Risk on rally lacks bite

Next 24 hours: Another record run for stocks

Today’s report: Risk on rally lacks bite

Risk is back on into the new week, with S&P500 futures already running to fresh record highs, as investors respond to the news of the ceasefire between the US and China. At the same time, the rally is already struggling to sustain itself.

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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, trading down to a fresh multi-month low in May. 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 1.1448 – 20 March high – Strong
  • R1 1.1412 - 25 June high – Medium
  • S1 1.1300 - Figure – Medium
  • S2 1.1283 – 21 June low – Strong

EURUSD – fundamental overview

Despite ongoing concerns with the Eurozone outlook, the single currency has managed to find a good deal of support in recent weeks, with the market focused on USD bearish drivers. For the moment, the combination of a more dovish Fed and ramped up US protectionist trade policy, are the key market drivers, both of which are US Dollar bearish. The ceasefire between the US and China is only just that and we don't believe it should reflect any change in the US administration's strategy to weaken the US Dollar. Looking ahead, Monday's docket features scattered central bank speak from various ECB and Fed officials, German manufacturing PMIs and unemployment, Eurozone unemployment, and US readings in the form of ISM manufacturing PMIs and construction spending. Over the weekend, ECB Mersch talked risks skewed to the downside, thought there hasn't been much reaction to the comments.

EURUSD - Technical charts in detail

GBPUSD – technical overview

The major has been well supported ahead of the 2019 low, helping to strengthen the case for a major base. Look for the market to start making its way back towards 1.3000, with a break above the psychological barrier to expose a retest of the 2019 high up at 1.3380. Only back below 1.2500 would compromise the constructive outlook.

  • R2 1.2814– 21 May high – Medium
  • R1 1.2784 – 25 June high – Strong
  • S1 1.2637 – 20 June low – Medium
  • S2 1.2507 – 18 June low – Strong

GBPUSD – fundamental overview

The Pound has done a good job holding up in recent weeks, despite renewed worry over a possible no-deal Brexit, as the two leading candidates to replace Theresa May battle it out. It seems the combination of a more dovish Fed outlook and soft Dollar trade policy out of the US administration have been the primary driver of flow, which could lead to additional upside in the Pound over the medium to longer-term. Looking ahead, as far as Monday's calendar goes, key standouts come in the form of UK manufacturing PMIs, US ISM manufacturing and US construction spending.

USDJPY – technical overview

The longer-term downtrend remains firmly intact, with the major pair gravitating back towards a retest of major support in the form of the 2018 and 2019 lows respectively, down in the 104s. Any rallies should now be well capped below 110.00, though only a break back above the yearly high at 112.40 would compromise the bearish outlook.

  • R2 108.80 – Figure – Strong
  • R1 108.80 – 11 June high – Medium
  • S1 108.00 – Figure – Medium
  • S2 10678 – 25 June low – Strong

USDJPY – fundamental overview

The major pair has been trying to rally in recent sessions, on the back of the uptick in risk sentiment from the news of a ceasefire between the US and China on trade. However, we think there is plenty more bumpy road ahead on the trade negotiation side, with the US still very capable of pulling the trigger on additional tariffs. Meanwhile, the latest disappointing Japanese Tankan readings have added to sell interest in USDJPY on Monday. Speaking at the G20, the Japanese PM highlighted downside risks to the global economy and the fact that tensions were rising on trade and geopolitics. Looking at the calendar for the remainder of the day, key standouts come in the form of US ISM manufacturing PMIs and US construction spending.

EURCHF – technical overview

The latest breakdown below critical range support in the 1.1200 area, has opened the door for an acceleration of declines that targets a move back towards initial support in the form of the 1.1000 psychological barrier. The market is trading at its lowest levels in nearly two years and at this point, it would take a daily close back above 1.1279 to take the immediate pressure off the downside.
  • R2 1.1265 – 12 June high – Strong
  • R1 1.1164 – 20 June high – Medium
  • S1 1.1057 – 20 June/2019 low – Medium
  • S2 1.1000 – Psychological – Strong

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, 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 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 0.7023 to strengthen this outlook. In the interim, look for setbacks to continue to be well supported ahead of 0.6800.

  • R2 0.7070 – 30 April high – Strong
  • R1 0.7049 – 7 May high – Medium
  • S1 0.6929 – 24 June low – Medium
  • S2 0.6832 – 18 June low – Strong

AUDUSD – fundamental overview

The Australian Dollar has done a good job holding up on dips, with medium and longer-term players more inclined to be buying the commodity currency against the Buck, in light of a more dovish Fed outlook and soft Dollar policy out from the US administration. Aussie has also benefited from rallying commodities prices, optimism relating to the US-China ceasefire, and comments from RBA Lowe last week, when the central banker said it was appropriate to question how much more the central bank could ease policy. Looking at the calendar for the remainder of the day, key standouts come in the form of US ISM manufacturing PMIs and US construction spending.

