-US 2-year yield spread (mirroring the move in November and December 2016) could see EUR/USD down towards 0. We’ll want to revisit the calls for short EUR/USD and long USD/JPY by mid-year. Another 100-bps widening in the US-Japanese 10-year yield spread (mirroring the move in November and December 2016) could see USD/JPY reach its 2015 highs near 125.00 later in the year. It seems that a Trump administration would uphold its bargain of running up the structural deficit as typically is the case during singular party control of the government. whichever singular party has tended to be in control after a wave election has pursued fiscal easing strategies: the US budget deficit grew by an average of 0. Regardless of ideology. albeit in fits and starts. but that probably won’t happen until late-2017 or early-2018. we'll pass through the threshold where rising US yields are seen a burden for debt sustainability concerns. The same can be said about what's happening with the Japanese Yen. proving to be the driving force behind EUR/USD weakness. At some point.to six-months). The President-elect Trump reflation trade could very-well last into Q1 or Q2'17. 18 DailyFX .4% of GDP during those 18 years. The ECB’s decision in early-December to alter how its QE program is undertaken can erode the market’s desire to hold Euros over the medium-term. Higher inflation expectations should translate into further gains for US Treasury yields (and was doing so in Q4’16 via steeper Fed rate hike expectations).9500 in the first half of 2017. the Japanese Yen stands out to be a loser. Currency Strategist Short EUR/USD.Christopher Vecchio. Interest rate differentials (US-Japanese 10-year yield spreads) have moved sharply against the Yen.70 in Q1’17 before 130. at any cost. Between the ECB's policy shift and the Fed's signaling for a faster pace of rate hikes. In a rising yield environment where the BOJ is pegging the JGB 10-year yield at or below 0%. should prove to be significantly inflationary. which will be tremendously helpful for the US Dollar in context of the current environment that the Euro and the Japanese Yen find the European Central Bank and Bank of Japan operating in: implementing aggressive easing policies to keep rates at the short-end of the yield curve as low as possible. Deficit spending in the form of a massive infrastructure spending bill. After a 'wave' election in which one party swept control of both halves of Congress as well as the Presidency. the ECB has signaled that it is basically altering policy to be able to keep the front-end of European yield curves pinned to the floor. before trouble emerges. Republicans are in the rare position of being able to end legislative gridlock in Washington. and appear poised to do so for the foreseeable future (three. Long USD/JPY) Leave your preconceived notions in 2016: 2017 will be unlike any year in recent memory. combined with sweeping tax reform.

’ As a result. with the Nikkei 225 breaking out the bull-flag formation carried over from 2015. the bar remains high for the BoJ to move its quantitative/qualitative-easing program (QQE) with ‘Yield Curve-Control’ as Governor Haruhiko Kuroda and Co. while currency pairs such as AUD/JPY are highlighting a similar dynamic all ahead of 2017. Nikkei 225 Monthly After bouncing off of former trendline resistance in the first-half of the year. The continuation pattern instills a bullish outlook for the year ahead especially as the Nikkei 225 begins to carve a weekly series of higher highs & lows. Nikkei 225 The pickup in risk sentiment has triggered a meaningful development across the major global benchmark indices. Currency Analyst Tracking Key Market Themes Beyond Monetary Policy Long: AUD/JPY. 19 DailyFX .’ Despite the 7 to 2 split at the last interest rate decision for 2016. the topside targets for the Nikkei 225 will largely be in focus for 2017 as the upswing in market sentiment looks to persist on the back of the highly accommodative policy stance at the BoJ. continue to cast a dovish outlook for monetary policy and warn ‘inflation expectations have remained in a weakening phase. and the ongoing easing-cycle at the Bank of Japan (BoJ) may continue to shore up risk appetite as the central bank ‘will continue expanding the monetary base until the year-on-year rate of increase in the observed CPI (all items less fresh food) exceeds 2 percent and stays above the target in a stable manner.David Song. Japan’s benchmark equity index may further retrace the decline from back in the 1990’s as a bull-flag formation starts to unfold.

