Next 24 hours: US Dollar extends an already impressive run
Today’s report: Getting closer to profit taking on USD longs
Over the past several days, we’ve seen a flood of central bank accommodation and government stimulus in response to anticipated fallout from the coronavirus, and yet, as we get going with Tuesday trade, the response from investors hasn’t been all that enthusiastic.
Wake-up call
- EU leaders
- GBPUSD Incoming Bailey pledges further action
- ETF purchase
- SNB challenge
- new measures
- closes borders
- Bazooka stimulus
- Stocks stressed
- hard asset
- global turmoil
- traditional markets
Suggested reading
- Keep Sanitizer Out of the Market's Invisible Hand, S. Kominers, Bloomberg (March 16, 2020)
- Why There May Be More Trouble Ahead for Markets, R. Armstrong, FT (March 13, 2020)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
A higher low is now sought out above the multi-year low from 2017, ahead of the next major upside extension. Look for the recent push through the December 2019 high at 1.1240 to pave the way for a run towards next big resistance in the form of the 2019 high at 1.1570. Ultimately, only a weekly close back below 1.0800 would compromise this outlook.EURUSD – fundamental overview
The Euro is relatively unchanged in the aftermath of the latest surprise Fed decision to cut rates another 100 basis points, taking the rate down to record low levels last seen in 2015. Monday's disturbing empire manufacturing read didn't get a whole lot of attention but may have contributed to some Euro demand. French President Macron said the EU will close all external borders for 30 days, while EU leaders will hold an emergency call today to discuss the coronavirus. Looking ahead, we get German ZEW reads, and a batch of US releases featuring retail sales, industrial production, business inventories, NAHB housing and JOLTS job openings.EURUSD - Technical charts in detail
GBPUSD – technical overview
The market has seen a recovery out from the lowest levels since 2016, with the price now looking to carve out a meaningful longer-term base. Ultimately, only back below 1.2200 handle would compromise the constructive outlook.GBPUSD – fundamental overview
The Pound has presumably suffered from the UK's initial reaction to the coronavirus, which proved to be the wrong way to go about things. We have since seen the government adopt strategies viewed to be more effective in combating the virus, and it will be interesting to see if this brings renewed demand in the sessions ahead. Incoming BOE Governor Bailey has pledged further prompt action if and when needed. Looking ahead, we get UK employment data, and a batch of US releases featuring retail sales, industrial production, business inventories, NAHB housing and JOLTS job openings.USDJPY – technical overview
We're seeing a pickup in volatility in the major pair, with the market breaking out of a multi-year triangle. The break to the downside suggests we could now see deeper setbacks, eventually below 100.00, towards initial meaningful support in the form of the 2016 low at 98.97. It would take a clear break back above 110.00 to take the immediate pressure off the downside.USDJPY – fundamental overview
This latest wave of coordinated policy response to offset coronavirus fallout, is doing its best to keep risk sentiment from deteriorating any further. But the response hasn't been all that encouraging as of yet. The BoJ maintained its policy rate at -0.1% and the 10-year JGB yield target at 'about 0%,' raised its ETF annual purchase target to YEN12 trillion and took 'additional easing action.' Governor Kuroda said rates 'could still go lower,' the central bank 'won't hesitate to add easing if needed,' and 'the economy and prices are affected if the Yen strengthens.' PM Abe expressed 'appreciation for the swift and appropriate steps' announced by the BoJ to support markets. Earlier today, the BOJ conducted an unscheduled bond purchase operation that was well received. Looking ahead, we get a batch of US releases featuring retail sales, industrial production, business inventories, NAHB housing and JOLTS job openings.EURCHF – technical overview
The market remains very well capped into offers and the medium-term picture continues to favour the downside. A break back above 1.0710 would be required to take the immediate pressure off the downside. Technicals are however looking extended and the market should be well supported ahead of 1.0500.EURCHF – fundamental overview
The SNB remains uncomfortable with Franc appreciation and continues to remind the market it will need to be careful about any attempts at trying to force an appreciation in the currency. But the SNB will also need to be careful right now, as its strategy to weaken the Franc is facing headwinds from a less certain global outlook, and from a US administration that has put Switzerland on its currency manipulator watchlist. Any signs of risk liquidation in 2020, will likely invite a very large wave of demand for the Franc that will put the SNB in the more challenging position of needing to back up its talk with action, that ultimately, may not prove to be as effective as it once was, given where we're at in the monetary policy cycle.AUDUSD – technical overview
Aussie has recently extended declines to its lowest levels against the Buck since 2009. At this point, there is risk for a full retracement to the multi-year low from 2008, which comes in at 0.6006. At the same time, technical studies are looking stretched and any additional setbacks below 0.6000 should be a difficult task, at least over the coming months. Back above the December 2019 high at 0.7032 would be required to take the immediate pressure off the downside.AUDUSD – fundamental overview
