Forecasting

Euro Q1 2017 Forecast - EUR/USD Enters 2017 Positioned for More Downside

Fundamental Analysis

• "On the US Dollar’s side, the decision in December 2016 to signal three rates in 2017 – as opposed to the market-priced two ahead of the policy statement – has sent US Treasury yields higher. As a gauge of long-term growth and inflation expectations, the US Treasury yield curve steepening is a reflection of the market's belief that tighter monetary policy is coming in the near-term."
• "On the Euro side, the European Central Bank’s decision in December 2016 to alter its QE program proved significant. In our Q4’16 forecast, we said “The ECB will very likely be forced to remove the -0.40% barrier (allowing more German bunds to be purchased), or to remove the capital key restriction (allowing more peripheral sovereign debt to be purchased).” By going the former route as opposed to the latter, the ECB has primed the Euro to be in a disadvantageous position if interest rates elsewhere continue to rise."
• "By the end of Q1’17, traders should start to pay more attention to European politics. On March 15, 2017, the Dutch elections will be held, the first of four significant elections in 2017. After the dramatic ‘No’ result on the December 4 constitutional referendum, Italy will likely head to the polls again by mid-2017. Luckily, for the Euro, the lack of reform that cost Matteo Renzi his job as prime minister may keep the Italian political system broken enough to prevent the Five Star Movement from ever achieving enough power to pull Italy out of the European Union. In April and May 2017, French presidential elections will be held, and the country will face its own populist threat in Marine Le Pen. Later in 2017 (date TBD), German elections will be held amid an environment in which Angela Merkel’s popularity Is quickly sliding (at five-year lows in December 2016) thanks to her immigration policy and an expanded terrorism threat in Europe. Needless to say, for those who thought 2016 was a year of surprises and shocks, 2017 is sure not to disappoint."

Technical Analysis

• "We were looking for signs of a turn higher in Q4’16, but that didn’t happen. Instead, EUR/USD broke lower in a significant way. In our Q4’16 EUR/USD forecast, we wrote about the extremely coiled environment persisting in the pair, noting, “according to the measure, EUR/USD is the most coiled in history. It’s been 81 weeks since the last 52-week high or low. The previous record was 77-weeks, which ended with the breakout in May 2002.” Furthermore, “if the March 2015 lows break, then the call for a bottom is wrong and focus would shift to 0.9450-0.9550 (historical inflection point and measured objective).” This zone is in play in Q1’17 and is reinforced by the 61.8% retracement of the 1985-2008 rally at 0.9608."
• "Strength through the median line from the bearish channel, which was resistance throughout 2016, would trigger a major bearish trap and shift focus to the downtrend line in the mid-1.2000s later in the year (fitting with the idea of the US Dollar rising then falling over the course of 20170."

the source

British Pound Q1 2017 Forecast - Pound to Chart Disparate Path vs. Major Currencies in Early 2017

Fundamental Analysis

• "Much of what happens to the British Pound in 2017 will depend on implementation of the outcome of the Brexit referendum. Markets will have ample fodder for speculation, from the formal initiation of the process pulling the UK out of the European Union and the subsequent negotiation to the indirect influence of uncertainty on the economy."
• "The markets will probably spend the first three months of the year trying to divine what all of this will look like. Against this backdrop, the UK economy will likely start to show the impact of post-referendum uncertainty. This will overlay the political aspects of the situation with speculation about the direction of Bank of England policy."
• "At this stage, investors seem to be trying to game how much inflation has to overshoot the BOE’s target for the central bank to dial down stimulus. If recent UK data proves to have foreshadowed a slump, speculation will instead be focused on how likely it is that Mark Carney and company will have to ease conditions further."

Technical Analysis

• "Heading into the fourth quarter, I had highlighted the GBP/USD range between 1.2800 and 1.3600. The prevailing trend was certainly bearish, but further extending the already-extreme move would require increasingly exceptional conviction. An unexpected Pound flash crash in early October and a renewed Dollar rally after US Presidential election however, struck the correct cord. The question heading into 2017 is whether we can keep stretching the Cable further and further. Looking at the quarterly chart of the pair, we can see how statistically difficult that would be."
• "We need to look at a chart with this scale of historical context to appreciate the fact that we are at a three-decade low. Beyond that, we find that GBP/USD has dropped for six consecutive quarters – only the third time this has occurred and each previous instance marked a significant turning point. Furthermore, this drive represents a decline that is more than two-standard deviations below the 20-quarter (5-year) average."

