Next 24 hours: The Trouble of Another Bubble
Today’s report: Global Economy Vulnerable to US-China Fallout
The big story in global financial markets has been the break down in talks between the US and China. The Trump administration has communicated to China it has a month to secure a trade deal, or face tariffs on all exports to the US, while Treasury Secretary Mnuchin has added no follow-up trade talks are scheduled.
- Policy outlooks
- solid data
- Risk reduction
- SNB's job
- US-China tension
- Canada jobs
- risk appetite
- Macro players
- Starbucks news
- Mike Novogratz
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 in April. But with the downtrend looking exhausted, the prospect for a meaningful higher low is more compelling, with a higher low sought out above the multi-year low from 2017, ahead of the next major upside extension. 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 last week's soft US inflation readings), 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. Absence of first tier data on Monday, will leave the focus on bigger picture themes like global trade tension, along with some Fed speak from the likes of Rosengren, Clarida and Kaplan.
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 1.2967 – 9 May low – Medium
- S2 1.2866 – 25 April low – Strong
GBPUSD – fundamental overviewThe Pound is looking to find its way back to the topside, after taking a hit in the previous week. Renewed tension around Brexit was sourced as a primary driver of underperformance, though the risk associated with interparty bickering should hardly be treated as the same as the intense downside risk of imminent, disorderly Brexit from earlier this year. Meanwhile, economic data has been solid overall, and we're coming off a mixed Friday series that had a softer construction output reading and wider trade deficit, along with an as expected GDP print and better than forecast industrial and manufacturing production. Absence of first tier data on Monday, will leave the focus on bigger picture themes of Brexit and global trade tensions, along with some Fed speak from the likes of Rosengren, Clarida and Kaplan.
USDJPY – technical overviewAnother topside failure has led to a sharp pullback, with the market unable to establish above a formidable resistance zone in the 112s. Last week's drop below 109.70 strengthens the bearish case, exposing the next major downside extension towards a retest of the January flash crash low in the 104s. Any rallies should now be well capped below 112.00, with only a break back above the yearly high at 112.40 to delay the bearish outlook.
- R2 110.96 – 6 May high – Strong
- R1 110.30 – 8 May high – Medium
- S1 109.47 – 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. The escalated tension between the US and China has clearly opened up renewed Yen demand. The Trump administration communicated to China it had a month to secure a trade deal, or face tariffs on all exports to the US. Treasury Secretary Mnuchin has added no follow-up trade talks are scheduled. Absence of first tier data on Monday, will leave the focus on bigger picture themes like global trade tension, along with some Fed speak from the likes of Rosengren, Clarida and Kaplan.
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. In the interim, look for setbacks to continue to be well supported on dips below 0.7000.
- 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. The Trump administration communicated to China it had a month to secure a trade deal, or face tariffs on all exports to the US. Treasury Secretary Mnuchin has added no follow-up trade talks are scheduled. The RBA has also lowered growth forecasts, while highlighting ongoing subdued inflation, providing another source of Aussie downside pressure. Absence of first tier data on Monday, will leave the focus on bigger picture themes like global trade tension, along with some Fed speak from the likes of Rosengren, Clarida and Kaplan.
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 1.3400 – Figure – Medium
- S2 1.3377 – 1 May low – Strong
USDCAD – fundamental overviewA stabilisation in the price of OIL and a much better than expected Canada jobs report, have helped to inspire a recovery in the Canadian Dollar off recent lows against the Buck. Still, the risk reduction in global markets is an offsetting theme, with the Loonie needing to worry about the fallout in US-China trade talks and impact it could have on future trade negotiations between Canada and the US. Absence of first tier data on Monday, will leave the focus on bigger picture themes like global trade tension, along with some Fed speak from the likes of Rosengren, Clarida and Kaplan.
NZDUSD – technical overviewDespite recent weakness, there's a case to be made for a meaningful low in place at 0.6425 (2018 low). As such, look for setbacks to be well supported ahead of 0.6500 in anticipation of renewed upside, with only a break back below 0.6500 to compromise the outlook. At the same time, a push back above 0.6700 will be required 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 last 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 last Thursday, offering comments that reinforced the possibility for a one and done move. Still, with risk sentiment deteriorating in the face of broken down trade talks between the US and China, Kiwi upside is likely to be limited. Absence of first tier data on Monday, will leave the focus on bigger picture themes like global trade tension, along with some Fed speak from the likes of Rosengren, Clarida and Kaplan.
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 initial level of major support comes in around 2786, with a break below to strengthen the outlook. A sustained move 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 in recent days, 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 resulted in severely extended technical readings after overshooting a previous support zone in the 6k area. As such, look for additional upside to be limited, to allow for these technical readings to unwind from stretched readings. Setbacks should ideally be supported ahead of 5,000, in favour of the next push through the July 2018 high at 8,500.
- R2 7,695 – 7 November high – Strong
- R1 7,440 – 12 May/2019 high – Medium
- S1 5,857 – 4 May low – Medium
- S2 5,669 – 24 April high – Strong
BTCUSD – fundamental overviewBitcoin has enjoyed a stellar rally over the past few weeks, with demand increasing along the way. Last week's resiliency in the face of the hack at a major exchange has given the crypto asset a huge credibility boost, while reports of mainstream adoption from the likes of Starbucks haven't hurt the cause either. Bitcoin has been a clear outperformer in the crypto space, with transaction fees to Bitcoin miners tracking at 8x other cryptocurrencies in recent sessions. Calls from US congressman Brad Sherman to ban Bitcoin have been shrugged off, with volumes on exchanges rocketing as the market pushes back through important levels.
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 255 – 22 September high – Strong
- R1 203 – 12 May/2019 high – Medium
- S1 166 – 5 May low – Medium
- S2 149 – 26 April low – Strong