The Australian Dollar continues to suffer from fallout around the coronavirus and the RBA has said it will be out announcing further policy measures on Thursday. Meetings are also underway to discuss a second stimulus package. Looking ahead, we get a batch of US releases featuring retail sales, industrial production, business inventories, NAHB housing and JOLTS job openings.USDCAD – technical overview
The market has continued to be well supported on dips, extending its run to fresh multi-month highs. The recent push back above the 2017 high now exposes the next upside extension towards a retest of massive resistance in the form of the 2016 high at 1.4690. Look for setbacks to be well supported ahead of 1.3500.USDCAD – fundamental overview
Canada has closed its borders to non-residents in response to the coronavirus. The Canadian Dollar has suffered immensely from coronavirus fallout and the concurrent selloff in the price of OIL. The market wasn't ready to take time digesting a better than expected Canada existing home sales read. Looking ahead, we get Canada manufacturing sales, and a batch of US releases featuring retail sales, industrial production, business inventories, NAHB housing and JOLTS job openings.NZDUSD – technical overview
There's a case to be made for a meaningful bottom ahead, with the market looking quite extended as it gravitates back into major psychological support in the 0.6000 area. As such, look for setbacks to be well supported in the days ahead, in anticipation of another rebound. Only a weekly close below 0.6000 would give reason for rethink. Back above 0.6500 would now be required to take the immediate pressure off the downside.NZDUSD – fundamental overview
The New Zealand Dollar has been trying to find some comfort on the news of the latest Kiwi bazooka stimulus package. The response from the New Zealand government has been larger relative to the responses of Australia, the US and UK. Looking ahead, we get a batch of US releases featuring retail sales, industrial production, business inventories, NAHB housing and JOLTS job openings.US SPX 500 – technical overview
There have been signs of a major longer term top, after an exceptional run over the past decade. Any rallies from here, are expected to be very well capped, in favour of deeper setbacks targeting an eventual test of the 2018 low at 2315. Rallies should now be well capped ahead of 3000.US SPX 500 – fundamental overview
Although we've seen the market extend to fresh record highs in 2020, with so little room for additional central bank accommodation, given an already depressed interest rate environment, the prospect for additional runs to the topside, on easy money policy incentives, should no longer be as enticing to investors as it once was. Meanwhile, tension on the global trade front, geopolitical risk, and worry associated with coronavirus fallout, should weigh more heavily on investor sentiment in 2020. We recommend keeping a much closer eye on the equities to ten year yield comparative going forward, as the movement here is something that could be a major stress to the financial markets looking out.GOLD (SPOT) – technical overview
The 2019 breakout above the 2016 high at 1375 was a significant development, and suggests the market is in the early stages of a bullish move that follows a multi-month consolidation. The next major level of resistance comes in around 1800 (measured move extension target), while in the interim, look for any setbacks to be well supported above 1500.GOLD (SPOT) – fundamental overview
The yellow metal continues to be well supported on dips with solid demand from medium and longer-term accounts. These players are more concerned about exhausted monetary policy, extended global equities, political uncertainty, coronavirus fallout, systemic risk and trade war threats. All of this should keep the commodity well supported, with many market participants also fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax.BTCUSD – technical overview
Setbacks should be very well supported ahead of the 2018 low, with a higher low sought out in favour of a bullish continuation back above the 2019 high and towards the record high from late 2017 further up. Ultimately, only a weekly close below 5,000 would compromise the constructive outlook. Back above 10,500 further encourages the bullish prospect.BTCUSD – fundamental overview
Bitcoin is finally feeling the impact of global macro pressures, with the new currency falling victim to broad based risk liquidation. However, despite the recent slide, there continues to be good demand from players looking out to the medium and longer term, who see Bitcoin as a safe haven, store of value asset.BTCUSD - Technical charts in detail
ETHUSD – technical overview
The market is in the process of attempting to establish a meaningful base after stalling out in the latter half of 2019. Look for setbacks to be well supported above the 2018 low, in favour of another big bounce, eventually back towards and through the 2019 high up at 363.ETHUSD – fundamental overview
While there is plenty of Ether demand built up, with so much optimism around prospects for the blockchain, given all of the development going on in the decentralised finance space, macroeconomics will likely play a negative role in 2020, with Ether expected to underperform in a risk off backdrop, in light of Ethereum's higher sensitivity and correlation with risk themes.