However, there are warning signals appearing, suggesting further gains - especially in the overextended US and UK indexes – could prove increasingly difficult to maintain.
Weekly momentum readings are already overstretched and showing signs of turning lower.
This would suggest heightened risk of profit-taking over the coming weeks and potential for a corrective pullback as money managers reduce their global equity allocations.
However, we continue to see underlying strength in the longer term charts, and currently expected any immediate pullbacks to be limited in consolidation.
The USD DXY Index is also showing signs of toppish behaviour, with prices finding difficulty clearing the December 2016 year highs. Increased is unfolding, and coupled with unwinding negative divergence on falling momentum studies, risks are also increasing for a corrective USD pullback.
The obvious beneficiary will be the EUR, with EUR/USD expected to post a corrective bounce, whilst USD/CHF and USD/JPY follow the USD lower. We also see downside risks in USD/CAD , but this pair is expected to receive extra downwards pressure from the anticipated rally in Oil .
Whilst GBP/USD settles into consolidation – the globally weak tone in GBP is countering the pullback in the USD – we anticipate AUD/USD will extend its corrective bounce as it receives an extra boost from improving Gold prices.
Finally, the space is showing further signs of improvement. Oil prices remain and are expected to continue higher, whilst Gold prices continue to correct the November-December bear trend. Whilst Copper prices settle into an uneasy consolidation phase, we see further upside potential in Corn .
All in all, we see increased downside risks in global equities and a pullback in the USD. The space is expected to benefit from cross asset rotation, as money managers move their extra USD into Gold and increase their AUD/USD allocations.