Next 24 hours: Was this the injection the market was looking for?
Today’s report: Fed slashes rates 100 basis points
Countries are in shutdown mode around the globe, in an effort to combat the coronavirus, and financial markets are in turmoil. As a consequence, central banks and governments have been forced to step up with additional stimulus measures to help offset fallout.
Wake-up call
- Fed move
- swap lines
- Additional measures
- SNB challenge
- cuts pricing
- OIL drop
- RBNZ slashes
- Stocks stressed
- hard asset
- global turmoil
- traditional markets
Suggested reading
- Big Virus Shock Can Be Contained and Reversed, M. El-Erian, Bloomberg (March 14, 2020)
- Why There May Be More Trouble Ahead for Markets, R. Armstrong, FT (March 13, 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 the recent push through the December 2019 high at 1.1240 to pave the way for a run towards next big resistance in the form of the 2019 high at 1.1570. Ultimately, only a weekly close back below 1.0800 would compromise this outlook.EURUSD – fundamental overview
The Euro is absorbing the unscheduled Fed activity into the weekly open, after the central bank came out with a drastic move. The Fed has slashed rates 100 basis points, taking the rate to 0-0.25%, while announcing it will increase bond holdings by $700 billion. The Fed also announced a coordinated effort with the ECB and four other major central banks, to deploy currency swap lines. Looking ahead, US empire manufacturing is the only notable standout on Monday's economic calendar.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 looking to carve out a meaningful longer-term base. Ultimately, only back below 1.2200 handle would compromise the constructive outlook.GBPUSD – fundamental overview
The Pound is absorbing the unscheduled Fed activity into the weekly open, after the central bank came out with a drastic move. The Fed has slashed rates 100 basis points, taking the rate to 0-0.25%, while announcing it will increase bond holdings by $700 billion. The Fed also announced a coordinated effort with the BOE and four other major central banks, to deploy currency swap lines. Looking ahead, US empire manufacturing is the only notable standout on Monday's economic calendar.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, eventually below 100.00, towards initial meaningful support in the form of the 2016 low at 98.97. It would take a clear break back above 110.00 to take the immediate pressure off the downside.USDJPY – fundamental overview
This latest wave of coordinated policy response to offset coronavirus fallout, is doing its best to keep risk sentiment from deteriorating any further. But the response hasn't been all that encouraging as of yet, even after the Fed announced additional drastic measures ahead of the weekly open, which included a 100 basis point cut, and the BOJ followed up with additional measures of its own. Looking ahead, US empire manufacturing is the only notable standout on Monday's economic calendar.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 1.0710 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
Choppy trade for a weak Australian Dollar to start the week, with the currency unsure what to make of the latest drastic measures from the Federal Reserve, in which the central bank slashed rates 100 basis points. There is a growing expectation the RBA will not be too far behind with its next move, that follows along with the direction of the Fed. Looking ahead, US empire manufacturing is the only notable standout on Monday's economic calendar.USDCAD – technical overview
The market has continued to be well supported on dips, extending its run to fresh multi-month highs. The recent push back above the 2017 high now exposes the next upside extension towards a retest of massive resistance in the form of the 2016 high at 1.4690. Look for setbacks to be well supported ahead of 1.3500.USDCAD – fundamental overview
The Canadian Dollar is absorbing the unscheduled Fed activity into the weekly open, after the central bank came out with a drastic move. The Fed has slashed rates 100 basis points, taking the rate to 0-0.25%, while announcing it will increase bond holdings by $700 billion. The Fed also announced a coordinated effort with the Bank of Canada and four other major central banks, to deploy currency swap lines. Looking ahead, Canada existing home sales and US empire manufacturing are the only notable standout on Monday's economic calendar.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
Lots of wild activity for the New Zealand Dollar to start the week. Initially, Kiwi dropped to a fresh multi-year low on news of the surprise 75 basis point cut from the RBNZ, before running back up after the Fed followed shortly thereafter with another unscheduled decision of its own, this time slashing rates by 100 basis points and introducing other stimulatory measures. Looking ahead, US empire manufacturing is the only notable standout on Monday's economic calendar.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 2315. Rallies should now be well capped ahead of 3000.US SPX 500 – fundamental overview
Although we've seen the market extend 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 additional runs to the topside, 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 in 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, coronavirus fallout, 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 ahead of the 2018 low, 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 5,000 would compromise the constructive outlook. Back above 10,500 further encourages the bullish prospect.BTCUSD – fundamental overview
Bitcoin is finally feeling the impact of global macro pressures, with the new currency falling victim to broad based risk liquidation. However, despite the recent slide, 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.BTCUSD - Technical charts in detail
ETHUSD – technical overview
The market is in the process of attempting to establish a meaningful base after stalling out in the latter half of 2019. Look for setbacks to be well supported above the 2018 low, in favour of another big bounce, eventually back towards and through the 2019 high up at 363.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.