Next 24 hours: This bull market is a beast
Today’s report: Time to reflect on the latest run up
Tuesday’s rocket move in the US equity market was a big story, though things have cooled down into Wednesday as the market reflects on the latest price action. There has also been reason for investors to be a little more apprehensive today, with China PMI reads coming in soft and the PBOC draining liquidity to the tune of $4.3 billion.
Wake-up call
- busy Wednesday
- GBPUSD Impressive PMIs help to boost Pound
- BOJ
- SNB challenge
- RBA Lowe
- weak OIL
- softer employment
- more sensitive
- hard asset
- institutional demand
- traditional markets
Suggested reading
- The Stock Market Wants Trump to Win Again, J. Authers, Bloomberg (February 5, 2020)
- The Picks and Shovels of the AI Gold Rush, J. Kahn, Fortune (February 4, 2020)
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
Things have been rather quiet as for as fundamental updates around the Euro go. Economic data this week has been solid on the whole, though the single currency has been a victim of bigger picture flow. Overall, there continues to be plenty of demand for the Euro on dips. Looking ahead, we get a speech from ECB Guindos, German and Eurozone services and composite PMIs, Eurozone retail sales, ECB Lane, an ECB Lagarde appearance, US ADP employment, trade, and ISM non-manufacturing.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
The Pound has been better bid this week, after getting hit on worry around trade talks between the UK and EU. The primary driver of the demand has come from better than expected UK economic data in the form of manufacturing and construction PMIs. Looking ahead, we get UK services and composite PMIs, US ADP employment, trade, and ISM non-manufacturing.USDJPY – technical overview
Despite rally attempts, the longer-term downtrend remains firmly intact. Rallies should continue to be well capped below 111.00 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. Only back above the 112.40, 2019 high would compromise the bearish outlook.USDJPY – fundamental overview
The major pair continues to track with updates and sentiment around the coronavirus. Into Wednesday, investors are feeling a lot better about the outlook and this has resulted in a resurgence in demand. We have seen some selling from technical accounts and on the back of today's softer China services PMI reading. The PBoC skipping open market operations may also be contributing to some Wednesday risk off. Comments out from the BOJ made it clear the central bank wouldn't hesitate to add monetary easing if risks rise. Looking ahead, we get US ADP employment, trade, and ISM non-manufacturing.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, and from a US administration that has put Switzerland on its currency manipulator watchlist. 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 0.6500 on a monthly close basis.AUDUSD – fundamental overview
The Australian Dollar has been building on the positive momentum post RBA decision earlier this week. The latest wave of demand comes from Wednesday's RBA Lowe comments in which the central banker highlighted that the RBA would be looking past impact from the brush fires and coronavirus. Lowe also said the bar for fresh easing was high amongst his colleagues at the RBA. Looking ahead, we get US ADP employment, trade, and ISM non-manufacturing.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
Most of the setbacks in the Canadian Dollar of late have come from worry associated with the coronavirus and an intense drop in the price of OIL. We have seen both of these stories trying to take a turn for the better, which has helped to stop the Loonie's bleed for now. Looking ahead, we get Canada trade, US ADP employment, US trade, and ISM non-manufacturing.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
The New Zealand Dollar has lost some of that bullish momentum from Tuesday. This comes on the back of the late Tuesday GDT auction result that produced a strong negative reading, and some early Wednesday employment data that was suspect beneath the surface. Looking ahead, we get US ADP employment, trade, and ISM non-manufacturing.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 in 2020, 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, geopolitical risk, and worry associated with the coronavirus, should weigh more heavily on investor sentiment into 2020. 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 the October 2018 high 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.