Q2 Kicks off with Lower USD, Higher Stocks

Next 24 hours: Euro Holds Up Despite Softer Data

Today’s report: Q2 Kicks off with Lower USD, Higher Stocks

Broadly speaking, currencies are better bid to start the second quarter of 2019, recovering out from recent lows against the Buck. Equities are also bid, with US equity futures extending their 2019 run of gains out from the December 2018 low.

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Wake-up call

Chart talk: Technical & fundamental highlights

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EURUSD – technical overview

The market has been confined to choppy trading conditions over the past several weeks. We are however coming off an intense round of setbacks since topping out at a +3 year high in 2018, with the drop taking the price back into an area that roughly coincides with a bullish breakout zone from 2017. This suggests that additional setbacks could continue to be very well supported, with the greater risk from here, for the formation of a meaningful higher low, ahead of a push back to the topside. At this point, we will need to see a break back above the current 2019 high around 1.1570 to encourage this prospect.

  • R2 1.1449 – 20Mar high – Strong
  • R1 1.1332- 25Mar low – Medium
  • S1 1.1210 - 29Mar low – Medium
  • S2 1.1176 – 7Mar/2019 low – Strong

EURUSD – fundamental overview

While we have seen softer economic data out of the Eurozone in recent days, there has been an accompanying broad based resurgence in demand for the US Dollar that has resulted in the latest round of setbacks in the major pair. Last week's batch of ECB speak was actually less dovish than what might have been expected considering the price action. On Friday, we heard from ECB Coeure, who said 'the central bank's lending channel is fully operational after years of fragmentation.' Brexit related risk will continue to be in focus this week, and on the economic calendar, Monday's docket features German and Eurozone manufacturing PMIs, Eurozone inflation, and a batch of US data that features retail sales, construction spending and ISM manufacturing.

EURUSD - Technical charts in detail

GBPUSD – technical overview

The major pair has put in an impressive recovery off the multi-month low in early January, helping to support the case for a longer-term developing uptrend off the 2016 low. Pullbacks are now viewed as corrective on the daily chart, with dips expected to be supported ahead of 1.2700. Look for a weekly close back above 1.3400 to strengthen the outlook.

  • R2 1.3270– 27Mar high – Strong
  • R1 1.3212 – 28Mar high – Medium
  • S1 1.2978 – 29Mar low – Medium
  • S2 1.2960 – 11Mar low  – Strong

GBPUSD – fundamental overview

The latest round of UK data was solid, though this didn't do anything to help a Pound fixated on the next steps with Brexit. The third vote on the PM's Brexit deal produced another rejection and now the market needs to pay attention to the legal default Brexit date on April 12th. Theresa May has issued a veiled threat to dissolve Parliament and call a general election if it can't agree on a Brexit deal, while adding no-deal Brexit on the 12th of the month was a likely scenario. Parliament will get back to the debates today and the expectation is that the EU will be looking to offer up an extension for as long as a year, or nothing at all. Looking at the economic calendar for the day, we get UK manufacturing PMIs and a batch of US data that features retail sales, construction spending and ISM manufacturing.

USDJPY – technical overview

The major pair has stalled out after an impressive run up from the 2019 low. Look for this topside failure to set the stage for the next major downside extension back towards the 2019 flash crash low down in the 104.00s. The recent break back bellow 110.00 strengthens the bearish outlook. Ultimately, only back above 112.15 delays the bearish outlook.

  • R2 112.14 – 5Mar high – Strong
  • R1 111.19 – 1Apr high – Medium
  • S1 109.71 – 25Mar low – Medium
  • S2 109.44 – 4Feb low – Strong

USDJPY – fundamental overview

Some of the latest economic data updates out of Japan include a lower than forecast jobless rate, softer retail sales, weaker industrial output and discouraging Tankan. Meanwhile, Japanese FinMin Aso he's not considering extra economic measures at this time, and the BOJ said it planned to maintain the current pace of bond buying in April. Overall, the major pair should continue to place a bigger focus on global risk sentiment and US Dollar yield differentials. Updates on the US trade policy front are expected to have a major influence on direction as a consequence, and the Yen has been sold of late on some positive headlines. We've also seen Yen offers into Monday after China PMIs came in better than expected. Looking at the Monday calendar for the remainder of the day, we get a batch of data out of the US that includes retail sales, construction spending and ISM manufacturing.

EURCHF – technical overview

The market has broken down below an important consolidation base, opening the door for the possibility of the start to an intensified wave of bearish momentum back down towards the 1.0600 area. At this stage, it will be important to see how the market responds to trading below 1.1200, with any quick recovery above to put the market back into this medium-term consolidation.
  • R2 1.1394 – 27Feb high – Strong
  • R1 1.1299 – 22Mar high – Medium
  • S1 1.1163 – 29Mar/2019 low – Strong
  • S2 1.1130– May 2016 high – Strong

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 sustained risk liquidation in 2019, 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

The market has been very well supported since breaking down in early January to multi-year lows. The price action suggests we could be seeing the formation of a major base, though it would take a clear break back above 0.7400 to strengthen this outlook. Look for setbacks to continue to be well supported ahead of 0.7000.

  • R2 0.7207 – 21Feb high – Strong
  • R1 0.7169 – 21Mar high – Medium
  • S1 0.7057 – 20Mar low – Medium
  • S2 0.7004 – 8Mar low – Strong

AUDUSD – fundamental overview

The Australian Dollar ended a two session slide on Friday, helped along by a better than expected Aussie private sector credit showing. Aussie has extended the recovery on Monday, helped along by solid China PMIs and constructive updates out from the US-China trade talk front. Broadly speaking, has been supported on the recent dovish shift in Fed policy, ongoing support for global equities, and this latest wave of cross related demand in reaction to last week's dovish RBNZ decision. The primary focus on Monday's calendar will be risk associated with any additional updates on US-China trade talks, Brexit headlines, and a batch of US data that features retail sales, construction spending and ISM manufacturing.

