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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 final quarter 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 motion. 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.

Top Trades:

  • John Kicklighter, Chief Strategist: GBP/JPY Combines a Depressed Pound and Risk Trends
  • David Song, Currency Analyst: Tracking Key Market Themes Beyond Monetary Policy
  • Jeremy Wagner, Head Trading Instructor: A Typically Quiet EUR/GBP May Provide an Outsized Move
  • Paul Robinson, Currency Analyst: NZDUSD, Gold/Silver Setting Up for More Losses Before Hitting a Low
  • Jamie Saettele, CMT, Senior Technical Strategist: Cyclical USDZAR Downswing May Be at Hand
  • Tyler Yell, CMT, Forex Trading Instructor: Awaiting Aggressive Bullish Bounce In Gold From Higher-Low
  • Ilya Spivak, Currency Strategist: Avoiding the Trump Trade Rollercoaster - Short EUR vs. GBP, JPY
  • Walker England, Forex Trading Instructor: Finding Potential Trading Opportunities in EUR/GBP
  • Christopher Vecchio, Currency Strategist: Short EUR/USD, Long USD/JPY
  • Martin Essex, Market Analyst and Editor: EUR/JPY Faces Rising European Troubles, Brighter Japanese Horizons
  • Michael Boutros, Currency Strategist: AUDJPY | Breakout at Initial Resistance- Constructive Above 80.60
  • David Cottle, Market Analyst: What if the Fed has Under-Gunned its Rate Hike Call?
  • James Stanley, Currency Analyst: Long EUR/AUD – Buy Support, Sell Resistance
  • Oliver Morrison, Market Analyst: British Pound Set for Further Gains on Japan’s Yen
  • Nick Cawley, Market Analyst: GBP Recovery Against EUR Likely on the Cards in 2017

John Kicklighter, 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. However, 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. Given that trading is largely the smart management of probabilities, it is important to find opportunities that can contain the widest array of favorable outcomes and the greatest amplitude with a positive course. A long GBP/JPY view appeals to me because it speaks to two critical, heavily-skewed themes: Sterling depressed by Brexit uncertainty and an evolution of risk trends.

The Sterling component of this setup is relatively straightforward. The UK’s currency has suffered an unceremonious devaluation with the country’s vote to withdrawal from the European Union. This sustained depression reflects uncertainty and worst-case-scenario assumptions in the absence of clear procedures to navigate the divorce. 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 it is very unlikely to be the crisis state that is currently priced in. We will start to reassess the balance of fear that suppresses the country and currency in the first quarter of 2017. Prime Minister Theresa May is due to lay out plans for negotiation in the opening months, and - should she stick to the planned time line for invoking Article 50 - to start the procedure at the end of March.

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), but GBP/JPY leverages that fundamental opportunity by adding a second fundamental theme with a particular skew: risk trends. As it stands, timing is very important to trading GBP/JPY. While the Sterling’s contribution to this situation is already grounded by speculative excess, the Yen poses a near-term risk to a bullish view. All Yen crosses are highly correlated to market-wide risk appetite. With its current bearings, speculative reach is excessive across many assets and on most fundamental measures. Below is a chart showing a risk favorite S&P 500 US equity index versus a basic ‘Risk-Reward Index’ (an aggregate G-10, 10-year government bond yield divided by an FX volatility index).

Top Trading Opportunities for 2017

Data Source: Bloomberg. Prepared by John Kicklighter

A risk correction is overdue, and the GBP/JPY is unlikely to escape the downdraft. That said, the flush is not going to find an excess of speculative loiterers holding a long position given the exchange rate’s extraordinary low level and the absolute lack of carry the pair offers. After the painful but necessary risk scourge however, the market will be less fixated on jumping on a bandwagon of hollow momentum and instead prize genuine potential for return on depressed assets. 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.

In the chart below, the candlestick series is GBP/JPY and the pale red line is GBP/EUR (EUR/GBP inverted). 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. That is why it is at the top of my list for trade opportunities in 2017.