with AUD/JPY highlighting a material shift in market behavior as it breaks out of the downward trending channel carried over from late-2014. 20 DailyFX . The key developments favor opportunities to buy-dips in the aussie-yen. A similar reference can be found in the Relative Strength Index (RSI) as the oscillator flashes a bullish trigger ahead of 2017.’ and the diverging path for monetary policy may fuel greater interest in AUD/JPY should Governor Lowe continue to talk down speculation for lower borrowing-costs. Despite concerns surrounding the region’s AAA-credit rating. After cutting the official cash rate to a fresh record-low of 1. key themes beyond monetary policy may play a greater role in driving volatility across the financial markets. and the Reserve Bank of Australia’s (RBA) policy meetings for the year ahead may further boost the appeal of the higher-yielding currency should the central bank show a greater willingness to gradually move away from its easing-cycle.50% in August. the central bank now under Governor Philip Lowe looks poised to retain the current stance over the coming months as officials see inflation ‘returning to more normal levels’ over the policy horizon. the outlook for inflation is more balanced than it has been for some time. and the shift in market behavior instills a bullish outlook for the Nikkei 225 and the AUD/JPY exchange rate as the reach for yield looks to persist in 2017. AUD/JPY Weekly The rise in risk appetite also appears to have sparked carry-trade interest. the RBA may adopt a more hawkish tone in 2017 as ‘globally. With that said.

and the election of Donald Trump to the top-post in the United States. you’d probably be pretty hard-pressed to find anyone that actually believed you. But not many currencies are as strong as the U. 1. Dollar. and the bank may not have enough ammunition to do another round.5000 (major psychological level). and the potential for more-pressure (or weakness) to emanate from China.6000 (major psychological level) and 1. 1. Rather than looking to buy support on the Euro against the U. When the ECB first announced QE in July of 2014.3400. Also of interest is the fact that the Euro has had a difficult time heading lower as we approach the widely-watched parity figure on the U. But after QE actually began in March of 2015. It wasn’t until the Federal Reserve ramped-up hawkishness for 2017 that EUR/USD finally broke-below that support. After setting a fresh- high in August of last year at 1. EUR/USD remained supported above this prior-low.S. 21 DailyFX .S. Currency Analyst Long EUR/AUD – Buy Support. 1.5500 (prior price action swing). especially from a macro-economic point-of-view. the pair has spent much of the time since in some form of congestion. Top-side targets could be sought at 1.4683 (to adjust stop to break-even). and there are some very big question marks for Europe next year. But what we do know is that the ECB is effectively tapering QE by reducing purchases after March. can be difficult and perhaps even disastrous.8% retracement of that most recent major move.5273 (long-term Fibonacci level).K. taking the August 2012 low to that August 2015-high. especially for Europe as we head towards election cycles in the key regions of France and Germany. Sell Resistance Trying to forecast a year in advance. Stops on the position can be set to 1.James Stanley. Dollar. EUR/USD drove all the way down to 1.S.6405 (another long-term Fibonacci level + near 8-year high).0462. Dollar with the post-Election back-drop. deciding to leave Europe after the Brexit referendum. The past three months have seen support show up at the 50% Fibonacci retracement of the most recent major move. a new Central Bank head in Phillip Lowe. perhaps even more volatile than 2016. Australia still has some room to cut rates. long-Euro setups could be directed towards the Australian Dollar. Combine this with continued-crisis in the banking sector of Italy. 1. which would get the level below the 61.6586. If you’d have said last year that 2016 would see both the U. which could foreseeably continue to strengthen for months ahead. Next year could be equally or. But what makes the long setup attractive is the risk-reward on the monthly chart.

Chart prepared by James Stanley 22 DailyFX .

