Risk on rally lack bite

Special report: Fed Minutes Preview

Today’s report: Risk on rally lack bite

Global markets are feeling better into Wednesday, with a mildly supportive risk tone. Still, it’s hard to point to anything material to assign to the latest uptick and we recommend taking it all with a grain of salt.

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Wake-up call

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 through the 2019 high at 1.1570. Ultimately, only a weekly close below 1.0700 would compromise this outlook.

  • R2 1.1423 – 10 June high – Strong
  • R1 1.1354 - 16 June high – Medium
  • S1 1.1168 - 19 June low – Medium
  • S2 1.0992 – 28 May low – Medium

EURUSD – fundamental overview

The Euro hasn't been all that active of late. On Tuesday, ECB Schnabel said the central bank can be 'flexible' with PEPP and is 'comfortable' with the program's current size. A national auditor said the 'sustainability' of France's debt is 'now a central issue,' and the country 'can't let its debt rise without exposing itself to major difficulties in the medium and long-term.' Eurozone June preliminary CPI came at 0.3% MoM vs 0.2% forecast, Spain Q1 final GDP was as expected at -5.2%, and Germany's IFO Institute said the country's June furloughs fell to 6.7 million from 7.3 million in May. Looking ahead, key standouts on the calendar include German retail sales and unemployment, Eurozone manufacturing PMIs, and US reads including ADP employment, ISM manufacturing, construction spending, and the Fed Minutes late in the day.

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 1.2688 – 16 June high – Strong
  • R1 1.2543– 24 June high – Medium
  • S1 1.2252 – 29 June low – Medium
  • S2 1.2161 – 22 May low – Medium

GBPUSD – fundamental overview

The Pound was the strongest currency in Tuesday trade, getting a healthy boost from developments on the homefront. UK PM Johnson committed to a 'new deal' of GBP5 billion in increased spending on infrastructure and said he 'remained absolutely determined' to ensure the country's tax burden was 'reasonable.' Johnson also said the UK 'faces a real crisis on unemployment.' BoE Haldane said risks to the outlook were 'slightly more evenly balanced than in May, if still with a downside skew,' and the central bank's review of negative rates will continue into the second half of this year. Total emergency virus loans approved by the UK government exceeded 1 million. UK Q1 final GDP came at -2.2% QoQ vs -2.0% preliminary. Looking ahead, key standouts on the calendar include UK manufacturing PMIs, and US reads in the form of ADP employment, ISM manufacturing, construction spending, and the Fed Minutes late in the day.

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.

  • R2 108.55 – 9 June high – Medium
  • R1 108.17 – 1 July high – Medium
  • S1 106.07 – 23 June low – Medium
  • S2 105.99 – 6 May low  – Strong
Attempts at a recovery in risk assets have been helping to support the major pair. News out of China that it plans to reduce its relending and rediscounting interest rates for loans to small and agriculture-related firms by 25bp could be helping, along with better China PMI reads. Still the big picture macro outlook remains shaky overall, which continues to inspire Yen demand. The BoJ signaled an intention to purchase more shorter maturity bonds. Former BoJ policymaker Harada said the central bank should purchase more assets instead of lowering its negative interest rate further if need be. Softness in the latest Tankan report was shrugged off. Looking ahead, key standouts on the calendar include US reads in the form of ADP employment, ISM manufacturing, construction spending, and the Fed Minutes late in the day.

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 1.1000 would be required to take the immediate pressure off the downside.
  • R2 1.0916 – 5 June/2020 high – Strong
  • R1 1.0791 – 10 June high – Medium
  • S1 1.0600 – Figure – Medium
  • S2 1.0577 – 25 May low – 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. 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 at this stage, there is risk for a pullback to allow for shorter term studies to unwind. Setbacks should now be well supported ahead of 0.6000.

  • R2 0.7100 – Figure – Medium
  • R1 0.7065 – 10 June/2020 high – Medium
  • S1 0.6800 – 12 June low – Medium
  • S2 0.6775 – 2 June low – Strong

AUDUSD – fundamental overview

Aussie has been mostly supported of late on the recovery in stocks. Solid China PMIs and news out of China that it plans to reduce its relending and rediscounting interest rates for loans to small and agriculture-related firms by 25bp could be helping as well. Looking ahead, key standouts on the calendar include US reads in the form of ADP employment, ISM manufacturing, construction spending, and the Fed Minutes late in the day.

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 1.3200-1.3400 area, ahead of a resumption of gains. Ultimately, only a weekly close below 1.3300 would suggest otherwise.

  • R2 1.3833 – 29 May high – Strong
  • R1 1.3716 – 26 June high – Medium
  • S1 1.3315 – 10 June low – Medium
  • S2 1.3202 – 21 February low – Strong

USDCAD – fundamental overview

The Canadian Dollar got a nice boost in Tuesday trade after GDP data came in not as bad as forecast. The market was expecting a decline of 12.2% and the data came in at -11.6. Looking ahead, key standouts on the calendar include US reads in the form of ADP employment, ISM manufacturing, construction spending, and the Fed Minutes late in the day.

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.

  • R2 0.6600 – Psychological – Strong
  • R1 0.6585 –  10 June high – Medium
  • S1 0.6394 – 12 June low – Medium
  • S2 0.6263 – 2 June low – Strong

NZDUSD – fundamental overview

Not a lot going on in New Zealand as far as market moving news goes. The currency has been well supported this week on the back of a resurgence in global risk appetite. RBNZ Governor Orr expects to receive more clarity in August on the effectiveness of its QE program. Looking ahead, key standouts on the calendar include US reads in the form of ADP employment, ISM manufacturing, construction spending, and the Fed Minutes late in the day.

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.

  • R2 3261 –  25 February high – Strong
  • R1 3235 – 9 June high – Medium
  • S1 2936 – 15 May low – Medium
  • S2 2909 – 22 May 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 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.

  • R2 1796 2012 high – Strong
  • R1 1786 – 30 June/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 10,360 – 2 June 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 2020 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 253 – 2 June 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: 1-Month Performance vs. US dollar (%)

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