Top Trading Opportunities for 2017

Charts: Tradingview. Prepared by John Kicklighter

Jamie Saettele, CMT, Senior Technical Strategist:

Cyclical USDZAR Downswing May Be at Hand

Yearly Chart

Since the end of the Bretton Woods era, USDZAR has more or less gone straight up. The only notable peaks on this chart are 2001 and 2008, which are 7 years apart. Work backwards in 7 year cycles and you’ll notice that 1987, 1980, and 1973 are pivot lows (1994 was nothing). 7 years after 2008 is 2015 (remember, we’re looking at yearly closes). The decline from 2001 lasted 3 years and the decline from 2008 lasted 2 years. It’s possible that 2016 is the first year of another decline.

Top Trading Opportunities for 2017

‘Blow-off’ Tops

The tops in 2001, 2008, and 2015 are ‘blow-off’ tops. The ‘blow-off’ portions of the rallies occur following breaks through the top of a channel. Once the market comes back into the channel, a reversal is considered underway towards the point from which the blow-off advance originated. This point is defined as the level where price last touched the support line. The circles on the chart denote the origin points. The target in this case is 10.9070.

Top Trading Opportunities for 2017

Similarities to Previous Tops; 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. Weakness then accelerated through 2004.

USDZAR fell in 3 waves from October 2008 to January 2009 and then rallied in 3 waves from January 2009 to March 2009. Weakness then accelerated through 2010.

USDZAR fell in 3 waves from January 2016 to August 2016 and has traded sideways for 4 months. It’s critical that shorts are not established until the long term trendline is broken. A break below the trendline and subsequent ‘check’ on the trendline from below as resistance would be even better for entry.

Ilya Spivak, Currency Strategist:

Avoiding the Trump Trade Rollercoaster - Short EUR vs. GBP, JPY

Reality humbled smug prognosticators convinced that UK voters will vote to stay in the European Union, that Hillary Clinton will win the US presidential election, and that OPEC will fail to strike an output cut deal yet again. The road ahead looks no less treacherous and attempting to divine where it may lead seems no less foolish.

Much will depend on how the Fed will react to the as-yet unknown impact of policies put forward by the Trump administration. Will “big-league” fiscal stimulus really goose up growth, spur inflation and steepen the on-coming rate hike path?

The markets seem to think so, but no really one knows for sure. It is impossible to say with confidence that a boost from infrastructure spending, tax cuts and deregulation will not be offset if the President-elect gives in to his protectionist streak. Pretending this is not a possibility looks like wishful thinking.

The US economy is the single largest engine of global demand and the US Dollar is the world’s undisputed reserve currency, serving as the medium of exchange for close to 80 percent of all transactions. That means that answering this question will set direction for nearly every benchmark asset across the financial markets.

Crafting a robust strategy for the year against this backdrop will mean avoiding trades that force investors to take bets on world-changing outcomes, at least for now. Instead, it seems prudent to look for opportunities that sidestep them altogether. Selling the Euro against the British Pound and the Yen seems to fit the bill.

Top Trading Opportunities for 2017

The Japanese unit and the single currency look similar heading into 2017. 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. Then again, it may not.

In either case, both central banks’ actions would be driven by the same narrative and may turn out be a wash on-net. The Euro will have to contend with tremendous political uncertainty however as Germany and France head to the polls. Anti-establishment forces have gained ground in both countries.

The past year ought to have taught investors not to discount the threat of populist insurrection in heretofore bastions of the Western status quo. 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.

Another concern is the start of Brexit negotiations. 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, meaning that Sterling looks somewhat cheap relative to its Continental counterpart.

Top Trading Opportunities for 2017

Jeremy Wagner, Head Trading Instructor: A Typically Quiet EUR/GBP May Provide an Outsized Move

Focusing on the technical pictures, 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. This year, EUR/GBP is one that as the year progresses it may set up for another strong leg higher.

