Special report: BOE follows Fed with 50bp cut
Today’s report: Pound in focus on Wednesday
The market was optimistic about the news the US administration would be responding to coronavirus fallout with a substantial stimulus package, but has since been underwhelmed with what’s come forward thus far. This has set the tone for a resumption of risk off trade into Wednesday.
Wake-up call
- ECB action
- UK docket
- Risk-off returns
- SNB challenge
- consumer confidence
- OIL plunge
- card spending
- Stocks stressed
- hard asset
- two-way flow
- traditional markets
Suggested reading
- What Hoarding Toilet Paper Teaches Us About Stocks, S. Ren, Bloomberg (March 10, 2020)
- Heightened Volatility, Heightened Uncertainty, R. Moody, Regions (March, 2020)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
A higher low is now sought out above the multi-year low from 2017, ahead of the next major upside extension. Look for this latest push through the December 2019 high at 1.1240 to now pave the way for a run towards next big resistance in the form of the 2019 high at 1.1570. Only a weekly close back below 1.0800 would compromise this outlook.EURUSD – fundamental overview
The Euro has pulled back from recent highs on the combination of less pressure for the Fed to cut aggressively (with the US administration offering fiscal stimulus), and on expectation the ECB could be looking to do more in the way of its own accommodation. Still, overall, we anticipate yield differentials and soft US Dollar policy from the US administration, will continue to fuel Euro demand. Wednesday’s calendar is light, with only US CPI standing out.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 taking a back seat to the bigger picture themes in global markets, but will be getting more attention on Wednesday with an active UK calendar. Key standouts include a construction output, industrial production, manufacturing production, trade and GDP. We also get the UK budget. Over in North America, US CPI stands out.USDJPY – technical overview
We're seeing a pickup in volatility in the major pair, with the market breaking out of a multi-year triangle. The break to the downside suggests we could now see deeper setbacks below 100.00, towards initial meaningful support in the form of the 2016 low at 98.97.USDJPY – fundamental overview
The market had been feeling better about news of additional stimulus efforts from the US and Japan to offset coronavirus fallout, but into Wednesday, the sentiment is deteriorating again, perhaps due to an underwhelming response from the US administration thus far. This has resulted in renewed downside pressure on the major pair. Wednesday’s calendar is light, with only US CPI standing out.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. Technicals are however looking extended and the market should be well supported ahead of 1.0500.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
Aussie has recently extended declines to its lowest levels against the Buck since 2009. At this point, there is risk for a full retracement to the multi-year low from 2008, which comes in at 0.6006. At the same time, technical studies are looking stretched and any additional setbacks below 0.6000 should be a difficult task, at least over the coming months. Back above the December 2019 high at 0.7032 would be required to take the immediate pressure off the downside.AUDUSD – fundamental overview
The Australian Dollar is once again finding sell interest into rallies. This comes from ongoing concern around coronavirus fallout and softer Aussie consumer confidence. The number of coronavirus cases in Australia has shot up from 80 to 112. Wednesday’s calendar is light, with only US CPI standing out.USDCAD – technical overview
The market has been confined to a massive, choppy consolidation, with no clear directional insight. At this stage, it will take a clear break back above 1.3800, or below the 2019 low at 1.2952 for an indication of trend. Until then, look to play the range.USDCAD – fundamental overview
Lots of fireworks for the Canadian Dollar this week, with the collapse in the price of OIL hitting the currency hard. The Loonie has recovered a little from its low against the Buck as OIL works off the lows. Canada data has also been better this week. Wednesday’s calendar is light, with only US CPI standing out.NZDUSD – technical overview
There's a case to be made for a meaningful bottom ahead, with the market looking quite extended as it gravitates back into major psychological support in the 0.6000 area. As such, look for setbacks to be well supported in the days ahead, in anticipation of another rebound. Only a weekly close below 0.6000 would give reason for rethink. Back above 0.6500 would now be required to take the immediate pressure off the downside.NZDUSD – fundamental overview
The New Zealand Dollar came back under pressure on Tuesday, as risk off started to work back into the mix following some initial optimism on news of a US stimulus response. We did see New Zealand credit card spending come in above forecast, which perhaps helped to prop setbacks a bit today. Wednesday’s calendar is light, with only US CPI standing out.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 deeper setbacks targeting an eventual test of the 2018 low at 2339. Rallies should now be well capped ahead of 3200.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 coronavirus fallout, 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 1800 (measured move extension target), while in the interim, look for any setbacks to be well supported above 1500.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, the coronavirus outbreak, 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 10,500 further encourages the bullish prospect.BTCUSD – fundamental overview
There has been plenty of two way flow with respect to the price of Bitcoin in 2020. On the one side, there continues to be good demand from players looking out to the medium and longer term, who see Bitcoin as a safe haven, store of value asset. On the other side, there are many players who aren't willing to look past the shorter term, where bitcoin is still a risk correlated emerging technology.BTCUSD - Technical charts in detail
ETHUSD – technical overview
The market is in the process of slowly 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 180 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 180 would compromise the outlook.ETHUSD – fundamental overview
While there 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, macroeconomics will likely play a negative role in 2020, with Ether expected to underperform in a risk off backdrop, in light of Ethereum's higher sensitivity and correlation with risk themes.