Next 24 hours: A tale of two economies
Today’s report: Central banks running out of tools
The big story into Thursday is the de-escalation of tension between the US and Iran, which has helped to infuse a fresh appetite for US equities, racing to yet another record high. It’s clear, this market isn’t going to be bothered by much, instead focused on the directive from a Federal Reserve to keep buying.
Wake-up call
- German data
- GBPUSD BOE Carney to make an appearance
- fears abate
- tougher battle
- underperformer
- BoC Poloz
- ANZ commodity
- more sensitive
- hard asset
- institutional demand
- traditional markets
Suggested reading
- Markets Have No Use for the WWIII Memes, J. Authers, Bloomberg (January 9, 2020)
- How to Approach a More Dovish Federal Reserve, M. Luzzetti, DB (January 6, 2019)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The downtrend off the 2018 high is looking exhausted and the prospect for a meaningful higher low is more compelling. A higher low is now sought out above the multi-year low from 2017, ahead of the next major upside extension. Only a weekly close back below 1.0800 would compromise this outlook. Back above 1.1412 will strengthen the view.EURUSD – fundamental overview
The Euro suffered in Wednesday trade after economic data came in softer. Germany factory orders were quite discouraging, while Eurozone confidence reads were mixed. Christine Lagarde said the biggest threat to the European economy is a 'downturn in trade', and a 'concentrated Euro-area fiscal stimulus would help growth'. Looking ahead, we get German trade and industrial production, Eurozone unemployment, Fed speak from Clarida, Kashkari, Williams and Evans, US initial jobless claims and an ECB Lane speech.EURUSD - Technical charts in detail
GBPUSD – technical overview
The market has seen a recovery out from the lowest levels since 2016, with the price now pushing back above the weekly Ichimoku cloud to signal a bullish structural shift. Ultimately, only back below the 1.2500 handle would compromise the newly established constructive medium and longer-term outlook. Next key resistance comes in the form of the monthly high from September 2017 at 1.3658, with setbacks expected to be well supported ahead of 1.2800.GBPUSD – fundamental overview
Talks between the EU and UK have kicked back off in 2020, as the two sides look to work out a deal on trade before the year is up. Boris Johnson has been clear that there will be no more extensions beyond December 2020. Looking ahead, we get a BOE Governor Carney speech, Fed speak from Clarida, Kashkari, Williams and Evans, and US initial jobless claims.USDJPY – technical overview
Despite rally attempts, the longer-term downtrend remains firmly intact. Rallies should continue to be well capped below 110.00 on a monthly closes basis, with deeper setbacks anticipated towards a retest of the yearly low, below which exposes critical support in the form of the 2016 low at 99.00 further down. Next major support comes in the form of the October 2018 low at 106.48.USDJPY – fundamental overview
The deescalation of tension between the US and Iran has been having a clear impact on the major pair, with risk appetite picking back up and bringing USDJPY with it. Looking ahead, we get Fed speak from Clarida, Kashkari, Williams and Evans, and US initial jobless claims.EURCHF – technical overview
The market remains very well capped into offers and the medium-term picture continues to favour the downside. A break back above 1.1060 would be required to take the immediate pressure off the downside. Below 1.0800 exposes the 1.0600 area.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 risk liquidation in 2020, 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 under pressure over the past several months, but has also been well supported on dips. The price action suggests we could be seeing the formation of a major base, though it would take a clear break back above 0.7100 to strengthen this outlook. In the interim, look for setbacks to continue to be well supported above 0.6700 on a weekly close basis.AUDUSD – fundamental overview
The Australian Dollar has been hit hard this week, worrying about the brush fires and also contending with more imminent rate cut prospects after an discouraging job ads release. But we have seen better data as the week progresses, and Thursday's trade reads have come in much better than expected, which is helping to inject renewed bids into Aussie. Looking ahead, we get Fed speak from Clarida, Kashkari, Williams and Evans, and US initial jobless claims.USDCAD – technical overview
The downturn in late 2019 has resulted in a medium-term shift in the trend, with the pressure back on the downside. The break back below major psychological support at 1.3000 now exposes deeper setbacks towards the 1.2782 low from September 2018. At this stage, the market would need to push back above the November 2019 high at 1.3328 to take the immediate pressure off the downside.USDCAD – fundamental overview
The Canadian Dollar has come back under pressure after recently pushing up to a multi-month high against the Buck. The move correlates with Wednesday's very sharp reversal in the price of OIL, after the commodity had rallied up to its highest levels in 8 months. The was reconciled by the deescalation of tension between the US and Iran. Looking ahead, we get a Bank of Canada Poloz speech, along with Fed speak from Clarida, Kashkari, Williams and Evans, Canada housing starts and building permits, and US initial jobless claims.NZDUSD – technical overview
There's a case to be made for a meaningful bottom, with the market rallying out from longer-term cycle low area around 0.6200. As such, look for setbacks to be well supported in the days ahead, in anticipation of a continued recovery. Only a weekly close below 0.6200 would give reason for rethink. Back above 0.6800 strengthens the outlook and takes the medium to longer-term pressure off the downside.NZDUSD – fundamental overview
Not much to report out of New Zealand on Thursday, except for a commodity price decline of 2.80%. The market hasn't spent any time worrying about this release. Looking ahead, we get Fed speak from Clarida, Kashkari, Williams and Evans, and US initial jobless claims.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 a major correction targeting an eventual test of the 2018 low at 2339. The initial level of major support comes in at 3070, with a break below to strengthen the outlook. A monthly close above 3300 would be required to compromise the outlook.US SPX 500 – fundamental overview
Although we've seen the market extending to fresh record highs, with so little room for additional central bank accommodation, given an already depressed interest rate environment, the prospect for a meaningful extension of this record run, on easy money policy incentives, should no longer be as enticing to investors as it once was. Meanwhile, tension on the global trade front and geopolitical risk, should continue to be a drag on investor sentiment into 2020, despite any signs that would suggest otherwise. 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 2019 breakout above the 2016 high at 1375 was a significant development, and suggests the market is in the early stages of a bullish move that follows a multi-month consolidation. The next major level of resistance comes in around 1650 (measured move extension target), while in the interim, look for any setbacks to be well supported above 1400.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
Setbacks should be very well supported in the 6,000 area, with a higher low sought out in favour of a bullish continuation back above the 2019 high and towards the record high from late 2017 further up. Ultimately, only a weekly close below 5,750 would compromise the constructive outlook. Back above 10,468 further encourages bullish prospect.BTCUSD – fundamental overview
Bitcoin demand is expected to pick up in 2020, with market forces to likely make a stronger argument for the emerging cryptocurrency. In a world where rates are at historic lows and the equity market looks to be inching closer to major capitulation, the idea of owning a decentralised, limited supply currency, becomes increasingly attractive as a store of value. Moreover, there is plenty of development going on in the decentralised technology space, which should only add to the draw.BTCUSD - Technical charts in detail
ETHUSD – technical overview
The market is in the process of a major correction after a surge in the second quarter of 2019. Look for setbacks to be well supported above of previous resistance turned support at 100 on a weekly close basis, in favour of the next major higher low and bullish resumption back towards and through the 2019 high up at 363. Ultimately, only a weekly close below 100 would compromise the outlook.ETHUSD – fundamental overview
There is plenty of Ether demand built up in the 80-100 area, with so much optimism around prospects for the blockchain given all of the development going on in the decentralised finance space. At the same time, macroeconomics will likely play a negative role in 2020, at least relative to the price of Bitcoin, with Eth expected to underperform in a risk off backdrop, in light of Ethereum's higher sensitivity and correlation with risk themes.