The move from July 2015 to October 2016 appears to be a 5-wave move to start a new trend. 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. Therefore, as price corrects this 2015-2016 trend higher, we will look to identifying levels that may support the correction prior to another leg higher.

Keep the Fibonacci retracement levels handy on the chart from July 2015 to October 2016. The 61.8% retracement level comes in near 0.7810. Coincidentally, the former resistance line (purple dotted line) crosses near this same level. We know from support and resistance training that former resistance, when broken, can act like new support in the future. Therefore, if price corrects lower, we may see a positive reaction near 0.75 – 0.78.

At that point, we will anticipate another move higher of similar size as the July 2015 to October 2016 trend. 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. That suggests upside targets near 0.92 and possibly 1.01.

Wait for price to finish the correction lower. If trade prints below the July 2015 low of 0.69, then another pattern is in the works.

Keeping with the Sterling theme, we will also be monitoring GBP/JPY and specifically if a correction develops. 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. If the move develops as a 3 wave corrective move, 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.

Join Jeremy for the US Opening Bell webinars to keep up to date on these trends plus other Elliott Wave patterns he is following.

Top Trading Opportunities for 2017

Michael Boutros, Currency Strategist: AUDJPY | Breakout at Initial Resistance- Constructive Above 80.60

AUDJPY Weekly

Top Trading Opportunities for 2017

Prepared by Michael Boutros

Last year we highlighted a broad descending median-line formation off the 2013 & 2014 highs while noting that, “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 85.47, targeting subsequent objectives at the 81.84-82.80 range & the 50% retracement of the advance off the 2008 low at 80.16. A critical longer-term support zone rest lower at 72.05-74.20.”

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. The pair has stretched back into key near-term resistance at 87.55/64 ahead of the yearly close- this level is defined by the 2016 open, the 50% retracement of the 2014 decline and the median-line of the ascending pitchfork extending off the February low.

While the immediate long-bias is vulnerable, 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 81.58/97. Key confluence support & bullish invalidation rests just lower at the convergence of the 52-week moving average & the 2011 parallel around ~80.60 (also the origin of the Q4 breakout). Bottom line: we’ll be looking to fade weakness towards these levels early in the year with a breach above key resistance targeting subsequent topside objectives at 90.64-91.23 & 96.34.

Tyler Yell, 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.”

-Tom DeMark, DeMark Analytics

One of the seemingly great ironies of the outcome of the U.S. Election was how wrong many market participants were to anticipate price outcome of a possible Trump victory. After President-elect Trump declared victory in the early hours of November 9, 2016, the market unexpectedly rallied in a full risk-on mode that lasted well into December.

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. However, since the November 9 intra-day high on XAU/USD just north of $1,340/oz, the price of Gold has fallen ~17% or nearly $230s/oz by mid-December. Similarly, the Japanese Yen has weakened by 1,335 pips as of the time of this writing against, which is worth a loss of nearly 14.6% in a month’s time.

While the market moved aggressively against haven assets and currencies like Gold and JPY, a trader should be on the watch for the scene setting up for a Bullish Gold move in early 2017. 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. The price of Gold has fallen into the 0.618%-0.786% retracement zone of the December ‘15-July rally that saw the price of Gold rising by ~ 32.2% or $330/oz from $1,046/oz to as high as $1,376/oz.

There appears to be no more hated asset class going into 2017 than Gold as per the Daily Sentiment Index. 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.

If you look at the start of 2016, 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. Fast forward to the end of 2016 and the dollar did turnaround after falling 8% from the January high to early May low. The dollar rallied over 11% from the May low of 91.92. 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. The S&P 500 rose by over 26% from its February low after falling 13.3% in the first month of trading 2016.

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.

While there is euphoria going on with the weak JPY & EUR, the strong USD has some feeling that all is right in global markets. However, we should remain on the watch in early 2017 that Gold could benefit from a mispriced euphoria. 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. Gold’s younger digital brother Bit-Coin (BTC/USD), which is another haven asset has a bullish range for 2016 of 440 USD with a bullish range from low to high of 125%.

