Five FX charts: Indecision as the year draws to a close despite trade deal

CADJPY – a momentum trade in waiting or another dead end?
The Canadian dollar got a boost late last week from the fresh surge in oil prices, on the indication that the US is headed to signing the USMCA trade deal that takes trade conflict with the USA off the table for the  foreseeable future, adding to the  positive spin from the US-China trade deal. And the Japanese yen is weak as global risk appetite has lurched into a veritable melt-up on the lifting of policy uncertainty from the US-China trade deal, UK election and Fed’s accommodation. If the positive vibes carry over into the New Year,  we are likely to see this pair clearing the overhead resistance. Either way, this pair could show high beta to the backdrop, especially if we begin to see noticeably weaker US numbers – as CAD is heavily exposed to economic conditions south of the border and the yen is often one of the more sensitive currencies to US data.

GBPUSD – disappointment for sterling bulls
The sterling move in the wake of the UK election was halted near the 1.3500 level in GBPUSD and since then, the price action suggests that it may take some time for sterling to digest this move. If the price action stays clear of about 1.3200, we may maintain a bullish flag-type set up here, but if the backfilling punches down through that level, essentially more than reversing the entire post-election rally, the risk mounts that a more profound reversal and disappointment of the bears takes the price action back to 1.3000 or lower.

EURUSD – some momentum either way after the turn of the calendar?
The Euro rally never really got established, perhaps in part as there is no sense that the EU is ready to move forward with a strong fiscal program, and if it does it may be slow in coming and focused on areas (alternative energy) that may offer poor investment returns. In addition to the wait for a more clear fiscal impulse, we are most curious from here how the euro behaves if markets ever lurch into a strong risk-off move on the theory that the negative yielding euro has been a popular funding currency for carry trades. As well, getting beyond the risk of end-of-year USD liquidity issues is a key hurdle for bulls. Technically, the 1.1180-1.1200 hurdle is an important one for the pair to clear to get something moving to the upside, while the 1.1000 level remains the downside pivot level.

EURNOK – once again at the cusp of a breakthrough
The US-China trade deal has unleashed a solid rally in animal spirits and hopes that the clearing away of any further harm from trade disputes between the two superpowers will be a boon to global growth. That has been a boon to the NOK, as has the solid uptick in oil prices. The move lower in EURNOK is a bit more impressive here because of the now well recognized seasonality challenges for NOK into year-end, so if market conditions remain supportive as January gets underway, we could witness a significant further repricing of NOK to the upside if the 10.00 level can give way here – possibly down into 9.85.