Market contends with renewed tension around trade outlook

Next 24 hours: Week kicks off with reduction in investor appetite

Today’s report: Market contends with renewed tension around trade outlook

We come into the new week with risk off screaming out on the back of renewed tension around the outlook for global trade. President Trump’s expressed displeasure with US-China trade negotiations and his accompanying warnings, have fueled a round of risk liquidation, with US equity futures plummeting in the opening hours.

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Wake-up call

Chart talk: Technical & fundamental highlights

EURUSD – technical overview

The major pair has extended its run of declines off the 2008 high, trading down to a fresh multi-month low. 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 closed out the previous week on a positive note, benefitting from the broad based US Dollar selling that kicked in post US jobs report, with the market responding to the softer than expected US hourly earnings print. The implication here is the Fed has less pressure to need to be hiking rates, with inflation metrics still subdued. Early Monday setbacks have been supported after the market came under mild pressure from risk off trade associated with tension around US-China trade talks. Looking at the calendar for the day, we get German and Eurozone services PMIs, Eurozone retail sales, and central bank speak from Fed Evans, CB Praet, and Fed Harker.

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 1.3200– Figure – Medium
  • R1 1.3177 – 3 May high – Strong
  • S1 1.3000 – Psychological – Medium
  • S2 1.2924 – 30 April low  – Strong

GBPUSD – fundamental overview

The Pound has been outperforming of late, doing a good job without worrying as much about Brexit uncertainty that has faded into the background. Overall, while risk remains on this front, it isn't the type of risk the market had been fearing earlier in the year. On Friday, UK PMI data came in on the better side of expectation to fuel additional demand, while the release of another soft US hourly earnings, inspired broad based selling of the US Dollar, that helped to drive additional upside into the weekly close. Looking ahead, absence of first tier data out of the UK, will leave the major pair focused on bigger picture themes and some Fed speak later in the day.

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 109.71 will strengthen the bearish outlook, while ultimately, only a weekly close back above 113.00 would delay.

  • R2 111.71 – 3 May high – Strong
  • R1 111.00 – Figure – Medium
  • S1 110.29 – 6 May low – Medium
  • S2 109.71 – 25 March 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 after President Trump was out pressuring Japan in the previous week, he is causing a bigger shakeup into this week, fueling flames in US-China trade talks, after expressing his intense dissatisfaction and willingness to impose additional tariffs. This has opened a wave of risk off flow and Yen demand. We've also seen some Yen demand on broad based US Dollar selling in the aftermath of last Friday's softer than expected US hourly earnings component, in the US jobs report. Looking ahead, the market will keep up with headlines on global trade, while also taking in some 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 above 0.6900.

  • R2 0.7140 – 23 April high – Strong
  • R1 0.7069 – 30 April high – Medium
  • S1 0.6963 – 6 May low – Medium
  • S2 0.6900 – Figure – Strong

AUDUSD – fundamental overview

The Australian Dollar has come under pressure on the back of some risk off flow, with ramped up tension around US-China trade relations fueling the Aussie weakness. At the same time, we've also seen a wave of broad based US Dollar selling post the latest US jobs report, which revealed another soft hourly earnings component that gives the Fed more cushion to be keeping its policy bias on the accommodative side. Looking ahead, Monday's calendar is thin, with bigger picture macro themes and some Fed speak the only notable standouts.

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 1.3500 - Psychological – Medium
  • S1 1.3407 – 3 May low – Medium
  • S2 1.3378 – 1 May low – Strong

USDCAD – fundamental overview

The Canadian Dollar hasn't been able to muster a lot of demand of late, despite some broad based US Dollar selling in the aftermath of a jobs report that showed another soft print on the hourly earnings front. It seems softer data out of Canada, renewed worry about the outlook for global trade, and this latest pullback in the price of OIL, have all contributed to offsetting any US Dollar bearish flow, with USDCAD trading back into recent 2019 high territory. Looking ahead, we get another appearance from Bank of Canada Poloz, along with some 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 softer Kiwi data increasing odds the RBNZ will indeed be looking to cut rates at the upcoming meeting. We've also seen a fresh wave of risk off flow on the back of renewed tension on the US-China trade front. And yet, the market has been finding demand on dips, perhaps getting some help from last Friday's softer US hourly earnings, which gives the Fed more of an excuse to keep policy on the accommodative side. Looking ahead, Monday's calendar is thin, with bigger picture macro themes and some Fed speak the only notable standouts.

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

The market has enjoyed a nice run since breaking out above a consolidation between Q4 2018 and Q1 2019. But the rally has now extended back into a formidable previous support zone around 6,000 from back in 2018, and this in conjunction with some extended readings, warns additional upside could be limited from here, with risk for a resumption of a medium term downtrend. Ultimately, it will take a break back above the July 2018 high around 8,500 to trigger a meaningful bullish structural shift.

  • R2 6,607 – 7 November high – Strong
  • R1 6169 – 4 May/2019 high – Medium
  • S1 5,697 – 3 May low – Medium
  • S2 5,055 – 26 April low  – Strong

BTCUSD – fundamental overview

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. Still, any intensified pullback in global equities resulting from exhausted central bank policy efforts, could open a concurrent round of selling in the cryptocurrency, as risk off dynamics work their way into the system. Overall, the outlook is quite bright, though there continues to be risk for shorter term pullbacks along the way.

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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