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 Cues:

Naturally, a downtrend does not automatically equal a buying opportunity. Before entertaining a long view, I would like to see momentum and a repricing of markets upon the information that can lead to a good trade. In the current environment with equities at all-time highs, Yen staying weak, and bond yields rallying, we will await the right time for gold to turn Gold course.

By the time I bullish Gold, 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). Also, given the stirrings going on in the market with very extreme bearish sentiment and Haven assets being sold off, euphoria in risky assets alongside uncertainty in future global trade and growth potential for equity earnings, Gold may be setting up for an early 2017 rally in a similar way it rallied in H1 2016. If so, that’s a move I want to take advantage of.

Top Trading Opportunities for 2017

Chart Created by Tyler Yell, CMT with TradingView

Christopher Vecchio, Currency Strategist:

Short EUR/USD, Long USD/JPY

Leave your preconceived notions in 2016: 2017 will be unlike any year in recent memory. After a 'wave' election in which one party swept control of both halves of Congress as well as the Presidency, Republicans are in the rare position of being able to end legislative gridlock in Washington, which should translate into fiscal stimulus for the US economy.

Regardless of ideology, 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 0.4% of GDP during those 18 years. 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. Deficit spending in the form of a massive infrastructure spending bill, combined with sweeping tax reform, should prove to be significantly inflationary.

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), 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, at any cost.

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. With the decision to buy 1-year debt, 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. Between the ECB's policy shift and the Fed's signaling for a faster pace of rate hikes, the German-US 2-year yield spread has widened out significantly in the past few weeks, proving to be the driving force behind EUR/USD weakness. 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 0.9500 in the first half of 2017; we’ll look for a test of parity in Q1’17.

The same can be said about what's happening with the Japanese Yen. In a rising yield environment where the BOJ is pegging the JGB 10-year yield at or below 0%, the Japanese Yen stands out to be a loser. Interest rate differentials (US-Japanese 10-year yield spreads) have moved sharply against the Yen, and appear poised to do so for the foreseeable future (three- to six-months). 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 125.70 in Q1’17 before 130.00 later in the year.

The President-elect Trump reflation trade could very-well last into Q1 or Q2'17, albeit in fits and starts, before trouble emerges. We’ll want to revisit the calls for short EUR/USD and long USD/JPY by mid-year. At some point, we'll pass through the threshold where rising US yields are seen a burden for debt sustainability concerns, but that probably won’t happen until late-2017 or early-2018.

David Song, Currency Analyst:

Tracking Key Market Themes Beyond Monetary Policy

Long: AUD/JPY, Nikkei 225

The pickup in risk sentiment has triggered a meaningful development across the major global benchmark indices, with the Nikkei 225 breaking out the bull-flag formation carried over from 2015, while currency pairs such as AUD/JPY are highlighting a similar dynamic all ahead of 2017.

Nikkei 225 Monthly

Top Trading Opportunities for 2017

After bouncing off of former trendline resistance in the first-half of the year, Japan’s benchmark equity index may further retrace the decline from back in the 1990’s as a bull-flag formation starts to unfold. 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, 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.’

Despite the 7 to 2 split at the last interest rate decision for 2016, 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. continue to cast a dovish outlook for monetary policy and warn ‘inflation expectations have remained in a weakening phase.’ As a result, 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.

AUD/JPY Weekly

Top Trading Opportunities for 2017

The rise in risk appetite also appears to have sparked carry-trade interest, with AUD/JPY highlighting a material shift in market behavior as it breaks out of the downward trending channel carried over from late-2014. A similar reference can be found in the Relative Strength Index (RSI) as the oscillator flashes a bullish trigger ahead of 2017. The key developments favor opportunities to buy-dips in the Aussie-Yen, 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.

