Today’s report: Will Risk Markets Recover into the Weekly Close?
We come into Friday with the Yen standing out as the big winner on the week in the more actively traded currency space, while the Pound stands out as the underperformer in the group. Yen strength has been attributed to setbacks in US-China trade talks and the resulting broad based liquidation in risk assets. UK and US data ahead.
- German trade
- Shaky talks
- US CPI
- SNB's job
- RBA SOMP
- employment report
- RBNZ Orr
- risk appetite
- Macro players
- Binance hack
- Negative write-up
Chart talk: Technical & fundamental highlights
EURUSD – technical overviewThe 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 1.1167 - 7 May low – Medium
- S2 1.1111 – 26 April/2019 low – Medium
EURUSD – fundamental overviewMedium-term players continue to step in, supporting the Euro on dips. The view here is about a Euro that has already seen a massive pullback off the 2018 high, an ECB that has already laid out an intensely accommodative priced in outlook, a Fed that continues to adjust back to the accommodative side (more evidence from Thursday's softer US producer prices), a global equity market that could roll over at any moment (fueling demand for the major currency), and a US administration that is committed to a softer Dollar policy. Friday's calendar features German trade data and US CPI.
EURUSD - Technical charts in detail
GBPUSD – technical overviewThe 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 1.3177 – 3 May high – Strong
- R1 1.3081 – 8 May high – Medium
- S1 1.3000 – Psychological – Medium
- S2 1.2968 – 9 May low – Strong
GBPUSD – fundamental overviewRenewed tension around interparty Brexit talks had weighed on the Pound this week, though the negotiations continue and medium-term players have been happy to step in and buy Pounds on dips. Overall, Brexit risk has been reduced and is not what it was several weeks back, leaving the Pound in position to continue to price out the Brexit tail risk. Looking ahead, we get a batch of UK data on Friday, highlighted by GDP, industrial production and trade. We also get an important US CPI print later in the day.
USDJPY – technical overviewThe 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 has strengthened the bearish outlook, while ultimately, only a weekly close back above 113.00 would delay.
- R2 110.96 – 6 May high – Strong
- R1 110.30 – 8 May high – Medium
- S1 109.48 – 9 May low – Medium
- S2 109.00 – Figure – Strong
USDJPY – fundamental overviewOverall, the major pair should continue to place a bigger focus on global risk sentiment and US Dollar yield differentials. This week's escalated tension between the US and China has clearly opened renewed Yen demand. Looking ahead, the market will continue to focus on the risk backdrop, while also taking in US CPI later in the day.
EURCHF – technical overviewThe 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 overviewThe 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 overviewThe 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 overviewThe Australian Dollar has been facing headwinds from this latest wave of risk reduction, mostly brought on by the breakdown in talks between the US and China on trade. President Trump's words that China had broken the deal, triggered another round of selling on Thursday, with the market sinking back below 0.7000. The President has since said he believes a deal will get done, but this hasn't done much to reinvigorate risk assets. The RBA SOMP was out earlier today and offered nothing in the way of any material updates. Looking ahead, US CPI data is the major standout on the calendar for the remainder of the week.
USDCAD – technical overviewDespite 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 overviewThe Canadian Dollar sits just off its yearly low against the Buck, unable to find any sustained momentum from Bank of Canada Governor Poloz's upbeat talk earlier in the week. It seems the recent pullback in the price of OIL, along with worry about the global trade outlook, have been too much for the Loonie to ignore. Throw in the onset of some softer economic data out of Canada over the past several weeks and there is more risk for additional selling of the Loonie. Looking ahead, we get Canada employment data and US CPI.
NZDUSD – technical overviewWhile 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 (2018). 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 0.6694 – 19 April high – Strong
- R1 0.6631 – 7 May high – Medium
- S1 0.6525 – 8 May/2019 low – Medium
- S2 0.6500 – Psychological – Strong
NZDUSD – fundamental overviewThe New Zealand Dollar sunk to a fresh yearly low this week, after the RBNZ came out and followed through with a rate cut. Though the cut was mostly anticipated, it still came as an initial surprise to many a trader, with the move representing ongoing necessity for ultra accommodative monetary policy post 2008 crisis. However, Kiwi was able to recovery rather quickly, with many pricing the move as a one and done. RBNZ Governor Orr perhaps helped this along on Thursday, offering comments that reinforced the possibility for a one and done move. Still, with risk sentiment deteriorating, Kiwi upside is likely to be limited. Looking ahead, US CPI is the major standout on the Friday calendar.
US SPX 500 – technical overviewThere 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 2786, 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 2835 – 8 May low – Medium
- S2 2786 – 25 March low – Strong
US SPX 500 – fundamental overviewAlthough 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. Meanwhile, ramped up tension on the global trade front, should continue to be a drag on investor sentiment. 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 overviewThere 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 1292 – 8 May high – Medium
- S1 1266 – 23 April/2019 low – Medium
- S2 1233 – 14 December low – Strong
GOLD (SPOT) – fundamental overviewThe 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 overviewThe 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 6,333 – 8 May/2019 high – Medium
- S1 5,697 – 3 May low – Medium
- S2 5,055 – 26 April low – Strong
BTCUSD – fundamental overviewBitcoin had stumbled for a moment this week on the news of a Binance hack, costing the organization some USD $40 million. Still, the reaction to the news should be encouraging for Bitcoin, with the market having since pushed to a fresh yearly high. 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 overviewA 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 192 – 7 May/2019 high – Medium
- S1 149 – 26 April low – Strong
- S2 126 – 4 March low – Strong
ETHUSD – fundamental overviewLooking 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.
- Why Turkey's Bid to Prop the Lira Won't Work, M. Ashworth, Bloomberg (May 9, 2019)
- Crunched: Is Economic Growth Fuelling Climate Change?, F. Cocco, Financial Times (May 9, 2019)