Next 24 hours: Running back into the US Dollar
Today’s report: Plenty of tension as the week gets going
Thinner trade to start the week, with Japan and China out for holidays. Still, there has been a clear wave of risk off in markets, with investors feeling unsettled about the state of the global economy in the aftermath of the pandemic, and equally uneasy about renewed tension between the US and China.
Wake-up call
- Euro-area GDP
- BOE meeting
- one-month extension
- EURCHFSNB policy runs into tough times
- soft data
- OIL rebound
- S&P reaffirms
- Gloomy backdrop
- hard asset
- macro players
- more exposed
Suggested reading
- No Escaping the Slump Even for Virus Stars, D. Moss, Bloomberg (May 4, 2020)
- Why Mortgages Aren't Cheaper, R. Armstrong, Financial Times (May 2, 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
The Euro is off to start the week on flight to safety US Dollar demand from all of the risk off flow. Tension between the US and China is heating up, which has contributed to a lot of the flow, while fallout from the global pandemic is also weighing. Last week, the ECB said Euro-area GDP could fall by 5-12% this year, but could rebound by 4-6% next year. Key standouts on the Monday calendar include German and Eurozone manufacturing PMIs, along with US factory orders.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
The Pound is off to start the week on flight to safety US Dollar demand from all of the risk off flow. Tension between the US and China is heating up, which has contributed to a lot of the flow, while fallout from the global pandemic is also weighing. The BoE said it will 'publish' its next interest rate decision and monetary policy report on May 7th. Looking ahead, Monday's calendar is exceptionally thin, with only US factory orders standing out.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
A clear risk off tone to start the week, though liquidity conditions were thin in Japan on account of Golden Week and Labour Day holidays in China. PM Abe is expected to announce a one-month extension of the national state of emergency until May 31, although there will be some exceptions. Looking ahead, Monday's calendar is exceptionally thin, with only US factory orders 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 1.0710 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
Aussie is feeling the pressure of broad based risk off flow to start the week, and is also taking a hit on a round of softer economic data. Looking ahead, Monday's calendar is exceptionally thin, with only US factory orders standing out.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 under pressure in recent sessions, largely on the back of the broad based risk off flow that's inspiring flight to safety US Dollar demand. OIL prices have stabilized for the time being, which is helping to keep the Loonie somewhat in demand on dips. Looking ahead, Monday's calendar is exceptionally thin, with only US factory orders standing out.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
S&P reaffirmed New Zealand's long-term foreign currency debt rating at AA, which may be helping to offset some of the downside pressure on Monday, from the broad based risk off flow. Looking ahead, Monday's calendar is exceptionally thin, with only US factory orders standing out.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.