Today’s report: Stocks setting up for nasty monthly close
This week has been all about reduction in investor risk appetite. The stock market has been under constant selling pressure, with the breakdown in US-China trade talks largely attributed for the move. And yet, at this point in the cycle, with central bank and government stimulus exhausted, the global economy is vulnerable to any negative shocks.
- retail sales
- BOE Ramsden
- sentiment deterioration
- SNB's job
- weak round
- BoC worries
- surplus cut
- risk appetite
- Macro players
- Mainstream adoption
- web 3.0
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 1.1264 - 13 May high – Medium
- S1 1.1108 - 23 May/2019 low – Medium
- S2 1.1000 – Psychological – Strong
EURUSD – fundamental overviewThe Euro has been weighed down this week on the back of the combination of safe haven US Dollar demand as global equities falter, news of a disciplinary process against Italy and some softer data. But US yield curve inversion and US administration soft Dollar trade policy should be bigger market drivers going forward, both of which are not supportive of the Buck. Looking at the calendar, we get German retail sales, German inflation prints, and US readings in the form of core PCE, Chicago PMIs and Michigan sentiment. Month end flow is an added variable that could inspire volatility today.
EURUSD - Technical charts in detail
GBPUSD – technical overviewThe major pair has stumbled since putting in an impressive recovery off the multi-month low in early January. Still, the broader recovery still helps 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 well ahead of the yearly low in the 1.2400s. Look for a weekly close back above 1.3000 to strengthen the outlook.
- R2 1.2814 – 21 May high – Strong
- R1 1.2748 – 27 May high – Medium
- S1 1.2600 – Figure – Medium
- S2 1.2581 – 30 May low – Strong
GBPUSD – fundamental overviewBOE Ramsden was on the wires saying he expected more rate hikes would be needed if there were a smooth Brexit transition deal. Meanwhile, Philip Hammond reiterated his stance against any attempts to pursue a no-deal Brexit. Hammond added that a second referendum 'could be preferable to another general election' in order to resolve the Brexit impasse. Looking at the calendar, we get UK net lending and consumer credit, followed by US readings in the form of core PCE, Chicago PMIs and Michigan sentiment. Month end flow is an added variable that could inspire volatility today.
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. The recent drop back below 110.00 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 110.00 – Psychological – Medium
- S1 109.02 – 13 May low – Medium
- S2 108.50 – 31 January low – Strong
USDJPY – fundamental overviewBOJ Sakurai said he didn't think additional easing was needed, while worrying about risks associated with the expansion of monetary stimulus. Overall, most of the movement in the major pair is being directed by investor appetite, with the Yen still tracking with traditional correlations. Risk sentiment has been trending lower of late and this is keeping the major pair under pressure into rallies. Looking at the calendar for the remainder of the day, key standouts come in the form of US core PCE, Chicago PMIs and Michigan sentiment. Month end flow is an added variable that could inspire volatility today.
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 1.1330 – 14 May high – Medium
- S1 1.1196 – 24 May low – Medium
- S2 1.1163 – 29 March/2019 low – Strong
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 on dips 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 0.7070 to strengthen this outlook. In the interim, look for setbacks to continue to be well supported ahead of 0.6800.
- R2 0.7000 – Psychological – Strong
- R1 0.6960 – 14 May high – Medium
- S1 0.6900 – Figure – Medium
- S2 0.6865 – 17 May low – Strong
AUDUSD – fundamental overviewRecent weakness in the Australian Dollar has come from from a more dovish leaning RBA, calls from Bill Evans for 3 RBA rate cuts this year, and a downturn in global sentiment as trade talks between the US and China crumble. At the same time, an inverted US yield curve and US administration soft Dollar trade policy are helping to keep the Aussie from wanting to materially extend its decline. Interestingly enough, on Thursday, the Australian Dollar has done a formidable job holding up, when considering miserable capex and building approvals data, along with a downbeat Fitch rating report. Looking at the calendar for the remainder of the day, key standouts come in the form of US core PCE, Chicago PMIs and Michigan sentiment. Month end flow is an added variable that could inspire volatility today.
