Next 24 hours: Waves of trepidation
Today’s report: Good times keep rolling into the new week
Investors are feeling good into the new week, with global equities continuing to extend their recovery run out from the extreme low in March. For the most part, the recovery rally has been driven by expectations that we have now pushed past the worst of the coronavirus, and all while having the benefit of this latest barrage of global stimulus.
Wake-up call
- court ruling
- PM Johnson
- 2nd budget
- EURCHFSNB policy runs into tough times
- powerful policies
- Canada jobs
- Shadow board
- Gloomy backdrop
- hard asset
- Traditional players
- more exposed
Suggested reading
- Oil Won’t Get Post-Virus Lift From Public Transport, D. Fickling, Bloomberg (May 11, 2020)
- Bitcoin Struggles To Recoup Gains After Yesterday's Drop, C. Bovaird, Forbes (May 10, 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 was a relative underperformer in the previous week, with a lot of this coming from the German court ruling that the ECB would need to justify its asset purchase program. The European Commission has since threatened to sue Germany over the ruling, for not abiding by EU laws. Still, there has been plenty of demand on dips, with many believing this to be a lot more smoke and mirrors. Looking ahead, key standouts on the calendar for the remainder of the day include an ECB Mersch speech, US consumer inflation expectations, and speeches from Fed’s Bostic and Evans.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
Things have been quiet for the Pound as the week gets going. There hasn't been much reaction to the weekend speech from PM Johnson in which he laid out the path for a gradual re-opening of the economy. Looking ahead, key standouts on the calendar for the remainder of the day include US consumer inflation expectations, and speeches from Fed’s Bostic and Evans.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
We're seeing Yen weakness into the new week, with the price action driven off the ongoing appetite for risk assets. PM Abe's comment that they may consider a 2nd supplementary budget, and the PBoC stating yesterday that it will use "more powerful" policies to counter the econ impact of Covid-19, have been behind the move. There was no reaction to the BOJ summary of opinions for the 27th of April policy meeting. Looking ahead, key standouts on the calendar for the remainder of the day include US consumer inflation expectations, and speeches from Fed’s Bostic and Evans.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 managed to overcome selling pressure from news that duties may be imposed on it's barley exports to China, feeling better about the overall improved risk appetite in global markets. Yesterday, the PBOC said it will use "more powerful" policies to counter the econ impact of Covid-19. Looking ahead, key standouts on the calendar for the remainder of the day include US consumer inflation expectations, and speeches from Fed’s Bostic and Evans.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 coming out of a solid week of performance, getting a boost from the recovery in the price of OIL and Friday's better than expected Canada jobs report. We've also seen some broad based selling of the US Dollar, as risk appetite returns to the market. Looking ahead, key standouts on the calendar for the remainder of the day include US consumer inflation expectations, and speeches from Fed’s Bostic and Evans.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
Some mixed price action in the New Zealand Dollar on Monday. We've seen demand from the healthy global risk appetite and rebound in business confidence reads, though this has been offset by discouraging retail credit card spending numbers. The NZIER shadow board announced today that it favours expanding the QE program over a move into negative interest rates in the interim, although it was divided on whether the OCR should be cut into negative territory in the coming 12 months. Looking ahead, key standouts on the calendar for the remainder of the day include US consumer inflation expectations, and speeches from Fed’s Bostic and Evans.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. Shorter studies are however stretched and warn of a pullback ahead.BTCUSD – fundamental overview
Bitcoin has enjoyed a nice recovery since bottoming in March, with the runup in stocks and hype around the halving event contributing to a lot of the momentum. Interest from well known traditional market participants is helping to generate plenty of buzz as well. At the same time, given the extended nature of technical readings into important resistance, we see this as timing well for a sell the fact as the halving event becomes official.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.