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Japanese Yen Q1 2017 Forecast - Japanese Yen Poised to Gain Further For Three Key Reasons

Fundamental Analysis

• "The Bank of Japan started the year in fairly dramatic fashion as it cut its benchmark interest rate into negative territory, but the BoJ went on to disappoint those looking for further monetary policy easing through the rest of the year. This fact is especially surprising given that National Japanese Consumer Price Index inflation figures showed the country re-entered deflation through the first quarter. It was almost humorous to note the Bank of Japan forecasted inflation would hit 1.7 percent in 2017 while the median private forecast pointed to 0.9 percent growth. Officials finally posted a dramatic cut in inflation and growth forecasts at their July meeting, and further policy easing seemed inevitable."
• "Japan stands to gain if the United States’ Congress and President approve the much-heralded Trans-Pacific Partnership (TPP) trade agreement. Anti-trade sentiment has nonetheless come to the fore ahead of the US Presidential Elections in November, and ratification of the TPP is far from certain. Aggressive currency manipulation from the Japanese Government could further raise the ire of the US politicians and effectively kill the TPP in its tracks. The Japanese MoF has certainly warned it could intervene if the Yen continues to strengthen, but these political calculations make those threats considerably less credible. Failure to act would clear the USD/JPY to break and stay below ¥100."
• "The final wildcard for the Yen is not limited to Japan but especially relevant for its currency: will global financial markets remain stable? The near-term correlation between the USD/JPY exchange rate and the USS&P 500 Volatility Index (VIX)—also known as the “fear index”—recently hit its strongest in two years. The correlation has admittedly been volatile, and the USD/JPY shows little link to the VIX when the VIX is low. The fact the JPY surges (USD/JPY declines) when the VIX spikes higher helps to highlight the fact the Yen tends to strengthen in times of financial market turmoil. The recent jump in S&P volatility coincided with Yen strength, and any similar episodes of sharp S&P declines would also likely coincide with JPY gains."

Technical Analysis

• "USDJPY responded to a critical support confluence in the second half of the year around the 101-handle (100.71-101.26) – this region is defined by the 50% retracement of the 2011 rally, the 1999/2000 lows, former trendline resistance extending off the 1998 & 2007 highs and a median-line extending off the 2009 lows. The exchange rate could not register a weekly close below this mark and as of 12/20 the subsequent rally has marked the largest quarterly advance since Q3 1995 and the largest quarterly range (ATR) since Q4 of 2008. If this was just a zoom & retest of the 2014 breakout, the broader outlook would remain constructive while above this key threshold heading into 2017. Note that a parallel extending off the 2013 highs converges on the June high and highlights possible near-term support at 111.45."
• "The focus heading into Q1 is on a key resistance confluence at 120.18-121.12 where the 2016 open converges on the yearly high-week close, the 78.6% retracement of the 2015 decline, the upper median-line parallel of the embedded ascending structure and basic trendline resistance off the 2015 high. The current rally is at risk heading into this region and we’ll be looking for a pullback to offer favorable long-entries while above confluence support at 111.45."

the source

Gold Q1 2017 Forecast - Gold Weakness to Subside With Fed on Hold in First-Half of 2017