50 points). Once broken. or bear-flag in this case. The trend-line clocks in around 5900 (+/. the Aug ’15 low at 6197. After being rejected near 7500 it’s currently testing the bottom-side parallel of the pattern. self- included.Paul Robinson. The low created in August 2015 took Kiwi higher for longer than many expected. then the final target arrives at the 2000 – current trend-line. The upward grind in Kiwi from the 2015 low morphed into a defined channel. NZDUSD: Weekly 23 DailyFX . but the idea on this end is to wait for a confirmed break and then look to retracements on the daily chart. Levels to watch include the May ’16 low at 6673. Many market participants. Market Analyst NZDUSD. but if Kiwi does it won’t undermine the outlook until it can successfully trade above the trend-line. An official break of the formation will be considered with a strong closing weekly bar beneath the lower trend-line. were looking for the downtrend which began in 2014 to resume at an earlier time. There are several targeted points of support along the way towards the big picture target. Trading this theme: This is highly dependent on the time-frame which one operates on. interest will be taken in any attempts to trade up to the downtrend line off the 2014 high. It seems unlikely if the bearish view is correct it will trade that high. In addition. but there is reason to believe this could change in 2017 as momentum from the swoon in Q4 may be the beginning of a big leg lower. trend-line from the 2009 low (~6475/6550). Jan ’16 low at 6348. the rising trend-line will go from being viewed as support to resistance. potential for a return to the long-term trend-line NZDUSD was not kind to big picture bears during most of 2016. or about 15% lower from here.

Before the big region is tested. There is significant support in the 1050/00 region. then a sizable rally may develop. Gold: Weekly 24 DailyFX . It just may be what the bear market needs to end.Gold & silver look headed lower. but important support levels hold the key Gold looks poised to continue disappointing investors. but if it breaks then things might get ugly. or worse. but again. Other targeted levels below 1000 arrive at the bottom-side trend-line running lower from the 2013 low (~975/60). a final flush after several years of carrying lower. Below that trend-line and through 1000 there isn’t anything substantial in the way of price support until down to around 730/680 (2006 high/2008 low). gold broke the key 1180/1200 region extending back to 2013. along with pivots from 2009 at 905 and 865. Hold. there is a trend-line of minor significance which could be enough to provide a bounce. A rally into that zone (perhaps from the 2008 trend-line) will be viewed as a point of interest to look for weakness to set in and potentially position for a move into the important 1050/00 support zone. though. Trading this theme: In Q4. If gold drops into the 1050/00 area. given the lack of major price support it could become a reality. That’s an aggressive target. This is the line-in-the sand for gold bulls. If this zone is broken. The trend since the 2011 peak remains lower and should key levels on the downside fail to hold. gold could find itself continue winding lower in rapid fashion. it rises up from the 2008 low to around the 1100 mark. then watch for momentum to accelerate. caution will be warranted from the short-side given its significance.

11.50. Similar levels to gold should it fall below the 2015 low are 12.46.65.Silver is obviously setting up similarly to gold. then nothing significant to the left until 8. The long-term trend-line looks likely to be met soon. The level is currently around 14. and whether it can hold there or at the 2015 low could hold significant long-term implications. Silver is currently heading back to a trend-line in place since 2003. A break below there will clear a path to the late-2015 low at 13.45.83. Silver: Weekly 25 DailyFX . but with its own twist. which will be a very important inflection point.

26 DailyFX . The long-term correlation between Kiwi and precious metals has been statistically significant.Kiwi and precious metals are highly correlated. traders will want to be aware of this correlation for risk management purposes. worth noting for positioning purposes The 52-week correlation between Kiwi and gold/silver is 70% and 86%. respectively. Keep in mind. with the past two years sporting a range between 42% and 90%. this is a long-term correlation and the shorter the time-frame you look at the more noise there is in the correlation. If positioning on the same side in NZD and precious metals.