USDCAD – technical overview

Overall, the structure remains constructive, with dips expected to be well supported for fresh upside back above the 2018/multi-month high at 1.3665. Back below the psychological barrier at 1.3000 would be required to delay the outlook.

  • R2 1.3500 – Psychological – Strong
  • R1 1.3468 - 7Mar/2019 high – Medium
  • S1 1.3342 – 29Mar low – Medium
  • S2 1.3251 – 19Mar low – Strong

USDCAD – fundamental overview

Canada's better than expected GDP print and another push in the price of OIL, helped to drive relative outperformance in the Canadian Dollar. The Loonie will still be worried about how things play out with US trade policy and the global risk outlook, which is expected to keep the currency from wanting to sustain any meaningful rallies. Looking ahead, Monday's calendar features Canada manufacturing PMIs, along with a batch of US dats that includes retail sales, construction spending and ISM manufacturing.

NZDUSD – technical overview

While the bigger picture outlook still shows the market in a downtrend, as per the weekly chart, there's a case to be made for a meaningful low in place at 0.6425. As such, look for setbacks to be well supported ahead of 0.6500 in anticipation of additional upside, with only a break back below 0.6500 to put the focus back on the multi-month low from October at 0.6425. A push through 0.7000 will strengthen the constructive outlook.

  • R2 0.6942 – 1Feb/2019 high – Strong
  • R1 0.6900 –  Figure – Medium
  • S1 0.6786 – 10Mar low – Medium
  • S2 0.6745 – 7Mar low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar is trying to recover from a round of setbacks after the RBNZ surprised with a dovish communication at last week's policy decision. RBNZ Governor Orr was out clearing up any doubts about the central bank's position, after confirming the shift to an easing bias was not a miscommunication. Overall, we believe the bigger surprise here is in the RBNZ’s ability to deliver a message like this in a timely manner after the Fed had recently reversed its policy outlook. But the fact that Kiwi would be moving in this direction in light of the bigger macro picture shouldn’t be as surprising. This helps reconcile the support into the post RBNZ dips. Looking ahead, we get batch of US data on Monday that features retail sales, construction spending and ISM manufacturing.

US SPX 500 – technical overview

There have been legitimate signs of a major longer term top, with deeper setbacks projected in the months ahead. Any rallies should now continue to be very well capped, in favour of renewed weakness that targets an eventual retest of strong longer-term resistance turned support in the form of the 2015 high at 2140. The projection is based off a measured move extension derived from the previous 2018 low from February to the record high move. Next key support comes in at 2722, with a break to strengthen the outlook.

  • R2 2900 – Psychological – Strong
  • R1 2863 – 21Mar/2019 high – Strong
  • S1 2765 – 21Feb low – Medium
  • S2 2722 – 8Feb low – Strong

US SPX 500 – fundamental overview

Although we saw attempts to push the market higher in Q1 2019, with the Fed's more cautious outlook keeping the market propped up, exhausted monetary policy tools post 2008 crisis suggest the prospect for fresh record highs at this point in the cycle are not realistic. 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

There are signs that we could be seeing the formation of a more significant medium to longer-term structural shift that would be confirmed if this latest recovery can extend back through big resistance in the form of the 2016 high at 1375. Look for setbacks to be well supported, with only a close back below 1250 to compromise the constructive outlook.

  • R2 1347– 20Feb/2019 high – Strong
  • R1 1321 – 21Mar high – Medium
  • S1 1287 – 29Mar low – Medium
  • S2 1277 – 4Jan/2019 low – Strong

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, 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

At this stage, any upside moves are classified as corrective ahead of what could be the next downside extension and bearish continuation. It would take a break back above the December high at 4385 to take the immediate pressure off the downside. Next critical support comes in the form of the July and September 2017 lows, around 2,000 and 2,975 respectively.

  • R2 4,278 – 24Feb/2019 high – Strong
  • R1 4,153 – 16Mar high – Strong
  • S1 3,763– 4Mar low – Strong
  • S2 3,570 – 13Feb low  – Strong

BTCUSD – fundamental overview

Bitcoin is showing signs of stability in Q1 2019 after an abysmal performance in 2018. At the moment, the market still faces headwinds in the form of regulatory uncertainty and ready to go front end applications with meaningful use cases, though looking out, there continue to be many encouraging signs the market is here to stay and will be seeing increased adoption.

BTCUSD - Technical charts in detail

ETHUSD – technical overview

Recovery rally attempts have stalled out into a meaningful previous support zone, to keep the pressure on the downside, with risk for a bearish continuation below 100, towards the next critical support zone in the 50-75 area. At this point, it would take a sustained break back above 170 to take the immediate pressure off the downside.

  • R2 170 – 24Feb/2019 high – Strong
  • R1 148 – 16Mar high – Strong
  • S1 126 – 4Mar low – Strong
  • S2 102 – 6Feb low  – Strong

ETHUSD – fundamental overview

Ongoing regulatory challenges, technological obstacles and a global economic downturn are some of those headwinds that need to be considered in the months ahead. At the same time, longer term prospects are looking quite bright and valuations are increasingly attractive with adoption showing signs of ramping up over the longer term.

Peformance chart: Performance v. US dollar this week

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