Markets in Dull Holiday Trading, Aussie Firmer but Strength Unconvincing Yet

The financial markets are treading water in quiet holiday trading. DOW closed -0.03% down at 24746.21 overnight. S&P 500 closed down -0.11% at 2680.50. Nikkei is also trading up around 0.1% at the time of writing. In the currency markets, Aussie is the clear winner for the week while Yen is broadly lower. The markets may need to wait for consumer confidence from US to give it back its life.

Commodity currencies are generally strong this month. While Aussie has been impressive in the past two weeks, the strength against Loonie and Kiwi is not convincing yet.

AUD/CAD rebounded after breaching 0.9591 and a short term bottom was formed at 0.9578. Nonetheless, upside is limited by 55 week EMA (now at 0.9867), and below 0.9916 resistance. While the rebound was strong, there is no confirmation of reversal yet. That is, fall from 1.0344 could extend lower. Break of 0.9578 will target 0.9322 support next. On the upside, sustained trading above 0.9916 will bring stronger rise. But recent price actions have been corrective for a while, with lack of a clear trend. Hence, we’d expect strong resistance below 1.0344/96 to bring more sideway trading.

AUD/NZD recovered ahead of 1.0823 cluster support (50% retracement of 1.0368 to 1.1289 at 1.0829, 55 week EMA at 1.0826). But there is no clear sign of reversal yet. Deeper fall is expected as long as 1.1112 resistance holds. Sustained break of 1.0823 will bring deeper fall to 1.0368 and possibly below. But so far, price actions from 1.1638 are clearly corrective. Even in case of a deep decline, we don’t expect a break of 1.0016 low. On the upside, above 1.1112 will extend the rise from 1.0368 to test 1.1638 resistance.

NZD/JPY is one of the biggest gainer this month, thanks to rebound in Kiwi and selloff in Yen. The break above flat 55 week EMA affirmed the case that fall from 83.90 has completed at 76.08. The development also argue that the consolidation pattern from 83.76 has completed with three waves to 76.08. In other words, medium term rebound from 68.88 might be ready to resume. Near term outlook will stay bullish as long as 78.36 support holds. Retest of 83.90 should be seen first. Break there will confirm this bullish view and target a test on 94.01 (2015 high).

On the data front

Japan housing starts will be featured in Asian session. Swiss will release UBS consumption indicator, UK will release BBA mortgage approvals in European session. The main feature of the day is Conference Board consumer confidence from US.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.2668; (P) 1.2701; (R1) 1.2717; More….

Intraday bias in USD/CAD remains neutral as sideway trading from 1.2916 is still extending. Deeper fall could be seen. But after all, as long as 1.2598 resistance turned support holds, near term outlook remains bullish. On the upside, firm break of 1.2916 will resume the rise from 1.2061 and target 1.3065 medium term fibonacci level next. However, sustained break of 1.2598 will argue that rebound from 1.2061 has completed after hitting 55 week EMA (now at 1.2879). Near term outlook will be turned bearish in this case.

In the bigger picture, USD/CAD should have defended 50% retracement of 0.9406 (2011 low) to 1.4689 (2016 high) at 1.2048. And with 1.2048 intact, we’d favor the case that fall from 1.4689 is a correction. Rise from 1.2061 medium term bottom should now target 38.2% retracement of 1.4689 to 1.2061 at 1.3065. Firm break there will target 1.3793 key resistance next (61.8% retracement at 1.3685). We’ll now hold on to this bullish view as long as 1.2450 support holds.

Economic Indicators Update