USDCAD – technical overviewDespite breaking to a fresh yearly high in recent sessions, 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 1.3600 – Figure – Strong
- R1 1.3547 - 29 May/2019 high – Medium
- S1 1.3430 – 27 May low – Medium
- S2 1.3358 – 22 May low – Strong
USDCAD – fundamental overviewThis week's Bank of Canada decision resulted in another slide in the Canadian Dollar, with the Loonie sinking to a fresh 2019 low against the US Dollar after the central bank outlined its worry over the state of global trade, highlighting negative impact on Canada exports. The price of OIL has also come back down quite a bit over the past couple of weeks, something that was already weighing on the Loonie ahead of the BoC decision. Looking at today's calendar, we get the Canada GDP and producer prices, along with releases out of the US that include core PCE, Chicago PMIs and Michigan sentiment. Month end flow is an added variable that could inspire volatility today.
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 above the latter, in anticipation of renewed upside, with only a close below to compromise the outlook. At the same time, a push back above 0.6700 will be required to take pressure off the downside.
- R2 0.6615 – 10 May high – Strong
- R1 0.6600 – Figure – Medium
- S1 0.6500 – Psychological – Medium
- S2 0.6482 – 23 May/2019 low – Strong
NZDUSD – fundamental overviewThe New Zealand Dollar has been struggling of later, on the back of softer local data, a recent RBNZ rate cut, and downturn in global sentiment. Last Tuesday's GDT auction disappointment was also followed up with news of a downward revision to Fonterra's milk price forecasts. Kiwi has done a good job holding up on Thursday however, with the currency shrugging off a decline in building approvals and the New Zealand Budget, which revealed a cut in the government's budget surplus forecasts for 2019 through 2023. Looking at the calendar for the remainder of the day, key standouts come in the form of US core PCE, Chicago PMIs and Michigan sentiment. Month end flow is an added variable that could inspire volatility today.
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 2600, with a break below to strengthen the outlook. A sustained move above 3000 would be required to delay.
- R2 2961 – 1 May/Record high – Very Strong
- R1 2892 – 16 May high – Medium
- S1 2722 – March low – Medium
- S2 2682 – February 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 1325 – 25 March high – Strong
- R1 1311 – 10 APril 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 extended technical readings after racing through the July 2018 peak at 8,500. Next key resistance comes in at the 10k psychological barrier, which also happens to roughly coincide with the April 2018 high (9,980). But look for additional upside to be limited, to allow for these technical readings to unwind from stretched readings, before the market considers a meaningful push beyond 10k. Setbacks should ideally be supported ahead of 6,000.
- R2 9,979 – April 2018 high – Strong
- R1 9,094 – 30 May/2019 high – Medium
- S1 7,432 – 23 May low – Medium
- S2 7,000 – 17 May low – Strong
BTCUSD – fundamental overviewBitcoin has enjoyed a stellar rally over the past few weeks, with demand increasing along the way. This month'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 haven't hurt the cause either. Household names like Starbucks, Microsoft, TD Ameritrade and Whole Foods are all making moves in the space, while governments have been more receptive to working with the crypto asset.
BTCUSD - Technical charts in detail
ETHUSD – technical overviewThe recovery has recently accelerated to a fresh 2019 high, surging through medium-term resistance at 255 and exposing next key resistance at 355. The upside break suggests the market is now looking to establish a meaningful base, in favour of bullish structural shift. Still, shorter-term, the run is looking stretched and before we see that test of 355, we could see rallies well capped into 300 to allow for extended readings to unwind before the market gets going again. Setbacks should now be well supported into the 200 area.
- R2 300 – Psychological – Strong
- R1 289 – 31 May/2019 high – Medium
- S1 227 – 17 May low – Medium
- S2 200 – Psychological – Strong