After cutting the official cash rate to a fresh record-low of 1.50% 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. Despite concerns surrounding the region’s AAA-credit rating, the RBA may adopt a more hawkish tone in 2017 as ‘globally, the outlook for inflation is more balanced than it has been for some time,’ 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.

With that said, key themes beyond monetary policy may play a greater role in driving volatility across the financial markets, 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.

James Stanley, Currency Analyst:

Long EUR/AUD – Buy Support, Sell Resistance

Trying to forecast a year in advance, especially from a macro-economic point-of-view, can be difficult and perhaps even disastrous. If you’d have said last year that 2016 would see both the U.K. deciding to leave Europe after the Brexit referendum, 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.

Next year could be equally or, perhaps even more volatile than 2016; especially for Europe as we head towards election cycles in the key regions of France and Germany. Combine this with continued-crisis in the banking sector of Italy, 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; and the bank may not have enough ammunition to do another round. 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.S. Dollar. When the ECB first announced QE in July of 2014, EUR/USD drove all the way down to 1.0462. But after QE actually began in March of 2015, EUR/USD remained supported above this prior-low. It wasn’t until the Federal Reserve ramped-up hawkishness for 2017 that EUR/USD finally broke-below that support.

But not many currencies are as strong as the U.S. Dollar with the post-Election back-drop. Rather than looking to buy support on the Euro against the U.S. Dollar, which could foreseeably continue to strengthen for months ahead; long-Euro setups could be directed towards the Australian Dollar. Australia still has some room to cut rates, a new Central Bank head in Phillip Lowe, and the potential for more-pressure (or weakness) to emanate from China.

But what makes the long setup attractive is the risk-reward on the monthly chart. After setting a fresh-high in August of last year at 1.6586, the pair has spent much of the time since in some form of congestion. The past three months have seen support show up at the 50% Fibonacci retracement of the most recent major move, taking the August 2012 low to that August 2015-high.

Stops on the position can be set to 1.3400, which would get the level below the 61.8% retracement of that most recent major move. Top-side targets could be sought at 1.4683 (to adjust stop to break-even), 1.5000 (major psychological level), 1.5273 (long-term Fibonacci level), 1.5500 (prior price action swing), 1.6000 (major psychological level) and 1.6405 (another long-term Fibonacci level + near 8-year high).

Top Trading Opportunities for 2017

Chart prepared by James Stanley

Paul Robinson, Market Analyst:

NZDUSD, potential for a return to the long-term trend-line

NZDUSD was not kind to big picture bears during most of 2016, 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. The low created in August 2015 took Kiwi higher for longer than many expected. Many market participants, self-included, were looking for the downtrend which began in 2014 to resume at an earlier time.

The upward grind in Kiwi from the 2015 low morphed into a defined channel, or bear-flag in this case. After being rejected near 7500 it’s currently testing the bottom-side parallel of the pattern. An official break of the formation will be considered with a strong closing weekly bar beneath the lower trend-line.

There are several targeted points of support along the way towards the big picture target. Levels to watch include the May ’16 low at 6673, trend-line from the 2009 low (~6475/6550), Jan ’16 low at 6348, the Aug ’15 low at 6197, then the final target arrives at the 2000 – current trend-line. The trend-line clocks in around 5900 (+/- 50 points), or about 15% lower from here.

Trading this theme: This is highly dependent on the time-frame which one operates on, but the idea on this end is to wait for a confirmed break and then look to retracements on the daily chart. Once broken, the rising trend-line will go from being viewed as support to resistance. In addition, 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, but if Kiwi does it won’t undermine the outlook until it can successfully trade above the trend-line.

NZDUSD: Weekly

Top Trading Opportunities for 2017

Gold & silver look headed lower, but important support levels hold the key

Gold looks poised to continue disappointing investors. 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. There is significant support in the 1050/00 region. If this zone is broken, then watch for momentum to accelerate. Before the big region is tested, though, there is a trend-line of minor significance which could be enough to provide a bounce; it rises up from the 2008 low to around the 1100 mark. 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). That’s an aggressive move, but again, given the lack of major price support it could become a reality. Other levels below 1000 arrive at the bottom-side trend-line running lower from the 2013 low (~975/60), along with pivots from 2009 at 905 and 865.

