Special report: Breaking down the Fed decision
Today’s report: Will the risk on run keep on truckin?
There were signs of some of this latest risk on flow fizzling out into Wednesday, though attempts have been made to keep the run going after Alphabet announced strong corporate earnings. Overall, there has been a surge in optimism around the outlook for the global economy on an expectation that we’ve pushed past the worst of the coronavirus pandemic.
Wake-up call
- Italy downgrade
- PM Johnson
- USD outflow
- EURCHFSNB policy runs into tough times
- hotter inflation
- oil selling
- policy talk
- Gloomy backdrop
- hard asset
- macro players
- more exposed
Suggested reading
- Stocks Rally Has a Simple Explanation, J. Authers, Bloomberg (April 29, 2020)
- How Germany is Containing the Epidemic, G. Chazan, Financial Times (April 28, 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 major pair to be well supported into dips ahead of the next big run towards the 2019 high at 1.1570. Ultimately, only a weekly close below 1.0700 would compromise this outlook.EURUSD – fundamental overview
All of the optimism around the global economy pushing past the worst of the virus has resulted in broad based US Dollar outflow that has helped to prop up the single currency. Fitch's ratings downgrade of Italy's sovereign credit rating has been ignored, with the Euro continuing to find solid demand. On Tuesday ECB said 'banks will ease company loan standards considerably' in Q2. Key standouts on today’s calendar include Eurozone confidence and sentiment reads, German inflation, US GDP, US pending home sales, and the Fed decision late in the day.EURUSD - Technical charts in detail
GBPUSD – technical overview
The market has rebounded sharply, after collapsing to a +30 year low below 1.1500. This supports the longer-term constructive outlook, with a major bottom sought out ahead of the start to a big run to the topside back through 1.3000. Look for the major pair to hold up above 1.2000 on a monthly close basis for confirmation.GBPUSD – fundamental overview
All of the optimism around the global economy pushing past the worst of the pandemic has resulted in broad based US Dollar outflow that has been a benefit to the Pound. UK PM Johnson has urged Britons to stick with the lockdown as the government plans safe ways to restart the economy. Key standouts on today’s calendar include US GDP, US pending home sales, and the Fed decision late in the day.USDJPY – technical overview
We're seeing a pickup in volatility in the major pair, with the market swinging wildly through the upper and lower bound of a massive triangle. Still, there is no clear direction in sight, with rallies well capped above 110.00 and dips well supported below 104.00.USDJPY – fundamental overview
At the moment, the major pair is paying more attention to broad based US Dollar outflows than the risk on backdrop, which has resulted in downside pressure. Sentiment has been propped up on the better outlook for the global economy with many looking past the worst of coronavirus. We've also seen strong earnings out from Alphabet. Key standouts on today’s calendar include US GDP, US pending home sales, and the Fed decision late in the day.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 around 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
Technical studies are in the process of unwinding, after the market traded down to its lowest levels since 2003. There is evidence of a longer-term bottom, though the market will need to break back above the December 2019 high at 0.7032 to take the immediate pressure off the downside.AUDUSD – fundamental overview
The Australian Dollar has been getting a boost from all of the optimism around the globe pertaining to an easing of coronavirus movement restrictions. Into Wednesday, there has been more Aussie demand on the back of hotter Aussie inflation reads and strong earnings results from Alphabet. Key standouts on today’s calendar include US GDP, US pending home sales, and the Fed decision late in the day.USDCAD – technical overview
An intense market rally has stalled out just ahead of the 2016 high. At this stage, there is risk for a more meaningful period of correction, with potential for setbacks to extend back down towards previous resistance turned support, in the form of the 2018 high at 1.3665.USDCAD – fundamental overview
The Canadian Dollar is holding up well this week, despite renewed downside pressure on the price of OIL. It seems broad based US Dollar outflows have helped to offset, with the market feeling better about the coronavirus outlook, at least for now. Key standouts on today’s calendar include US GDP, US pending home sales, and the Fed decision late in the day.NZDUSD – technical overview
There's a case to be made for a meaningful bottom, with the market looking quite extended after dipping below major psychological support at 0.5500. As such, look for setbacks to continue to be well supported in the weeks ahead, in anticipation of additional upside. Only a weekly close below 0.5500 would give reason for rethink.NZDUSD – fundamental overview
The New Zealand Dollar has run higher against the Buck this week, on the back of broad based US Dollar outflow as the global economy starts to look past the worst of coronavirus. However, we have seen some relative weakness against its commodity currency peers, on account of talk of more RBNZ rate cuts and more QE. Key standouts on today’s calendar include US GDP, US pending home sales, and the Fed decision late in the day.US SPX 500 – technical overview
Setbacks have been intense as the market puts in a longer-term top. The market has collapsed through the 2018 low, with the next major support coming in at the 2016 low around 1800. Extended readings have led to an overdue corrective bounce, but rallies should now be well capped ahead of 3000.US SPX 500 – fundamental overview
Although we've seen attempts at recovery in response to unlimited QE from the Fed and massive US stimulus, 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 and government stimulus, should no longer be as enticing to investors. Meanwhile, tension on the global trade front, geopolitical risk, and ongoing worry associated with coronavirus fallout, should weigh more heavily on investor sentiment in 2020.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, 2012 high), 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 has felt the impact of global macro pressures, with the currency falling victim to the broad based risk liquidation in Q1 2020. 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 mostly risk off backdrop, in light of Ethereum's higher sensitivity and correlation with risk themes.