What was behind that Euro rally?

Next 24 hours: Fed Chair testimony in focus

Today’s report: What was behind that Euro rally?

The resurgence in risk appetite has resulted in ongoing support for global equities, along with a concurrent round of broad based US Dollar outflow. The market has been feeling a lot better about pushing past the coronavirus, while assurances from Fed Chair Powell have also served as a tremendous confidence booster.

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Chart talk: Technical & fundamental highlights

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.

  • R2 1.1020 – 1 May high – Strong
  • R1 1.0928 - 18 May high – Medium
  • S1 1.0767 - 7 May low – Medium
  • S2 1.0727 – 24 April low – Strong

EURUSD – fundamental overview

The Euro is coming off a healthy Monday session in which the single currency got a nice boost on headlines the ECB was considering a EUR500bln virus recovery fund. Earlier, ECB's Lane had reaffirmed the ECB could adjust the size or duration of its purchases as needed. Cross related demand for EURCHF, presumably on SNB activity, was also seen propping the Euro. Looking ahead, key standouts on the calendar include Eurozone construction output, Eurozone and German ZEW reads, US housing starts and building permits, and testimony from Fed Chair Powell.

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 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 overview

The Pound did a good job shrugging off initial downside price action in Monday trade, on the back of worry around Brexit talks and the prospect of negative rates in the UK. It seems the market was able to find demand from medium and longer term players looking to take advantage of attractive levels, while broad based US Dollar outflow, as flight to safety was reversed, was also seen supporting the Pound. Looking ahead, key standouts on the calendar include UK employment, US housing starts and building permits, and testimony from Fed Chair Powell.

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.

  • 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 overview

The major pair was better bid on Monday, with most of the price action attributed to the improvement in global risk appetite. At the same time, there was quite a bit of exporter sell interest to keep rallies capped, while broad based US Dollar outflows were also seen weighing into rallies. As expected, the BOJ kept purchases unchanged in today's regular bond purchase operations. Looking ahead, key standouts on the calendar include US housing starts and building permits, and testimony from Fed Chair Powell.

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.
  • R2 1.0834 – 13 January high – Medium
  • R1 1.0710 – 3 March high – Strong
  • S1 1.0504 – 18 May/2020 low – Medium
  • S2 1.0500 – Psychological – Strong

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.

  • 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 overview

There's been no reaction to the release of the RBA Minutes, with nothing new out of the release as far as additional insights in to monetary policy is concerned. Aussie has however benefited from renewed risk appetite in global markets and a concurrent wave of broad based US Dollar selling. At the same time, ongoing worry around trade tension between Australia and China, has kept Aussie from wanting to rally too much. Looking ahead, key standouts on the calendar include US housing starts and building permits, and testimony from Fed Chair Powell.

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.

  • 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 overview

A 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, key standouts on the calendar include US housing starts and building permits, and testimony from Fed Chair Powell.

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.

  • 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 overview

The New Zealand Dollar is better bid into Tuesday, mostly on the back of the resurgence in global risk appetite and broad based outflows in the US Dollar. However, RBNZ Hawkesby's dovish and bearish Kiwi comments, have weighed on the currency into rallies. Hawkesby said the RBNZ's projections assume the Kiwi will depreciate ahead, and that exchange rate is a channel by which monetary policy works as it can allow the RBNZ to influence the economy and ultimately achieve their inflation/employment mandates. RBNZ Bascand hasn't helped Kiwi much either, as he warned to be ready for negative rates. Looking ahead, key standouts on the calendar include US housing starts and building permits, and testimony from Fed Chair Powell.

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.

  • 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 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 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 1765 – 18 May/2020 high – Medium
  • S1 1641– 8 April low – Medium
  • S2 1568 – 1 April low – Strong

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.

  • 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 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 and global equities once again looking vulnerable.

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.

  • 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 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.

Peformance chart: 5 Day Performance vs. US dollar (%)

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