Next 24 hours: A trend of buying stocks and selling US Dollars
Today’s report: Trade tension back in the spotlight
Tension between the US and China is back in the spotlight and playing its part to weigh on risk sentiment into Thursday. There wasn’t much to take away from the Fed Minutes out late Wednesday, with the key takeaway, if there was one, that the Fed continues to appeal to the government for more fiscal stimulus.
- manufacturing PMIs
- manufacturing PMIs
- Trade tension
- EURCHFSNB policy runs into tough times
- No NIRP
- ADP employment
- RBNZ Orr
- 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 1.0999 - 20 May high – Medium
- S1 1.0767 - 7 May low – Medium
- S2 1.0727 – 24 April low – Strong
EURUSD – fundamental overviewThe Euro has been better bid this week, getting a boost after German Chancellor Merkel agreed taxpayers would underwrite as much as Eur135bln of aid to help the hardest hit countries rebuild their economies after Covid-19, while demonstrating that if needed, the nation was prepared to help the bloc's other 26 countries shoulder their financial burden. Meanwhile, the ECB allotted Eur851mln in its first PELTRO round, and Austria and other more 'frugal' EU members prepared a counter-proposal to the Franco-German plan. Looking ahead, key standouts on the calendar come in the form of manufacturing PMIs out of Germany, and the Eurozone, US initial jobless claims, the Philly Fed, US PMI reads, US existing home sales, and a batch of Fed speak, including Fed Powell.
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 1.2297– 19 May high – Medium
- S1 1.2075 – 18 May low – Medium
- S2 1.2000 – Psychological – Strong
GBPUSD – fundamental overviewOn Wednesday, reports surfaced that the UK opened a GBP500mln 'Future Fund' to help high growth companies cope with Covid fallout. Meanwhile, UK Chancellor of the Exchequer Sunak was contemplating a plan that requiring UK firms to pay more in tax and staff pensions to cover furloughed workers. BOE Governor Bailey said the BoE is not ruling anything out when it comes to negative rates and is keeping the zero-lower bound for interest rates under review. There has been some talk of the Pound taking a hit after the UK chief negotiator for Brexit accused the EU of believing the UK was 'unworthy' of anything more than a derisory deal. Looking ahead, key standouts on the calendar come in the form of UK manufacturing PMIs, UK CBI industrial trends, US initial jobless claims, the Philly Fed, US PMI reads, US existing home sales, and a batch of Fed speak, including Fed Powell.
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 109.38 – 6 April high – Strong
- R1 108.09 – 19 May high – Medium
- S1 106.74 – 13 May low – Medium
- S2 105.99 – 6 May low – Strong
USDJPY – fundamental overviewRenewed tension on the US-China trade front has factored into some of the latest Yen demand. This follows the US Senate passing a bill that could potentially bar Chinese firms from listing on US exchanges, and President Trump's tweet that China's "disinformation and propaganda attack on the United States and Europe is a disgrace." Looking ahead, key standouts on the calendar come in the form of US initial jobless claims, the Philly Fed, US PMI reads, US existing home sales, and a batch of Fed speak, including Fed Powell.
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 1.0504 – 18 May/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 0.6617 – 20 May high – Medium
- S1 0.6373 – 4 May low – Medium
- S2 0.6253 – 21 April low – Strong
AUDUSD – fundamental overviewMost of the latest round of Aussie weakness that we're seeing into Thursday is coming from renewed trade tension between the US and China. RBA Lowe has been doing his part to help offset some of the weakness, after saying the central bank is still not considering negative interest rate policy. Looking ahead, key standouts on the calendar come in the form of US initial jobless claims, the Philly Fed, US PMI reads, US existing home sales, and a batch of Fed speak, including Fed Powell.
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. Canadian PM Trudeau announced the Canada-US border would remain closed through June 21. Looking ahead, key standouts on the calendar come in the form of Canada housing data and ADP employment reads, US initial jobless claims, the Philly Fed, US PMI reads, US existing home sales, and a batch of Fed speak, including Fed Powell.
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 has been better bid this week, with the currency driving higher on the comments from RBNZ Governor Orr that any moves into negative interest rate policy are still a ways off. Looking ahead, key standouts on the calendar come in the form of US initial jobless claims, the Philly Fed, US PMI reads, US existing home sales, and a batch of Fed speak, including Fed Powell.
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 2982 – 19 May 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 1765 – 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.
- BlackRock Made Emerging Markets. So It Can Break Them, S. Ren, Bloomberg (May 21, 2020)
- Doordash and Pizza Arbitrage, R. Roy, Margins (May 17, 2020)