After an incredible 2016, 2017 has a lot to live up to. Here we seek to forecast where we could see some key markets move in the coming year.
We had to start off with an index, and given the fact we have US indices and the FTSE 100 near all-time highs, the DAX is perhaps a good place to look. The weekly chart highlights the fact we have seen a largely positive 2016, with the February low paving the way for a consistent uptrend. The break out from a symmetrical triangle pattern has paved the way to new higher highs alongside the new higher lows. With that in mind, it looks highly likely we will see a push towards the previous high of 12,408 within 2017, yet the pathway is less clear.
Given that we have seen recent weeks struggling with the crucial 11,434 swing high (November 2015), it seems likely the next major move will come from this point. With that in mind, the outlook for this index is that we will hit the 12,408 mark before we hit the 9967 level. The existence of higher lows means any pullback would be expected to be limited, with the 10,807 level marking the most notable support level.
EUR/USD has ended the year with a bang, falling below the critical $1.0462 level to hit a 14-year low for the pair. The monthly chart highlights the fact that such a breakdown would coincide with the wider picture given the deterioration of the pair since hitting $1.6038 over eight years ago.
The range evident over the past two years appears to be exited, yet we need to see this breakdown extend lower to gain confidence in this exit. Should we see such a breakdown, then another strong move lower seems likely for the pair, with parity looking highly likely.
Interestingly, the 76.4% retracement also lies within close proximity to the parity mark ($1.0074). Below that, the next important support level comes in at $0.8231, which is some way from the current price. While we may not stretch that far, it goes to show the ability to break lower from here provides a major area with little support levels of note to watch out for.
Another dollar strength story here, with the pound deteriorating sharply in both anticipation and response to referendum vote. With the UK set to enact Article 50 in March, the fear and uncertainty is only likely to heighten, raising the chance of further deterioration in GBP/USD.
The pair has been moving in a relatively orderly fashion and given the recent breakdown from a rising channel, it looks like we will see more of the same. As long as we do not see a break back above $1.3445, the bearish outlook remains well established with a break back down to $1.1800 likely in Q1. Beyond that, there are few major support levels given the historical lows we have been seeing on H2 2016.
This provides us with a significant chance of strong downtrends to come. Bear in mind that we could see UK inflation pick up quickly amid continued GBP weakness, sparking expectations of a more hawkish Bank of England. However, this is unlikely to spark any material shift in policy from Carney and co who have the wider picture of a potential slowdown in growth to deal with.
AUD/USD has broken lower from a symmetrical triangle consolidation pattern to close out 2016, providing us with a bearish continuation signal. Given the break through trendline support and the downturn evident over the past five months, it looks likely we will see another year of weakness for the pair, with $0.7145 and 0.$6827 representing the near-term support levels.
Below that, the $0.6008 level represents the next significant support level, which stands in the way of further downside. Looking at the stochastic oscillator, we are finally turning lower in the first bearish cross for over two years. Overall, as long as we do not see the pair break through $0.7835 resistance, further downside seems very likely for the year.
Both Brent and WTI have broken through major resistance recently, with the OPEC and non-OPEC deal sparking a sharp rally to create an inverse head-and-shoulders pattern. The Brent chart below highlights that we have seen price move back into the $53.00 neckline, only to start turning higher once more. As long as we remain above the $53.00 mark, it looks likely that we will push higher, with a major area without resistance coming into play.
The next major swing high comes in at $69.24. The threat in this market is that it is highly dependent on the output deal being respected, and the US not rapidly increasing its output to swallow market share from OPEC and non-OPEC producers.
Should we see either of those give way, then it could provide us with a strong move lower for crude. However, those two incidents could come later in the year, setting us up for a strong Q1.