Next 24 hours: Caution ahead of Fed Chair Powell testimony
Today’s report: The thing about unlimited support
Now that the euphoria around the loosening of lockdown restrictions is behind us, there is a reality setting in that is more painful to financial markets, one which seems to be promising things will take a lot longer to get back towards normal than what had been fantasy expectations for a V-shaped recovery.
Wake-up call
- ECB Stournaras
- BOE Broadbent
- worrying outlook
- EURCHFSNB policy runs into tough times
- decent data
- OIL demand
- dovish hold
- Gloomy backdrop
- hard asset
- Traditional players
- more exposed
Suggested reading
- The US Is Testing the Patience of Bondholders, J. Dillian, Bloomberg (May 12, 2020)
- After the Coronavirus Pandemic, M. Wolf, Financial Times (May 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 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 able to find some comfort in Tuesday's comments from ECB Stournaras that the central bank would 'continue to provide the necessary support for the euro-area economy despite Germany's constitutional court ruling.' Key standouts on the Wednesday calendar include Eurozone industrial production, an ECB Lane speech, US producer prices, and Fed Chair Powell testimony.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 suffered in Tuesday trade, with a lot of the weakness coming from BOE Broadbent comments that it was 'possible more easing would be needed,' and he wasn't 'too concerned' about monetary financing. Meanwhile, UK Chancellor Sunak said the furlough program would be extended through the end of October. Key standouts on the calendar include a raft of UK data highlighted by trade, GDP, industrial production, and construction output, US producer prices, and Fed Chair Powell testimony.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
The Yen came back in demand on Tuesday as realities sink in about the worrying outlook for the global economy post coronavirus, and the unsettling nature of the trade outlook between the US and China. Looking ahead, key standouts on the calendar include US producer prices, and Fed Chair Powell testimony.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 continues to find selling pressure this week amidst the downturn in global risk sentiment. Data out on Wednesday wasn't bad however, which has helped to mitigate some of the fallout. Consumer confidence reads were better than forecast, while the wage price index maintained its pace at 0.5%. The RBA injected AUD369m of liquidity in today's operations. Looking ahead, key standouts on the calendar include US producer prices, and Fed Chair Powell testimony.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 was under pressure in Tuesday trade, despite the ongoing demand for the price of OIL as it recovers from the depths of record lows. It seems the broad based wave of risk off flow was enough to more than offset. Looking ahead, key standouts on the calendar include US producer prices, and Fed Chair Powell testimony.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 RBNZ left rates on hold as expected, while expanding its QE purchase program. The central bank said QE could be scaled up further if required and negative interest rates should not be ruled out. All of this proved to be a weighing influence on the New Zealand Dollar. Looking ahead, key standouts on the calendar include US producer prices, and Fed Chair Powell testimony.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 with the halving event now officially behind us.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.