Currently the EUR/GBP is working on retracing much of its 2016 gains after testing a multi-year 78. EUR/GBP Daily Chart & Retracement Values Prepared by Walker England As with any trade idea. This is why it is always important to keep an eye on emerging and ongoing technical trends. which suggest that traders may look for a breakout below this point. If prices do increase. traders may look for the pair to make a move on the previous 2016 high at .8305. Forex Trading Instructor Finding Potential Trading Opportunities in EURGBP 2016 held more than a few twists and turns in the market for traders. This value is currently acting as technical price support for the pair.9804. there are always two sides to each story. Ultimately finding the trend will help make our decisions to buy and sell easier.9270. My preference is to find opportunities to sell the EUR/GBP under the standing 200 day moving average (MVA) which is currently found at .Walker England. but it can also help us know which pairs to target for the upcoming 2017 trading year. A move above this value would suggest that the pair is attempting to put in higher highs and may attempt a move on the multiyear 2009 high of . but it would also potentially classify the 2016 move to . 27 DailyFX . In this scenario. Traders should remember that there is always the possibility that the EUR/GBP may remain supported for the 2017 trading year. Not only would this be a strong technical hint that the trend is again turning bearish.9270 as a lower high in a much broader bearish pattern. traders may choose to delete any existing entry orders to sell the EUR/GBP.6% retracement value.

Currency Analyst 28 DailyFX .Martin Essex.

We’ve also had massive.0-0. The markets never quite believed that. Sure enough. the Fed expected to make four more increases through 2016. For four rate hikes. Wage and pricing controls boosted inflation.” you may now say. It expects to be doing the same. Ultra-low rates and money printing haven’t bought the growth they were once thought capable of. and rises for previously docile oil prices. 29 DailyFX . Here we are at the end of 2016. And guess what? Markets don’t quite believe it. Coming when US employment is already relatively high. “But we live in a low-inflation world. through 2017. “Aha. it’s not hard to see such a program pushing up wages. we can expect a deliberately inflationary fiscal policy.25% was finally history. read just one. Nobody has seen one since 2004. To take an obvious example we might go back to 1973. and it took some fighting. Between March 1972 and October 1973 rates went up from just over 3% to more than 10%.the way central bank decisions affect economies. We’re also less sure about monetary transmission . If his campaign rhetoric is to be believed. Might raising rates also fail as inflation brake? Then there is President-elect Trump. But history suggests inflation can be harder to control than it seems. Almost every hiking cycle since 1965 has involved more substantive increases than those currently envisaged by the Fed. thrice. and then prices. The US Federal Reserve had just raised interest rates for the first time in nearly a decade. Then there was a generally weaker US Dollar. The Fed has just raised rates again. And. inflationary fiscal stimulus. they were right. The post-crisis Fed Funds rate of 0. However… It’s worth pointing out that rate-hike cycles can last longer than anyone thinks. 2015.” Good point. experts with experience will be a lot rarer. Futures contracts suggest only two hikes.David Cottle. Currency Analyst What if the Fed has Under-Gunned its Rate Hike Call? Think back to the end of December. we won’t need the same magnitude of interest rate rises to bring inflation expectations into line.

like the Euro or the British Pound. US Treasury yields would also have to rise much further too.In short. 30 DailyFX . the backdrop could be more inflationary than it has been for years. we may find that we get higher US rates than the Fed now expects. Trump may be less expansionary once in power. In that case. But if all these can be avoided. It is probably best to express this via currency pairs for which rate rises on the “non-dollar” side are less likely. China’s return to form may falter. European Union worries may presage crisis. it makes sense to be long of the US Dollar and to remain long. There are clear risks to this scenario. Gold would come in for even more severe punishment than that already meted out.

