Next 24 hours: Will the US Dollar run continue?
Today’s report: What's up with the Monday risk appetite?
All of the worry associated with the coronavirus and yet, risk assets have been supported in Monday trade thus far. There are a number of factors that seem to be contributing to this. Looking at the Monday calendar, we get some Eurozone confidence data and a batch of Fed speak.
- Eurozone Sentix
- US jobs
- China developments
- SNB challenge
- China response
- Offsetting reports
- RBNZ expectations
- more sensitive
- hard asset
- institutional demand
- traditional markets
Chart talk: Technical & fundamental highlights
EURUSD – technical overviewThe 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.
- R2 1.1173 – 16 January high – Strong
- R1 1.1096 - 31 January high – Medium
- S1 1.0942 - 10 February low – Medium
- S2 1.0925 – 3 September low – Strong
EURUSD – fundamental overviewMost of the developments in markets have been bearish Euro of late. These include German, France and Spain December industrial production all fell more than forecast, Bank of France Villeroy calling the Q4 contraction in France GDP a 'bad surprise' and a 'temporary hiccup,' Moody's saying Germany's GDP will remain 'relatively weak' this year at +0.6%, and reports that the cost of carbon pollution in the EU is 'likely to rise close to a record' in 2020. Also adding to the downside pressure is the latest solid monthly employment report out of the US. Looking ahead, we get Eurozone Sentix investor confidence, followed by a batch of Fed speak featuring Bowman, Daly and Harker.
EURUSD - Technical charts in detail
GBPUSD – technical overviewThe 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.
- R2 1.3071 – 5 February high – Strong
- R1 1.3000 – Psychological – Medium
- S1 1.2882 – 7 February low – Medium
- S2 1.2768 – 8 November low – Strong
GBPUSD – fundamental overviewLast week's round of economic data out of the UK was solid, though it wasn't enough to keep away the GBP bears. The UK currency came under pressure, largely on the back of worry associated with the trade deal outlook between the UK and EU, and on broad based US Dollar demand against the major currencies in the aftermath of another solid monthly employment report out of the US. Looking ahead, absence of data on the UK and US dockets will leave the focus on a batch of Fed speak featuring Bowman, Daly and Harker.
USDJPY – technical overviewDespite 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.
- R2 110.30 – 17 January high – Strong
- R1 110.03 – 7 February high – Medium
- S1 109.30 – 5 February low – Medium
- S2 108.31 – 31 January low – Strong
USDJPY – fundamental overviewThough the global death toll for the coronavirus has risen, market participants seem to to be taking it all in stride into the new week, with risk assets supported, and thereby helping to prop up the major pair. It seems China's efforts to continue to inject stimulus, and expectations from some authorities that the virus will start to peak in the weeks ahead are all contributing to this flow. Looking ahead, there is no first tier data on the calendar and the focus will be on a batch of Fed speak featuring Bowman, Daly and Harker.
EURCHF – technical overviewThe 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.
- R2 1.0906 – 27 December high – Strong
- R1 1.0834 – 13 January high – Medium
- S1 1.0664 – 3 February/2020 low – Medium
- S2 1.0600 – Figure – 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, 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 overviewThe 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.
- R2 0.6934 –16 January high – Strong
- R1 0.6775 – 5 February high – Medium
- S1 0.6662 – 7 February low/Multi-Year low – Medium
- S2 0.6600 – Psychological – Strong
AUDUSD – fundamental overviewA beaten down Australian Dollar that has just traded to fresh multi-year lows, is recovering into Monday, helped along by developments out of China. It seems China's efforts to continue to inject stimulus, and expectations from some authorities that the virus will start to peak in the weeks ahead are all contributing to this flow. Looking ahead, the focus will be on a batch of Fed speak featuring Bowman, Daly and Harker.
USDCAD – technical overviewThe 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.
- R2 1.3328 – 20 November high – Strong
- R1 1.3322 - 7 February high – Medium
- S1 1.3232 – 3 February low – Medium
- S2 1.3118 – 24 January low – Strong
USDCAD – fundamental overviewBoth the Canada and US jobs reports were impressive on Friday, which proved to be offsetting for USDCAD. This ultimately left the market trading off ongoing softness in OIL and some negative risk sentiment, which kept the Loonie weighed down. Looking ahead, we get Canada housing starts and building permits, along with a batch of Fed speak featuring Bowman, Daly and Harker.
NZDUSD – technical overviewThere'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.
- R2 0.6550 – 28 January high – Strong
- R1 0.6500 – Figure – Medium
- S1 0.6394 – 10 February low – Medium
- S2 0.6322 – 8 November low – Strong
NZDUSD – fundamental overviewA beaten down New Zealand Dollar is recovering into Monday, helped along by developments out of China. It seems China's efforts to continue to inject stimulus, and expectations from some authorities that the virus will start to peak in the weeks ahead are all contributing to this flow. Expectations for an RBNZ hold later this week are also supporting Kiwi. Looking ahead, the focus will be on a batch of Fed speak featuring Bowman, Daly and Harker.
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 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 3400 would be required to compromise the outlook.
- R2 3400 – Psychological – Strong
- R1 3360 – 6 February/Record high – Medium
- S1 3215 – 31 January low – Medium
- S2 3070 – 3 December low – Strong
US SPX 500 – fundamental overviewAlthough 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 overviewThe 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.
- R2 1650 – Measured move target – Strong
- R1 1612 – 8 January/2019 high – Medium
- S1 1500 – Psychological – Medium
- S2 1445– 12 November 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 overviewSetbacks 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 2019 high further encourages bullish prospect.
- R2 10,468– 26 October high – Strong
- R1 10,175 – 10 February high – Medium
- S1 9,102 – 4 February low– Medium
- S2 8,235 – 24 January low – Strong
BTCUSD – fundamental overviewBitcoin 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 overviewThe market is in the process of turning back up after stalling out in the latter half 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.
- R2 240 – 6 August high – Medium
- R1 225 – 19 September high – Strong
- S1 200 – Psychological – Medium
- S2 155 – 24 January low – Strong
ETHUSD – fundamental overviewThere is plenty of Ether demand built up, 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.
- Markets Can Brace for Some Painful Treatment, J. Authers, Bloomberg (February 10, 2020)
- How Coronavirus Epidemic Could Upend Global Economy, I. Bremmer, Time (February 6, 2020)