Currencies in Need of Volatility Spark

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Today’s report: Currencies in Need of Volatility Spark

Lack of volatility continues to be a theme in markets, and as we head into the weekly close, we’re staring at a currency market with all of the actively traded pairs confined to within 1% of weekly opening levels. Friday, the focus will be on the US jobs report, US ISM non-manufacturing, US trade data, and a round of Fed speak.

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Wake-up call

Chart talk: Technical & fundamental highlights

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EURUSD – technical overview

The major pair has extended its run of declines off the 2008 high. Still, with the downtrend looking exhausted at this stage, the greater risk from here points to some form of a meaningful higher low to carve out above the multi-year low from 2017, with a higher low sought above 1.1000, ahead of the next major upside extension and continuation of a bigger picture developing uptrend. Only a weekly close back below the psychological barrier at 1.1000 would compromise this outlook. Back above 1.1450 will strengthen the view.

  • R2 1.1324 – 12 April high – Strong
  • R1 1.1265- 1 May high – Medium
  • S1 1.1111 - 26 April/2019 low – Medium
  • S2 1.1100 – Figure – Medium

EURUSD – fundamental overview

The Euro has endured some setbacks in the aftermath of a Fed decision that failed to produce as much dovishness as the market may have wanted to see. Still, there really weren't any major surprises on Wednesday and Euro demand into dips is expected to return. Overall, this week's batch of data out of the zone has been solid and on Thursday, ECB Weidmann expressed confidence in Germany's economic outlook, urging a move towards normalization of policy if inflation metrics were supportive. Looking ahead, absence of first tier data in Europe, will leave the focus on the monthly employment report out of the US, along with US ISM non-manufacturing, US trade data and a round of Fed speak.

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 1.3133– 12 April high – Strong
  • R1 1.3103 – 1 May high – Medium
  • S1 1.3000 – Psychological – Medium
  • S2 1.2924 – 30 April low  – Strong

GBPUSD – fundamental overview

The Bank of England decision has come and gone with very little surprise. Overall, the central bank delivered as expected, despite some initial reactions that reflected a less hawkish communication. But Governor Carney has laid down an expectation for further rate hikes if inflation metrics are correct and this comes with a Brexit backdrop that is less worrying than it had been heading into 2019. This would suggest the balance of risk favours additional appreciation in the Pound over the coming weeks and months, with the currency possibly trying to turn back up on a longer term basis. UK services PMI data is out on Friday, though the focus will be on the US session where we get the monthly employment report, ISM non-manufacturing, trade data and a round of Fed speak.

USDJPY – technical overview

The major pair has run into resistance in the 112 area, after an impressive run off the 2019 flash crash low. Look for this area to continue to cap rallies, setting the stage for the next major downside extension back towards that 2019 flash crash low, down in the 104s. Below 110.85 will strengthen the bearish outlook, while ultimately, only a weekly close back above 113.00 would delay.

  • R2 112.86 – 18 December high – Strong
  • R1 112.41 – 24 April/2019 high – Strong
  • S1 111.00 – Figure – Medium
  • S2 110.85 – 10 April low – Strong

USDJPY – fundamental overview

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 in 2019, and President Trump has been out there pressuring Japan to make adjustments that have inspired Yen demand this week, despite another record run in US equities. Looking ahead, the focus will be on the US session where we get the monthly employment report, ISM non-manufacturing, trade data and a round of Fed speak.

EURCHF – technical overview

The market continues to do a good job adhering to a medium-term range, with rallies well capped towards 1.1500 and dips well supported into the 1.1200 area. At this stage, there is no clear trend, and it will take a sustained break back above 1.1500 or below 1.1200 for directional insight.
  • R2 1.1477 – 23 April/2019  high – Strong
  • R1 1.1446 – 30 April high – Medium
  • S1 1.1351 – 26 April low – Medium
  • S2 1.1300– Figure – Medium

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 around 0.7000.

  • R2 0.7140 – 23 April high – Strong
  • R1 0.7100 – Figure – Medium
  • S1 0.6985 – 3 May low – Medium
  • S2 0.6900 – Figure – Strong

AUDUSD – fundamental overview

The Australian Dollar has suffered this week from a less dovish Fed communication, negative headlines out from the US-China trade talk front and some softer local data. On Friday, Aussie services PMIs were mixed, but also accompanied by a discouraging building approvals read. Looking ahead, the focus will be on the US session where we get the monthly employment report, ISM non-manufacturing, trade data and a round of Fed speak.