Trading this theme: In Q4, gold broke the key 1180/1200 region extending back to 2013. 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, or worse. If gold drops into the 1050/00 area, caution will be warranted from the short-side given its significance. This is the line-in-the sand for gold bulls. Hold, then a sizable rally may develop, but if it breaks then things might get ugly. It just may be what the bear market needs to end, a final flush after several years of carrying lower.

Gold: Weekly

Top Trading Opportunities for 2017

Silver is obviously setting up similarly to gold, but with its own twist. Silver is currently heading back to a trend-line in place since 2003, which will be a very important inflection point. The level is currently around 14.50. A break below there will clear a path to the late-2015 low at 13.65. Similar levels to gold should it fall below the 2015 low are 12.46, 11.83, then nothing significant to the left until 8.45. The long-term trend-line looks likely to be met soon, and whether it can hold there or at the 2015 low could hold significant long-term implications.

Silver: Weekly

Top Trading Opportunities for 2017

Kiwi and precious metals are highly correlated, worth noting for positioning purposes

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

Walker England, Forex Trading Instructor:

Finding Potential Trading Opportunities in EURGBP

2016 held more than a few twists and turns in the market for traders. This is why it is always important to keep an eye on emerging and ongoing technical trends. Ultimately finding the trend will help make our decisions to buy and sell easier, but it can also help us know which pairs to target for the upcoming 2017 trading year. Currently the EUR/GBP is working on retracing much of its 2016 gains after testing a multi-year 78.6% retracement value.

My preference is to find opportunities to sell the EUR/GBP under the standing 200 day moving average (MVA) which is currently found at .8305. This value is currently acting as technical price support for the pair, which suggest that traders may look for a breakout below this point. Not only would this be a strong technical hint that the trend is again turning bearish, but it would also potentially classify the 2016 move to .9270 as a lower high in a much broader bearish pattern.

EUR/GBP Daily Chart & Retracement Values

Top Trading Opportunities for 2017

Prepared by Walker England

As with any trade idea, there are always two sides to each story. Traders should remember that there is always the possibility that the EUR/GBP may remain supported for the 2017 trading year. In this scenario, traders may choose to delete any existing entry orders to sell the EUR/GBP. If prices do increase, traders may look for the pair to make a move on the previous 2016 high at .9270. 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 .9804.

Martin Essex, Currency Analyst:

EUR/JPY Faces Rising European Troubles, Brighter Japanese Horizons

The coming year looks likely to be an annus horribilis for the Euro. The Italian banking system remains in crisis and there are national elections in Germany, France, the Netherlands and perhaps Italy – all events that could spark Euro weakness.

Add in record lows for two-year German bond yields – the benchmark for the Euro-Zone – plus the potential for difficult negotiations between the EU and the UK over Brexit, and it’s hard to see much support for the single currency in the months to come.

While the obvious trade against this background would be to short the Euro against the US Dollar, the problem with that is the markets’ skepticism that the Federal Open Market Committee (FOMC) will deliver the three US quarter-point interest-rate increases in 2017 that it predicted in December when it raised its benchmark Fed Funds rate by 25 basis points (a quarter of a percentage point) to a range of 0.50% to 0.75%, implying a year-end rate range of 1.25% to 1.50%.

Instead, the CME Group FedWatch tool, which is based on CME Group 30-Day Fed Funds futures prices, which have long been used to express the markets’ views on the likelihood of changes in US monetary policy, shows the most likely range by December 2017 at 1.00% to 1.25%.

That, in turn, suggests a lack of interest-rate support for the Dollar and potential currency weakness, particularly if nervousness grows about the economic policies of US President-Elect Donald Trump.

