Next 24 hours: Powell Pumps Stocks
Today’s report: Gold versus Stocks
If the market was feeling good about the prospect of the global economy opening back up after suffering through an extended period of lockdown from the coronavirus, it seems to be feeling that much better after hearing the latest from Fed Chair Jerome Powell.
- Businesses reopening
- Pound struggles
- approval ratings
- EURCHFSNB policy runs into tough times
- bond purchases
- pandemic shock
- Services data
- 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 overviewThe Euro is finding mild demand into the new week, perhaps as worry over the recent German court ruling against the EU fades, or perhaps on optimism around the reopening of businesses in Europe. We've also seen some US Dollar outflow supporting the Euro, as risk appetite picks up and the market reverses flight to safety USD demand. Looking ahead, Monday’s economic calendar is exceptionally light, with only some US NAHB housing data standing out.
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 well into setbacks, and ultimately above 1.2000 on a monthly close basis for confirmation.
- R2 1.2648 – 8 May high – Strong
- R1 1.2242– 14 May high – Medium
- S1 1.2075 – 18 May low – Medium
- S2 1.2000 – Psychological – Strong
GBPUSD – fundamental overviewThe Pound remains weighed down by concerns over stalled Brexit talks and weekend reports that UK chief negotiator Frost warned cabinet ministers of a no-deal outcome if talks fail in the next 15 days. The Pound has also been weighed down by BOE Haldane's weekend interview with the Telegraph in which he said that the BOE is reviewing a number of unconventional monetary policies, including negative interest rates, and expanding the QE program to include purchases of riskier assets, as it is fast running out of conventional monetary policies. Looking ahead, Monday’s economic calendar is exceptionally light, with only some US NAHB housing data standing out.
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 overviewJapan economic minister Nishimura has said April and May have been even more severe for the economy following the Covid-19 emergency declaration. He also said that the government is pushing to pass a second supplementary budget to swiftly provide more aid to the economy. Meanwhile, PM Abe's cabinet approval ratings fell 8 percentage points to 33% according to an Asahi poll over this weekend, while the disapproval rating rose 6 percentage points to 47%. Looking ahead, Monday’s economic calendar is exceptionally light, with only some US NAHB housing data standing out.
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. In recent sessions, risk sentiment has returned, 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 will result in more offers into rallies. The RBA again refrained from purchasing bonds in today's QE window, but injected AUD199 million of liquidity. Looking ahead, Monday’s economic calendar is exceptionally light, with only some US NAHB housing data standing out.
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. The most recent rally in the Canadian Dollar comes on the back of a continued recovery in the price of OIL, and rebound in risk sentiment. Meanwhile, the Bank of Canada said the country's financial system could handle economic shock from the pandemic. Looking ahead, Monday’s economic calendar is exceptionally light, with only some US NAHB housing data standing out.
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 RBNZ purchased NZD450 million of government bonds in today's QE program, meeting its target. ANZ now expects the RBNZ to expand its QE program to NZD90 billion at the August policy meeting. New Zealand's April performance of services index slumped to a record low of 25.9 versus 52.1 previous. Looking ahead, Monday’s economic calendar is exceptionally light, with only some US NAHB housing data standing out.
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 towards and through the record high (just ahead of 2000), following 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 1764 – 18 May/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.
- Central Banks Have Let the Genie Out of the Bottle, D. Moss, Bloomberg (May 18, 2020)
- Covid-19, 'Locust-19' Threaten Perfect Storm for Africa, V. Kortekaas, Financial Times (May 15, 2020)