USDCAD – technical overview

Despite breaking to a fresh yearly high in recent days, overall, the market has entered a period of choppy consolidation in 2019. However, the longer-term 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 1.3522 – 24 April/2019 high – Strong
  • R1 1.3481 - 30 April high – Medium
  • S1 1.3335 – 22 April low – Medium
  • S2 1.3275 – 17 April low – Strong

USDCAD – fundamental overview

The Canadian Dollar is trading just off recent 2019 lows against the Buck, with the Loonie weighed down this week by another soft Canada GDP print and weakness in the price of OIL. There have also been some concerns about the state of global risk sentiment post Fed decision, which may have been a disappointment to investors, after the Fed delivered a less dovish message than what stocks would have wanted. There has been some relief for the Loonie this week from Governor Poloz, with the central banker sounding rather upbeat despite the mentioned drags. Looking at the Friday calendar, it's all about the US side, where we get the monthly employment report, ISM non-manufacturing, trade data and a round of Fed speak.

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 2018 at 0.6425. A push through 0.7000 will strengthen the constructive outlook.

  • R2 0.6783 – 15 April high – Strong
  • R1 0.6694 –  19 April high – Medium
  • S1 0.6600 – Figure – Medium
  • S2 0.6581 – 25 April low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar is doing its best to hold up in the face of this week's softer Kiwi employment data, increasing those odds that the RBNZ will indeed be looking to cut rates at the upcoming meeting. We've also since seen softer Kiwi building permits data and some broad based Dollar demand in the aftermath of a less dovish than expected Fed tone. Looking ahead, the focus will be on the US session where we get the monthly employment report, ISM non-manufacturing, trade data and a round of Fed speak.

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 renewed weakness targeting an eventual retest of strong longer-term previous 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 2018 record high move. The initial level of major support comes in around 2875, with a break below to strengthen the outlook. A sustained break above 3000 would be required to delay the outlook.

  • R2 3000 –Psychological – Very Strong
  • R1 2961 – 1 May/Record – Medium
  • S1 2875 – 9 April low – Strong
  • S2 2786 – 25 March low – Strong

US SPX 500 – fundamental overview

Although we've seen the market extend to another record high, mostly on the back of the Fed's dovish shift in 2019, exhausted monetary policy tools post 2008 crisis suggest the prospect for a meaningful extension of this record run at this point in the cycle is 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 a recovery out from sub-1200 levels can extend back through big resistance in the form of the 2016 high at 1375. In the interim, look for setbacks to be well supported, with only a close back below 1250 to compromise the constructive outlook.

  • R2 1311– 10 April high – Strong
  • R1 1289 – 26 April high – Medium
  • S1 1266 – 23 April/2019 low – Medium
  • S2 1233 – 14 December 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

Bitcoin has broken out to the topside in Q2 2019, after trading in a range from Q4 2018. The break takes the immediate pressure off the downside and opens the door for a continuation of gains back into a critical previous support turned resistance zone in the 6,000 area. Look for setbacks to now be well supported ahead of 3,500.

  • R2 6,000 – Previous Support – Strong
  • R1 5839 – 3 May/2019 high – Medium
  • S1 5,345 – 27 April low – Medium
  • S2 5,055 – 26 April low  – Strong

BTCUSD – fundamental overview

Bitcoin has finally broken back to the topside, above a consolidation high from back in December, to suggest it could be thinking about turning back up again in a more meaningful way. At a time when central banks have exhausted themselves with the unprecedented printing of money to keep sentiment running high and the global economy afloat, over a decade after the crisis of 2008, it would seem, a peer to peer decentralized currency, with limited supply, and an attractive technology that it rests on, could be a compelling alternative option.

BTCUSD - Technical charts in detail

ETHUSD – technical overview

A recent push back above 170 takes the immediate pressure off the downside, opening the door for an upside extension towards the next critical level of resistance at 255. Look for setbacks to now be well supported ahead of 125, with only a break back below this level to compromise the outlook.

  • R2 200 – Psychological – Strong
  • R1 188 – 8 April/2019 high – Medium
  • S1 149 – 26 April low – Strong
  • S2 126 – 4 March low  – Strong

ETHUSD – fundamental overview

Looking out to the longer term, prospects are quite bright and valuations are increasingly attractive, with adoption showing signs of ramping up after a challenging 2018. At the same time, on a short to medium term basis, there is risk associated with a downturn in the global economy as central banks and governments are forced to move away from ultra accommodative monetary and fiscal stimulus supportive of risk correlated investments. While Ether is an asset born out of a rejection of traditional markets, we don't believe it will be immune to such a downturn in traditional markets after indirectly benefiting from post 2008 crisis stimulus that helped lead to investment in alternative asset classes like cryptocurrencies.

Peformance chart: 5 Day Performance v. US dollar

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