Next 24 hours: Sobering realities
Today’s report: Powell pushes back on negative interest rates
Global markets haven’t been pleased with Fed Chair Powell’s latest testimony, in which the central banker pushed back against negative interest rates. President Trump has voiced his displeasure with Powell as well, making things all the more unsettling.
Wake-up call
- ECB Rehn
- negative rates
- Risk off
- EURCHFSNB policy runs into tough times
- record decline
- USDCAD BoC FSR stands out on Canada calendar
- dovish hold
- Gloomy backdrop
- hard asset
- Traditional players
- more exposed
Suggested reading
- China Inc. Is Unloved Abroad, Unwanted at Home, S. Ren, Bloomberg (May 14, 2020)
- Risk-Reward in Stocks Has Never Been Worse, S. Goldstein, MarketWatch (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 has come under pressure on the back of risk off flow, though there does appear to be less worry associated with the recent German court ruling demanding the ECB provide a better framework for its QE. ECB's Rehn helped this cause after saying he saw 'no immediate impact on' the central bank's monetary policy due to the German constitutional court's recent ruling. Germany will reportedly ease border controls beginning Saturday and is seeking to 'fully open' its borders with European nations by 15 June. Looking ahead, key standouts on the calendar include German inflation reads, the ECB Bulletin, US export prices, US initial jobless claims, and speeches from Fed’s Kashkari and Kaplan.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
Wednesday's batch of UK data, highlighted by GDP, came in on the whole better than expected, which helped to prop the Pound a bit. However, there has been selling pressure from the broad based flight to safety as risk comes off. Another weighing factor has been the pricing in of negative rates in the UK looking out to June 2021. Meanwhile, PM Johnson has said the country will 'begin taking baby steps' toward reopening the economy. Looking ahead, key standouts on the calendar include a speech from BOE Governor Bailey, US export prices, US initial jobless claims, and speeches from Fed’s Kashkari and Kaplan.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 has been in demand this week, given the traditional correlation with flight to safety. BOJ Kuroda has reiterated the central bank stands ready to deliver more easing if needed. Meanwhile, PM Abe is expected to ask his cabinet to prepare a second supplementary budget. Looking ahead, key standouts on the calendar include US export prices, US initial jobless claims, and speeches from Fed’s Kashkari and Kaplan.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 suffering from the broad wave of risk off flow in markets. Meanwhile, Aussie employment data has come out. Despite Australia seeing its biggest monthly jobs decline on record, the data was more or less expected and the unemployment rate didn't rise as much as forecast, which could be helping to mitigate the fallout. Looking ahead, key standouts on the calendar include US export prices, US initial jobless claims, and speeches from Fed’s Kashkari and Kaplan.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 has come under pressure this week, largely on the back of the broad based wave of risk off flow. The recovery in the price of OIL had been a boost to the Loonie in recent sessions, though OIL has since deferred to a period of tight consolidation. Looking ahead, key standouts on the calendar include Canada manufacturing sales, US export prices, US initial jobless claims, the Bank of Canada financial system review, and speeches from Fed’s Kashkari and Kaplan.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 is still taking its hits from Wednesday's dovish rate hold, in which the central bank upped its asset purchases and warned of negative rates. Adding insult to injury has been this latest wave of risk off flow in global markets. Looking ahead, key standouts on the calendar include US export prices, US initial jobless claims, and speeches from Fed’s Kashkari and Kaplan.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.