By contrast, the Japanese Yen has plenty going for it. For a start, it is seen by some as a haven– along with gold and US Treasuries – to shelter in when markets are risk-averse, as they are likely to be in 2017. Moreover, recent Japanese economic indicators have been healthy and core inflation may have bottomed out. In addition, EURJPY has been climbing for the past six months, suggesting room for a correction.

Chart: EURJPY 1-Week (June 2014 - December 2016)

Top Trading Opportunities for 2017

While any tightening of Japanese monetary policy is not on the cards, it’s notable that net speculative short Yen positions have reached their highest level since December 2015, according to data compiled by the US Commodity Futures Trading Commission. Any short covering would likely boost the Japanese currency.

On the other side of the coin, there’s plenty of political event risk ahead for the Euro. For a start, there’s the Brexit negotiations, which will likely start at the end of March and could be long and tortuous.

Then there are the elections: in the Netherlands on March 15, followed by France in April and May, and then Germany between August and October. In all three, far-Right – and largely Euro-skeptic – politicians will mount serious challenges to the incumbents. In Italy, too, there could be an election in 2017 in another country where populism is on the rise and, in addition, the banks are said to be saddled with more than €350 billion of bad loans.

That said, there is plenty of support for EURJPY around the August/September 2016 lows of 112.04/24 and then at the July 2016 lows close to 110.94. Both those areas would have to be breached before any slide back to the 100.00 levels last seen back in 2012. On the upside, any break above the 140.50 highs reached in June 2015 could lead to a sharpish rise back up to the levels around 150.00 recorded in December 2014.

David Cottle, Currency Analyst

What if the Fed has Under-Gunned its Rate Hike Call?

Think back to the end of December, 2015. The US Federal Reserve had just raised interest rates for the first time in nearly a decade. The post-crisis Fed Funds rate of 0.0-0.25% was finally history. And, the Fed expected to make four more increases through 2016. The markets never quite believed that. Sure enough, they were right.

For four rate hikes, read just one.

Here we are at the end of 2016. The Fed has just raised rates again. It expects to be doing the same, thrice, through 2017. And guess what? Markets don’t quite believe it. Futures contracts suggest only two hikes. However…It’s worth pointing out that rate-hike cycles can last longer than anyone thinks. Nobody has seen one since 2004; experts with experience will be a lot rarer.

To take an obvious example we might go back to 1973. Then there was a generally weaker US Dollar. Wage and pricing controls boosted inflation, and it took some fighting. Between March 1972 and October 1973 rates went up from just over 3% to more than 10%. Almost every hiking cycle since 1965 has involved more substantive increases than those currently envisaged by the Fed.

“Aha,” you may now say. “But we live in a low-inflation world, we won’t need the same magnitude of interest rate rises to bring inflation expectations into line.” Good point. But history suggests inflation can be harder to control than it seems. We’ve also had massive, inflationary fiscal stimulus, and rises for previously docile oil prices. We’re also less sure about monetary transmission - the way central bank decisions affect economies.

Ultra-low rates and money printing haven’t bought the growth they were once thought capable of. Might raising rates also fail as inflation brake? Then there is President-elect Trump. If his campaign rhetoric is to be believed, we can expect a deliberately inflationary fiscal policy. Coming when US employment is already relatively high, it’s not hard to see such a program pushing up wages, and then prices.

In short, the backdrop could be more inflationary than it has been for years. In that case, it makes sense to be long of the US Dollar and to remain long. It is probably best to express this via currency pairs for which rate rises on the “non-dollar” side are less likely, like the Euro or the British Pound. Gold would come in for even more severe punishment than that already meted out. US Treasury yields would also have to rise much further too.

There are clear risks to this scenario. Trump may be less expansionary once in power. European Union worries may presage crisis. China’s return to form may falter.But if all these can be avoided, we may find that we get higher US rates than the Fed now expects.

Oliver Morrison, 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. GBPJPY is up around 14% since the start of November, and looks set to continue making gains in 2017.

