Today’s report: Thoughts on the state of the global economy
We come into Friday with risk appetite back on the rise, after US equities managed to recover out from the depths of Thursday’s weekly low. And yet, beyond calls for more stimulus in the US, it’s hard to find a whole lot out there to be feeling good about, which has questioning the uptick in sentiment.
- Busy calendar
- Governor Bailey
- ongoing worry
- EURCHFSNB policy runs into tough times
- sentiment uptick
- pandemic shock
- soft batch
- Gloomy backdrop
- hard asset
- Traditional players
- more exposed
Chart talk: Technical & fundamental highlights
EURUSD – technical overviewA 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.
- R2 1.1020 – 1 May high – Strong
- R1 1.0886 - 12 May high – Medium
- S1 1.0767 - 7 May low – Medium
- S2 1.0727 – 24 April low – Strong
EURUSD – fundamental overviewThough the Euro has struggled with the German court ruling against the ECB, it seems a lot of the fallout has been considered and the single currency is ready to push past the event. Still, the Euro has continued to trade with a softer tone this week, mostly on the back of broad based flight to safety US Dollar demand, and the Fed Chair's push back against negative interest rates. Looking ahead, key standouts on the calendar include German producer prices, German GDP, Eurozone GDP, trade, and employment data, and a US docket that includes retail sales, industrial production, business inventories, JOLTs job openings, and Michigan sentiment.
EURUSD - Technical charts in detail
GBPUSD – technical overviewThe 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.
- R2 1.2648 – 14 April high – Strong
- R1 1.2468 – 8 May high – Medium
- S1 1.2165 – 7 April low – Medium
- S2 1.2130 – 27 March low – Strong
GBPUSD – fundamental overviewThe Pound is trying to recover from the latest wave of downside pressure on the back of UK markets pricing in negative rates looking out to 2021, and the Fed Chair pushing back against negative rates. BOE Governor Bailey may have helped the Pound's cause a bit on Thursday, after he stated the central bank was not looking to use negative rates at the moment. Looking ahead, key standouts on the calendar include US reads in the form of retail sales, industrial production, business inventories, JOLTs job openings, and Michigan sentiment.
USDJPY – technical overviewWe'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.
- R2 108.09 – 17 April high – Medium
- R1 107.77 – 11 May high – Medium
- S1 105.99 – 6 May low – Medium
- S2 105.83 – 17 March low – Strong
USDJPY – fundamental overviewThe Yen came under pressure on Thursday, as risk appetite returned to markets. Still, the overall outlook remains shaky, particularly with US-China trade tensions heating back up, at a time when the global economy is already struggling to push past the pandemic. This has resulted in ongoing Yen demand into dips. Looking ahead, key standouts on the calendar include US reads in the form of retail sales, industrial production, business inventories, JOLTs job openings, and Michigan sentiment.
EURCHF – technical overviewThe 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.
- R2 1.0834 – 13 January high – Medium
- R1 1.0710 – 3 March high – Strong
- S1 1.0508 – 16 April/2020 low – Medium
- S2 1.0500 – Psychological – Strong
EURCHF – fundamental overviewThe 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 overviewTechnical 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.
- R2 0.6685 – 9 March high – Strong
- R1 0.6570 – 30 April high – Medium
- S1 0.6373 – 4 May low – Medium
- S2 0.6253 – 21 April low – Strong
AUDUSD – fundamental overviewThe Australian Dollar has done a good job absorbing the latest record low monthly employment data and downturn in global sentiment, with the currency still holding up relatively well. Into Friday, risk sentiment has returned a bit, which is helping to give Aussie a bit more of a prop. Still, the outlook remains shaky, particularly with US-China trade tension heating up, which result in more offers into rallies. The RBA injected AUD475m of liquidity in today's operations. Looking ahead, key standouts on the calendar include US reads in the form of retail sales, industrial production, business inventories, JOLTs job openings, and Michigan sentiment.
USDCAD – technical overviewAn 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.
- R2 1.4350 – 31 March high – Strong
- R1 1.4265 – 21 April high – Medium
- S1 1.3850 – 30 April low – Medium
- S2 1.3728 – 16 March low – Strong
USDCAD – fundamental overviewA lot of choppy trade in the Canadian Dollar of late, though most recently, we have seen some demand. Thursday's rally in the Canadian Dollar comes on the back of a continued recovery in the price of OIL, and rebound in risk sentiment. Still, Canada manufacturing data was softer, which may have taken away some of the Loonie's momentum. Meanwhile, the Bank of Canada said the country's financial system could handle economic shock from the pandemic. Looking ahead, key standouts on the calendar include US reads in the form of retail sales, industrial production, business inventories, JOLTs job openings, and Michigan sentiment. We also get Canada foreign securities transactions and the Bank of Canada senior loan officer survey.
NZDUSD – technical overviewThere'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.
- R2 0.6200 – Figure – Strong
- R1 0.6177 – 30 April high – Medium
- S1 0.5910 – 23 April low – Medium
- S2 0.5843 – 3 April low – Strong
NZDUSD – fundamental overviewThe 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 week's risk off flow in markets and miserable batch of economic data out of New Zealand. Fed Chair Powell's pushback against negative rates has also made yield differentials that much more unfavourable for Kiwi. Looking ahead, key standouts on the calendar include US reads in the form of retail sales, industrial production, business inventories, JOLTs job openings, and Michigan sentiment.
US SPX 500 – technical overviewSetbacks 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.
- R2 3000 – Psychological – Strong
- R1 2975 – 30 April high – Medium
- S1 2779 – 4 May low – Medium
- S2 2725 – 21 April low – Strong
US SPX 500 – fundamental overviewAlthough 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 overviewThe 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.
- R2 1796 – 2012 high – Strong
- R1 1748 – 14 April/2020 high – Medium
- S1 1641– 8 April low – Medium
- S2 1568 – 1 April low – Strong
GOLD (SPOT) – fundamental overviewThe 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 overviewSetbacks 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.
- R2 10,477– 9 February/2020 high – Strong
- R1 10,075 – 8 May high – Medium
- S1 8,000 – Psychological – Medium
- S2 7,704 – 29 April low – Strong
BTCUSD – fundamental overviewBitcoin 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 and global equities once again looking vulnerable.
BTCUSD - Technical charts in detail
ETHUSD – technical overviewThe 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.
- R2 289 – 15 February/2020 high – Strong
- R1 227 – 30 April high – Medium
- S1 176 – 11 May low – Medium
- S2 148 – 16 April low – Strong
ETHUSD – fundamental overviewWhile 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.
- Best Time to Reopen? Economists Are Just Guessing, N. Smith, Bloomberg (May 14, 2020)
- Can Boris Johnson Navigate the End of Lockdown?, S. Payne, Financial Times (May 14, 2020)