Next 24 hours: Cracks beneath the surface
Today’s report: Risk on run lacks substance
Monday’s rally in global equities was perhaps a little perplexing, with many attributing the move to headlines out of China encouraging the bull market. But the US session returned from the long weekend and wasn’t as enthusiastic, not wanting to extend the run all that much and even selling stocks a little into the close.
Wake-up call
- industrial production
- China countermeasures
- recovery projection
- tough challenges
- RBA holds
- business outlook
- Economic activity
- Stocks vulnerable
- hard asset
- Traditional players
- more exposed
Suggested reading
- Tech Investors Apparently Think It’s the ‘90s Again, M. Gongloff, Bloomberg (July 7, 2020)
- How Coronavirus Fears Will Impact the Economy, B. Fox, FT (July 3, 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 major pair to be well supported into dips ahead of the next big run through the 2019 high at 1.1570. Ultimately, only a weekly close below 1.0700 would compromise this outlook.EURUSD – fundamental overview
A mixed round of data out of the Eurozone on Monday didn't do much of anything to influence price action. Overall, the Euro remains bid on the back of the latest increase in global risk appetite. Looking ahead, we get German industrial production, US JOLTs job openings and a batch of Fed speak.EURUSD - Technical charts in detail
GBPUSD – technical overview
The market has rebounded sharply, after collapsing to a +30 year low below 1.1500. This supports the longer-term constructive outlook, with a major bottom sought out ahead of the start to a big run to the topside back through 1.3000. Look for the major pair to hold up well into setbacks, and ultimately above 1.2000 on a monthly close basis for confirmation.GBPUSD – fundamental overview
On Monday, UK construction PMIs came in well above forecast, and this in conjunction with ongoing demand for global equities, helped to keep the Pound supported. Elsewhere, it was reported that nearly 50% of businesses in the UK government's pandemic jobs program expect to fire furloughed staff when support end this October. Finally, China has said it will be deciding on countermeasures against the UK, following UK moves to back Hong Kong. Looking ahead, we get US JOLTs job openings and a batch of Fed speak.USDJPY – technical overview
We're seeing signs of a pickup in volatility in the major pair, with the market chopping around quite a bit. Still, there is no clear directional insight, with the price confined to a larger triangle formation. Overall, rallies have been well capped above 110.00 and dips well supported below 104.00.EURCHF – technical overview
The market remains very well capped into offers and the medium-term picture continues to favour the downside. A weekly close back above 1.1000 would be required to take the immediate pressure off the downside.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. Any signs of renewed 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
Technical studies have turned up in recent weeks, after the market traded down to its lowest levels since 2003 earlier this year. There is evidence of a longer-term bottom, though at this stage, there is risk for a pullback to allow for shorter term studies to unwind. Setbacks should now be well supported ahead of 0.6000.AUDUSD – fundamental overview
The RBA came out and left rates on hold, while issuing a cautious outlook as was widely expected. Aussie is finding some resistance into Tuesday, following the latest risk on rally. It seems some downbeat talk from the RBA, worry associated with US-China trade tension and an uptick in coronavirus cases, are the things contributing to some of this latest round of profit taking. Australia performances of services came in at 31.5 versus 31.6 previous. Looking ahead, we get US JOLTs job openings and a batch of Fed speak.USDCAD – technical overview
Has been in the process of correcting since topping out earlier this year above 1.4600. At this stage, with the correction well extended, the market is likely to find solid support in the 1.3200-1.3400 area, ahead of a resumption of gains. Ultimately, only a weekly close below 1.3300 would suggest otherwise.USDCAD – fundamental overview
The Bank of Canada Q2 business outlook fell 6.5 pts to -7.0. Meanwhile, China Foreign Ministry Spokesman Lijian called Canada's suspension of its extradition treaty with Hong Kong a 'flagrant interference' in domestic affairs and a 'serious violation' of international laws that was causing 'damage to bilateral relations,' adding Beijing 'reserved the right to take further actions.' Looking ahead, we get Canada Ivey PMIs, US JOLTs job openings and a batch of Fed speak.NZDUSD – technical overview
There's a case to be made for a meaningful bottom, after the market collapsed below massive psychological support at 0.5500 earlier this year. A break back above the 0.6600 area would be required to officially put this market in an uptrend on the weekly chart, though daily studies are now trending up with any setbacks expected to be well supported ahead of 0.6000.NZDUSD – fundamental overview
The New Zealand government announced it is targeting a NZD10 billion increase in primary sector exports by 2030, and a NZD44 billion increase over the next decade. NZIER's Q2 survey of business opinions showed economic activity dropped sharply, and that businesses remain pessimistic about economic conditions in the coming months given uncertainties over the coronavirus and New Zealand elections. The central bank will keep its QE purchases unchanged next week. Looking ahead, we get US JOLTs job openings and a batch of Fed speak.US SPX 500 – technical overview
The market has been in recovery mode since bottoming out in March. Still, the recovery is classified as corrective, with a lower top sought out below the record high from February, ahead of the next major downside extension, eventually back below the March low.US SPX 500 – fundamental overview
Although we've seen attempts at recovery in response to unlimited QE from the Fed and massive US stimulus, 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 and government stimulus, should no longer be as enticing to investors. Meanwhile, tension on the global trade front, geopolitical risk, and ongoing worry associated with recovery post coronavirus, should weigh more heavily on investor sentiment in 2020.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 towards and through the record high (just ahead of 2000), following a multi-month consolidation. The next major level of resistance comes in around 1800 (measured move extension target, 2012 high), 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. Shorter studies are however stretched and warn of a pullback ahead.BTCUSD – fundamental overview
Bitcoin has enjoyed a nice recovery since bottoming in March, with the runup in stocks and hype around the halving event contributing to a lot of the momentum. Interest from well known traditional market participants is helping to generate plenty of buzz as well. At the same time, given the extended nature of technical readings into important resistance, we see this as timing well for a sell the fact with the 2020 halving event now officially behind us and global equities once again looking vulnerable.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 mostly risk off backdrop, in light of Ethereum's higher sensitivity and correlation with risk themes.