leading to a shift in policy from the Bank. according to the US Commodity Futures Trading Commission. our next target is the 195-191 range hit between June and August 2015. Brexit risks finally appear in UK data prints. which is the pre- UK referendum high achieved in February to May 2016. forcing interest rates. a decision that weakened the Yen against its peers. Background: The Yen is weak.00 level from October’s trading range. If the Brexit process is “orderly and smooth”. keeps showing remarkable resilience after the shock vote to leave the European Union in June.1%. down as the Bank of England moves to avoid recession.6% the day after the Brexit vote. if you’re long GBPJPY. according to the US Commodity Futures Trading Commission. Any indications the UK is heading towards a ‘hard’ not ‘soft’ Brexit will weigh on the currency.50. The UK economy. and looks set to continue making gains in 2017. GBPJPY dipped 16. The BoJ did raise its assessment of the economy for the first time in a year. Resistance is at 152. Inflation remains near zero. which will keep the Yen weak. What are the targets? GBPJPY has been rising since the start of November. but has slowly crept back to pre-referendum levels as the risks of a ‘hard’ Brexit recede. . GBPJPY is traditionally volatile. Any short covering would likely boost the Japanese currency. If these levels are breached. the BoJ kept monetary policy steady. as Prime Minister Theresa May promises. which is exactly where the Bank of Japan wants it.50-163. but hopefully. and the Pound. This suggests the Bank is unlikely to change its easing policy next year. only in the short term. And little looks to be changing that. leaving rates at minus 0. meanwhile. Inflation catches alight in Japan and heads towards the BoJ’s 2% target. Currency Analyst British Pound Set for Further Gains on Japan’s Yen In a nutshell: A weak Yen and resilient UK economy will likely result in a stronger GBPJPY. noting the economy is continuing its moderate pace of recovery. On December 19. Bearish bets against the Pound dropped for a second week on December 13. The Pound crashed to record lows in the aftermath of the referendum. Most economists surveyed by Bloomberg don’t expect any additional easing before Governor Haruhiko Kuroda steps down in 2018. the Pound will gain more strength. almost four years after the BoJ began enormous monetary stimulus. Risks to this trade: . GBPJPY is up around 14% since the start of November.Oliver Morrison. There is huge support around the 127. But it’s staged a modest recovery against a host of currencies in recent weeks. Net speculative short Yen positions have reached their highest level since December 2015. But the Bank still has low inflation expectations. . 31 DailyFX .

8% in 2017. Italy. while the UK will suffer badly if the financial services industry is forced to move out of London due to a lack of access to European markets. And it is here that any movement towards a ‘soft-Brexit’ .the most likely stance .7600 to a spike high around 0.12% compared to -0. The 2-year UK gilt currently yields around 0. from an estimated 1.Nick Cawley.9200 and led to many commentators calling for the pair to trade at parity within a short-time frame. as the effects of weaker sterling filter through. by the end of next March by the latest. aiding GBP. The Bank of England recently highlighted that consumer price inflation is likely to hit 2. EURGBP jumped from a pre-Brexit level around 0. The British Pound also sold off sharply against the US Dollar as investors shunned the UK ahead of the start of the country’s formal divorce proceedings from Europe. still way below the central bank’s target of close to 2%. While sterling has remained at the lower levels against the US Dollar. When the UK triggers Brexit. expected by the end of March 2017. This is above the BoE’s target of close to 2% and will not be tolerated for long by Governor Mark Carney. prompted in part by the Federal Reserve’s decision to hike rates and the likelihood of another three increases in 2017. the UK currency has pulled back some of its losses against the single currency as the weak economic backdrop in the EU continues to weigh on the currency.3% next year.785% for the 2-year German equivalent and this gap is likely to grow as UK inflation expectations continue to increase. France and Germany . the endless rounds of rumours and ‘what-if’ articles over the UK/EU break-up will shift to a more factual basis.3% this year. Will the Euro give back more of its Brexit gains? 32 DailyFX . Currency Analyst GBP Recovery Against EUR Likely on the Cards in 2017 It has been a tough year for the British Pound with the June referendum vote for the UK to leave the European Union causing sterling to slump overnight in excess of 15% against the single currency. In the fixed income market.will give sterling an additional upward boost as both sides realise that flexibility needs to be shown between two of the largest global economies. Any shifts towards anti-EU parties and the future of the single currency will come under intense scrutiny. The ECB recently trimmed down and extended its bond buying program until the end of next year at least.potentially tricky general elections in 2017. In contrast the latest ECB forecasts see inflation hitting 1. the yield differential between the UK and Europe has also increased in the last few months. Neither side will benefit from a prolonged ‘hard-Brexit’ especially in Europe where growth is still anaemic. And the growing tide of discontent across Europe will do little to help the current situation as Europe faces four – Netherlands. hinting that the central bank is still concerned over the lack of price pressures in the economy.

33 DailyFX .

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