Equities tumble as USD falls, May's speech in focus

Equities move south (by Arnaud Masset)

Equities across the globe have been rallying strongly since Donald Trump’s election on November 9th. The S&P 500 has risen more than 6.50% and printed at a new all-time high of 2,282.10, while the Dow Jones Industrial Average rallied almost 9% but was unable to break the infamous 20,000 level as it eased at around 19,900. In Asia, the Nikkei 225 surged as much as 13%, while Australian equities were up 10.40%. Similarly, in Europe, the Euro Stoxx 50 climbed 10% to 3,330 as the DAX was up almost 12%.

In spite of all this good news, it seems that the rally has been running out of steam since investors jumped into the new year. Many have the feeling that the market has gotten ahead of itself by speculating extensively about the potentially positive outcome of Trumponomics. Volatility is slowly making its comeback with the VIX rising 10.20% (net change of +1.15%) this morning to 12.38%, while most equity indices continued to move south. We expect the Trump rally to continue unwinding, which will weigh on global equities and further increase selling pressure on the dollar.

Markets await Theresa May’s Brexit speech with bated breath (by Yann Quelenn)

Theresa May will give the speech of her career today as she finally outlines her EU exit plan at 12.45 CET at Lancaster House. Brexit concerns have been palpable in the past days amid growing uncertainties about the PM’s strategy. For the time being, markets have largely priced in a hard Brexit.

In our view, the negotiations between the UK and the EU have already begun. It is likely that the rumours of exiting the single union are there to lure EU officials to come to the table. The EU definitely does not have the upper hand, especially in light of improved relations between the US and the UK, which could lead to the US negotiating a better bilateral agreement with the UK. Moreover, the EU could find itself very isolated due to the very open relations between the US and Russia.

We believe that any hard Brexit threat from Theresa May today will be merely bluff. Economically, the UK government will need to set up some bilateral agreement with the EU at least to stimulate the British economy. Currency-wise, the pound seems to be steady ahead of the speech and there is certainly some room for further upside.

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Gold - Riding Uptrend Channel.

EURUSD

EUR/USD's momentum is still positive despite some consolidations. Strong resistance is given at 1.0874 (08/12/2016 high). Hourly support lies at 1.0341 (03/01/2017 low). Expected to see continued increase. In the longer term, the death cross late October indicated a further bearish bias. The pair has broken key support given at 1.0458 (16/03/2015 low). Key resistance holds at 1.1714 (24/08/2015 high). Expected to head towards parity.

GBPUSD

GBP/USD is riding downtrend channel. The pair has bounced back over hourly support at 1.2083 (25/10/2016 low). Nonetheless, the technical structure still looks bearish. Hourly resistance is given at 1.2262 (12/01/2016 high). Expected to monitor support at 1.1841 (07/10/2016 low). The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USDJPY

USD/JPY continues to decline within a downtrend channel. The road is wide-open towards hourly support given at 113.81 12/01/2017 low). Expected to see further downside moves. We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

USDCHF

USD/CHF's momentum is clearly bearish. Yet, the pair is still moving between hourly resistance given at 1.0344 (15/12/2016 high) and support at 1.0021 (08/12/2016 low). Key support is given at the parity. Expected to decline towards 1.0021. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.

Resistance and Support