Special report: ECB Decision Preview
Today’s report: Will an active Thursday calendar inspire volatility?
It’s an active economic calendar on Thursday and we’ll see if any of it inspires meaningful volatility. We come into Thursday after yet another round of broad based US Dollar outflow and demand for stocks. Some of the notable standouts on today's calendar include the ECB policy decision and US initial jobless claims.
Wake-up call
- ECB decision
- asylum offer
- Japan Olympics
- EURCHFSNB policy still faces tough challenges
- 13th consecutive
- BoC holds
- macro themes
- Gloomy backdrop
- hard asset
- Traditional players
- more exposed
Suggested reading
- When I Said `Disaster' I Meant `Fill Your Boots', J. Authers, Bloomberg (June 4, 2020)
- A 13% Yield: What Could Go Wrong?, A. Arnott, Morningstar (June 2, 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
Economic data out of the Eurozone has been coming in better than expected on the whole of late, while risk appetite continues to recover, which has inspired broad based US Dollar outflow. Meanwhile, German Chancellor Merkel's coalition reached a deal on a German stimulus package. Looking ahead, key standouts on the calendar come in the form of Eurozone and German construction PMIs, Eurozone retail sales, the ECB policy decision, US trade, and US initial jobless claims.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 BoE said it's 'fundamental' that it 'prepares the UK Financial system for all risks that it my face' including a no-deal Brexit, while also delaying publication of its Q2 Financial Stability Report to August 6. UK PM Johnson offered as many as 3 million Hong Kong residents the chance to seek asylum in the UK if China moves ahead with its plan to impose new security laws on the former British colony. The UK government plans to impose a 14-day quarantine on all overseas arrivals beginning June 8. Looking ahead, key standouts on the calendar come in the form of UK construction PMIs, Canada trade, US trade, and US initial jobless claims.USDJPY – technical overview
We're seeing signs of a pickup in volatility in the major pair, with the market chopping around quite a bit. Still, there is no clear directional insight, with the price confined to a larger triangle formation. Overall, rallies have been well capped above 110.00 and dips well supported below 104.00.USDJPY – fundamental overview
At the moment, the Yen has been confined to tighter trade overall, as we see offsetting flow from risk on and broad based US Dollar selling. There hasn't been much reaction to all of the tension on the global trade front, and tension around China relations with Hong Kong. It was reported Japan is considering scaling back the Olympics in 2021, so as to avoid the cancellation of the games entirely. Looking ahead, key standouts on the calendar come in the form of US trade, and US initial jobless claims.EURCHF – technical overview
The market remains very well capped into offers and the medium-term picture continues to favour the downside. A weekly close back above 1.08000 would be required to take the immediate pressure off the downside.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. Any signs of renewed 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 have turned up in recent weeks, after the market traded down to its lowest levels since 2003 earlier this year. 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
Overall, Aussie has been well in demand, extending its recovery on the back of risk on flow, upbeat comments from the RBA, this week's better than expected GDP data, and broad based US Dollar outflow. Earlier, the RBA once again refrained from purchasing bonds, to make for the 13th consecutive window of inaction. There was no material reaction to Aussie retail sales and trade data, which came in broadly in line with expectation. Looking ahead, key standouts on the calendar come in the form of US trade, and US initial jobless claims.USDCAD – technical overview
Has been in the process of correcting since topping out earlier this year above 1.4600. At this stage, with the correction well extended, the market is likely to find solid support in the 1.3300-1.3500 area, ahead of a resumption of gains. Ultimately, only a weekly close below 1.3300 would suggest otherwise.USDCAD – fundamental overview
The BoC held its benchmark interest rate at 0.25% and said 'as market function improves and containment restrictions ease, the bank's focus will shift to supporting the resumption of growth in output and employment.' Canada Q1 labor productivity growth increased more than forecast. Most of the recent gains in the Loonie have come from broad based US Dollar outflow and the recovery in the price of OIL. Looking ahead, key standouts on the calendar come in the form of Canada trade, US trade, and US initial jobless claims.NZDUSD – technical overview
There's a case to be made for a meaningful bottom, after the market collapsed below massive psychological support at 0.5500 earlier this year. A break back above the 0.6600 area would be required to officially put this market in an uptrend on the weekly chart, though daily studies are now trending up with any setbacks expected to be well supported ahead of 0.6000.NZDUSD – fundamental overview
Overall, Kiwi has been better bid on account of the a continued push in stocks and concurrent round of broad based US Dollar outflow. Looking ahead, key standouts on the calendar come in the form of US trade, and US initial jobless claims.US SPX 500 – technical overview
The market has been in recovery mode since bottoming out in March. Still, the recovery is classified as corrective, with a lower top sought out below the record high from February, ahead of the next major downside extension, eventually back below the March low.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 recovery post coronavirus, 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.