Background: The Yen is weak, which is exactly where the Bank of Japan wants it. And little looks to be changing that. On December 19, the BoJ kept monetary policy steady, leaving rates at minus 0.1%, a decision that weakened the Yen against its peers.

The BoJ did raise its assessment of the economy for the first time in a year, noting the economy is continuing its moderate pace of recovery. But the Bank still has low inflation expectations. Inflation remains near zero, almost four years after the BoJ began enormous monetary stimulus.

This suggests the Bank is unlikely to change its easing policy next year, which will keep the Yen weak. Most economists surveyed by Bloomberg don’t expect any additional easing before Governor Haruhiko Kuroda steps down in 2018.

The UK economy, meanwhile, keeps showing remarkable resilience after the shock vote to leave the European Union in June. The Pound crashed to record lows in the aftermath of the referendum. But it’s staged a modest recovery against a host of currencies in recent weeks.

GBPJPY dipped 16.6% the day after the Brexit vote, but has slowly crept back to pre-referendum levels as the risks of a ‘hard’ Brexit recede. Bearish bets against the Pound dropped for a second week on December 13, according to the US Commodity Futures Trading Commission. If the Brexit process is “orderly and smooth”, as Prime Minister Theresa May promises, the Pound will gain more strength.

What are the key levels? GBPJPY has been rising since the start of November. There is huge support around the 127.00 level from October’s trading range. Resistance is at 152.50-163.50, which is the pre-UK referendum high achieved in February to May 2016. If these levels are breached, the next key zone is the 195-191 range hit between June and August 2015.

Risks to this trade:

  • Inflation catches alight in Japan and heads towards the BoJ’s 2% target, leading to a shift in policy from the Bank.
  • Brexit risks finally appear in UK data prints, forcing interest rates, and the Pound, down as the Bank of England moves to avoid recession. Any indications the UK is heading towards a ‘hard’ not ‘soft’ Brexit will weigh on the currency.
  • GBPJPY is traditionally volatile. Net speculative short Yen positions have reached their highest level since December 2015, according to the US Commodity Futures Trading Commission. Any short covering would likely boost the Japanese currency, but hopefully, if you’re long GBPJPY, only in the short term.

Nick Cawley, 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. EURGBP jumped from a pre-Brexit level around 0.7600 to a spike high around 0.9200 and led to many commentators calling for the pair to trade at parity within a short-time frame. 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, expected by the end of March 2017.

While sterling has remained at the lower levels against the US Dollar, 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. And the growing tide of discontent across Europe will do little to help the current situation as Europe faces four – Netherlands, Italy, France and Germany - potentially tricky general elections in 2017. Any shifts towards anti-EU parties and the future of the single currency will come under intense scrutiny.

In the fixed income market, the yield differential between the UK and Europe has also increased in the last few months, aiding GBP. The 2-year UK gilt currently yields around 0.12% compared to -0.785% for the 2-year German equivalent and this gap is likely to grow as UK inflation expectations continue to increase. The Bank of England recently highlighted that consumer price inflation is likely to hit 2.8% in 2017, from an estimated 1.3% this year, as the effects of weaker sterling filter through. This is above the BoE’s target of close to 2% and will not be tolerated for long by Governor Mark Carney. In contrast the latest ECB forecasts see inflation hitting 1.3% next year, still way below the central bank’s target of close to 2%. The ECB recently trimmed down and extended its bond buying program until the end of next year at least, hinting that the central bank is still concerned over the lack of price pressures in the economy.

When the UK triggers Brexit, by the end of next March by the latest, the endless rounds of rumours and ‘what-if’ articles over the UK/EU break-up will shift to a more factual basis. And it is here that any movement towards a ‘soft-Brexit’ - the most likely stance - will give sterling an additional upward boost as both sides realise that flexibility needs to be shown between two of the largest global economies. Neither side will benefit from a prolonged ‘hard-Brexit’ especially in Europe where growth is still anaemic, 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.

Will the Euro give back more of its Brexit gains?

Top Trading Opportunities for 2017

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