Next 24 hours: Currencies up against Buck, GBP outperforms
Today’s report: Risk on keeps on
The risk on rally keeps on pushing, despite all of the tension on the US-China trade front. All of this translated into US equity futures extending the recovery out from the March low, and the US Dollar selling off as more flight to safety flow is reversed.
Wake-up call
- consumer confidence
- PM Johnson
- BOJ Kuroda
- EURCHFSNB policy runs into tough times
- PM Morrison
- USDCAD BoC Poloz slated to speak
- NZDUSDtrade data comes in as expected
- Gloomy backdrop
- hard asset
- Traditional players
- more exposed
Suggested reading
- Hong Kong Finance Has A Security Blanket, N. Gopalan, Bloomberg (May 26, 2020)
- Brexit, Covid-19 and Trade Negotiations, A. Ross, Financial Times (May 25, 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
Fuller trade expected on Tuesday, as markets return from holidays. The Euro got some support from a healthy round of German data on Monday, with GDP coming in as expected and IFO reads exceeding forecast. We've also seen ongoing demand for risk assets, which has weighed on the US Dollar. Looking ahead, key standouts on the calendar include German consumer confidence, the Chicago Fed National Activity Index, an ECB Lane speech, the ECB Financial Stability Review, US new home sales, and Dallas Fed Manufacturing.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.GBPUSD – fundamental overview
The UK returns from Monday's bank holiday, with the Pound looking up, benefitting mostly from an exodus of long US Dollar exposure as risk appetite looks healthy. There was also some attention around Boris Johnson's move to stake his political reputation on saving the career of senior aide Dominic Cummings. Looking ahead, key standouts on the calendar include UK CBI distributive trades, the Chicago Fed National Activity Index, US new home sales, and Dallas Fed Manufacturing.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
BOJ Kuroda was on the wires rehashing recent comments the Japanese economy is expected to stay in a severe situation, with the economy likely to shrink more in Q2, there's 'extremely high' uncertainty in the economic outlook, and that they are watching the economic impact of Covid-19, and won't hesitate to ease further if needed. Overall, the Yen has been more offered of late, in conjunction with the risk on tone in financial markets. Looking ahead, key standouts on the calendar include the Chicago Fed National Activity Index, US new home sales, and Dallas Fed Manufacturing.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
The Australian Dollar is getting a boost from the ongoing wave of risk on in financial markets. Trade tension really hasn't weighed all that much. Earlier, PM Morrison said Australia had no plans to open its borders anytime soon. Meanwhile, the RBA injected AUD1.29bn of liquidity in today's operations. Looking ahead, key standouts on the calendar include the Chicago Fed National Activity Index, US new home sales, and Dallas Fed Manufacturing.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 been better bid with the Loonie getting a boost from the ongoing recovery in both global equities and OIL. Looking ahead, key standouts on the calendar include the Chicago Fed National Activity Index, US new home sales, Dallas Fed Manufacturing, and a speech from Bank of Canada Governor Poloz.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 trade balance came in more or less in line with expectation, with the trade surplus widening to a record print in April. Overall, Kiwi has been better bid on account of the broad based risk on flow. Looking ahead, key standouts on the calendar include the Chicago Fed National Activity Index, US new home sales, and Dallas Fed Manufacturing.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 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.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 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.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.