USDCAD – technical overview

The market has come under intense pressure over the past several weeks, gravitating back towards the yearly low. 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. At this point, only a weekly close back below the psychological barrier at 1.3000 would delay the outlook.

  • R2 1.3287– 20 June high – Strong
  • R1 1.3230 - 21 June high – Medium
  • S1 1.3060 – 28 June/2019 low – Strong
  • S2 1.3000 – Psychological – Strong

USDCAD – fundamental overview

It's been more about US Dollar weakness of late, in the face of a dovish shift in the Fed outlook and ongoing soft Dollar trade policy efforts from the US administration. Meanwhile, the price of OIL is back on the mend and last week's data out of Canada was solid. Looking ahead, absence of first tier data on the Canada calendar, will leave the Monday focus on headlines out from the OPEC meeting, US ISM manufacturing PMIs and US construction spending.

NZDUSD – technical overview

Despite 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. The latest break back above 0.6682 has triggered a double bottom, further strengthening the constructive outlook.

  • R2 0.6783 – 15 April high – Strong
  • R1 0.6730 –  18 April high – Medium
  • S1 0.6595 – 26 June low – Medium
  • S2 0.6535 – 20 June low – Strong

NZDUSD – fundamental overview

There were no surprises from the RBNZ last week, with the central bank leaving rates on hold, while communicating a lower cash rate might be needed over time. Overall, medium and longer-term players have been more inclined to be buying the commodity currency against the Buck, in light of a more dovish Fed policy outlook and soft Dollar policy out from the US administration. We've also seen Kiwi demand from rallying commodities prices and optimism around the US-China ceasefire. Looking at the calendar for the remainder of the day, key standouts come in the form of US ISM manufacturing PMIs and US construction spending.

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 initial level of major support comes in at 2729, with a break below to strengthen the outlook. A sustained move above 3000 would be required to delay.

  • R2 3000 – Psychological – Strong
  • R1 2975 – 1 July/Record high – Medium
  • S1 2867 – 13 June low – Medium
  • S2 2729 – 3 June low – Strong

US SPX 500 – fundamental overview

Although we've seen the market extend to another record high 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, expected renewed 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 overview

The latest push back above the 2016 high at 1375 is a significant development, as it suggests the market is in the process of a bullish breakout after a multi-month consolidation. The next major level of resistance comes in around 1500, while in the interim, look for any setbacks to be well supported above 1300.

  • R2 1488 – May 2013 high – Strong
  • R1 1440 – 25 June/2019 high – Strong
  • S1 1384 – 1 July low – Medium
  • S2 1358 – 20 June 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, though the rally has resulted in extended technical readings after racing through 10k psychological barrier. Overall, look for additional upside to be limited for now, to allow for these technical readings to unwind from stretched readings, before the market considers that next meaningful push. Setbacks should ideally be supported ahead of 7,000.

  • R2 14,335– 15 January high (2018) – Strong
  • R1 13,748 – 26 June/2019 high – Medium
  • S1 10,000 – Psychological – Medium
  • S2 8,935 – 19 June low – Strong

BTCUSD – fundamental overview

Bitcoin is enjoying spectacular run in the second quarter of 2019, racing to fresh yearly highs, surging through 10k, on the back of increased adoption and a clear readiness for the investment community to welcome the new digital asset into the mainstream. The news of tech giants now turning towards a world of crypto transactions has given Bitcoin a major boost, with the latest moves over at Facebook, only serving to give crypto assets additional credibility.

BTCUSD - Technical charts in detail

ETHUSD – technical overview

The recovery has recently accelerated to a fresh 2019 high, surging through medium-term resistance at 300 and back into critical previous support from back in 2018 around 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 next major upside extension, we could see rallies well capped, to allow for extended readings to unwind before the market gets going again. Setbacks should now be well supported ahead of 200.

  • R2 400 – Psychological – Strong
  • R1 363 – 26 June/2019 high – Medium
  • S1 275 – 27 June low – Medium
  • S2 260 – 19 June low  – Strong

ETHUSD – fundamental overview

There has been a lot more buzz around adoption as the price of Bitcoin surges, with many mainstream names coming out in support of blockchain integration. Demand for web 3.0 applications is on the rise, and Ethereum is the blockchain with the biggest front end application potential. At the same time, worry associated with fallout in the global economy, is worry that should weigh more heavily on risk correlated crypto assets like ETH. And considering the possibility an overextended Bitcoin runs into profit taking, there is also risk we soon see a healthy adjustment back to the downside.

Peformance chart: 5 Day Performance v. US dollar

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