Fundamental Analysis

• "After raising the benchmark interest rate in December, the upcoming rotation within the Federal Open Market Committee (FOMC) may push the central bank to retain the current policy at the next meeting in February as Chicago Fed President Charles Evans, Philadelphia Fed President Patrick Harker, Dallas Fed President Robert Kaplan and Minneapolis Fed President Neel Kashkari are slate to vote in 2017."
• "Looking at Fed Funds Futures, market participants largely anticipate the Fed to retain the status quo throughout the first-half of the year as the central bank warns ‘market-based measures of inflation compensation have moved up considerably but still are low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.’ With that said, the FOMC meetings scheduled for the first-half of 2017 may tame the resilience in the greenback and help cushion the rapid decline in gold price, but the outlook for monetary policy continues to cast a long-term bearish forecast for bullion especially as Fed officials see three rate-hikes in the year ahead."
• "With the longer-run interest rate dot-plot still projecting a terminal rate around 2.75% to 3.00%, Fed Funds Futures are currently pricing an 80% probability for a move in June 2017, with additional rate-hikes anticipated to come in the second-half of 2017. Expectations for higher U.S. interest rates should continue to weigh on gold prices, but the weakness may subside over the coming months as the FOMC is anticipated to keep the benchmark interest rate on hold throughout the first-half of the year."

Technical Analysis

• "Gold prices approached a critical support confluence in late-December at 1220/30- a level defined by the 161.8% extension of the decline off the yearly highs, the 76.4% retracement of the advance off the 2015 low, the 2014 low and the lower parallel of the embedded descending parallel formation. Note that the lower-median-line parallel extending off the 2015 low comes in just below and the immediate downside bias is at risk into this key region."
• "Bottom line: heading into next quarter we’ll be looking for a relief rally to offer more favorable short-entries with a break lower risks substantial losses for gold. Such a scenario eyes subsequent support targets at the low-week close / 88.6% retracement at 1083/85 backed by the 2016 open at 1062 & the 2016 low at 1046."

the source

Oil Q1 2017 Forecast - The Real Power of OPEC Will Be Revealed in Q1 2017

Fundamental Analysis

• "For traders who like to simplify the markets to a game of supply vs. demand, the Oil market in Q1 2017 should be their World Cup. Heading into the New Year, the OPEC and non-OPEC members will cut supply to the agreed upon amounts. Given this intent, the International Energy Agency (IEA) says recent OPEC action would place the Oil market into a supply deficit. The deficit would be engineered on a mixture of consistent demand combined with OPEC and other producers following through on their pledge to cut supply starting January 1. The view of consistent demand has been supported by consistent inventory draws reported by the Department of Energy as forecasted inventory builds were repeatedly confronted with actual inventory draws in late 2016."
• "In Vienna, OPEC announced they anticipate ~600,000 fewerbarrels per day of production in H1, 2017. Along with this, the IEA also increased its forecast for global oil demand in 2017 by 100k bpd, stating consumption is likely to rise by 1.4% to 97.6 million barrels a day. In mid-December when non-OPEC producers like Russia, Mexico, and others aligned with OPEC to help balance the over-supply imbalance, Saudi Oil Minister Khalid Al-Falih said at the post-meeting press conference in Vienna that he is willing to cut the Saudi’s production even deeper than already promised. OPEC has agreed to reduce output by 1.2mn bpd from next year with Saudi cutting as much as 486k bpd."
• "Lastly, while many are looking for prices to move aggressively higher, it is worth noting OPEC is not specifically targeting higher price levels, but rather market balance. Therefore, we could see an increase in production if demand is anticipated to pick up or U.S. E&P’s are seen taking too much market share, which would limit the potential upside."

Technical Analysis

• "Crude oil price has been reacting positively to the 200 day simple moving average bouncing off the line twice during the previous quarter. This makes seven successful turns in the past 19 months with one failed pivot. Now that the moving average is trending higher, it will become more difficult for prices to hold above it. Do not be surprised to see a false break below this line in Q1."
• "The key level to watch for Bulls is around $40. Below there and the market is at risk of a greater sell-off. As long as prices are above $40, the door is open for sideways and possibly higher trade."

the source

The EUR/USD doesn't change its down trend and I think the best strategy to get real money here is to open a long-term sell.

The GBP/USD is going down little by little. Not such a big opprtunity on this market at the moment, but still we can sell here too.

The USD/JPY after being a bullish market for a long time seems to have managed to form quite a stron resistance, so there is a chance that the chart will go down next week.

The USD/JPY seems to be forming a new trend, cause we can see a fall here from the level of 114.10. I'm going short.

The GBP/USD has just turned down and I think it won't last long so we'd better use scalping strategy here this week.