Taking Price Action with a Grain of Salt

Next 24 hours: Pound Having Hard Time Shaking off Brexit

Today’s report: Taking Price Action with a Grain of Salt

Though we’ve seen fresh 2019 lows in Kiwi, a beaten up Pound on renewed Brexit worry and the Euro tracking just off its yearly low against the Buck, overall conditions remain quite subdued in FX, and all of these markets remain confined to familiar ranges. UK, inflation, Canada retail sales and the Fed Minutes stand out on Wednesday.

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Wake-up call

Chart talk: Technical & fundamental highlights

EURUSD – technical overview

The major pair has extended its run of declines off the 2008 high, trading down to a fresh multi-month low in April. But with the downtrend looking exhausted, the prospect for a meaningful higher low is more compelling, with a higher low sought out above the multi-year low from 2017, ahead of the next major upside extension. Only a weekly close back below the psychological barrier at 1.1000 would compromise this outlook. Back above 1.1450 will strengthen the view.

  • R2 1.1324 – 12 April high – Strong
  • R1 1.1264 - 13 May high – Medium
  • S1 1.1142 - 21 May low – Medium
  • S2 1.1111 – 26 April/2019 low – Medium

EURUSD – fundamental overview

The OECD was out calling for Eurozone growth of 1.2% in 2019 and 1.4% in 2020, while calling for German growth over the same time periods to come in at 0.7% and 1.2% respectively. Elsewhere, the Italian finance minister said Italy would respect its budget commitments with the EU. The market will be digesting ECB Draghi speak today, while also thinking about the upcoming European elections. The Euro has been trading with a heavier tone in recent sessions, gravitating back down towards the yearly low. Still, there hasn't been much in the way of anything driving the setbacks and dealers continue to report solid demand from medium term players into dips. Later in the day, we get the Fed Minutes.

EURUSD - Technical charts in detail

GBPUSD – technical overview

The major pair has put in an impressive recovery off the multi-month low in early January, helping to support the case for a longer-term developing uptrend off the 2016 low. Pullbacks are now viewed as corrective on the daily chart, with dips expected to be supported ahead of 1.2700. Look for a weekly close back above 1.3400 to strengthen the outlook.

  • R2 1.2852 – 16 May high – Strong
  • R1 1.2799 – 17 May high – Medium
  • S1 1.2685 – 21 May low – Medium
  • S2 1.2670 – 15 January low  – Strong

GBPUSD – fundamental overview

After sinking to a fresh multi-day low on more Brexit worry and a distressing UK CBI trends print, the Pound did its best to recover on news Theresa May would be announcing changes to her deal that would finally push things through. But the enthusiasm was to be let down quickly, as opposition on the pro-Brexit side called the new proposal 'worse than before,' and opposition from Labour announced it would not be supporting the PM's new plan. Looking ahead, Brexit updates are sure to influence price action. On the calendar, key standouts come from UK inflation readings and then the Fed Minutes later in the day.

USDJPY – technical overview

Another topside failure has led to a sharp pullback, with the market unable to establish above a formidable resistance zone in the 112s. Last week's drop below 109.70 strengthens the bearish case, exposing the next major downside extension towards a retest of the January flash crash low in the 104s. Any rallies should now be well capped below 112.00, with only a break back above the yearly high at 112.40 to delay the bearish outlook.

  • R2 111.70 – 3 May high – Strong
  • R1 110.96 – 6 May high – Medium
  • S1 109.81 – 20 May low – Medium
  • S2 109.02 – 13 May low – Strong

USDJPY – fundamental overview

Japanese FinMin Aso said didn't seem too concerned about the slowdown in capital spending, instead highlighting his view the economy wasn't performing all that badly. Earlier on Tuesday, BOJ Kuroda had stressed to the market the central bank's ETF buying was not aimed at boosting stock prices. Moving on, OECD forecasts for Japan growth called for 0.7% GDP in 2019 and 0.6% in 2020. Overall, the major pair will continue to keep its eye on investor risk appetite. Looking at the calendar, the Fed Minutes are the key standout for the remainder of the day.

EURCHF – technical overview

The market continues to do a good job adhering to a medium-term range, with rallies well capped towards 1.1500 and dips well supported into the 1.1200 area. At this stage, there is no clear trend, and it will take a sustained break back above 1.1500 or below 1.1200 for directional insight.
  • R2 1.1477 – 23 April/2019  high – Strong
  • R1 1.1330 – 14 May high – Medium
  • S1 1.1246 – 9 April low – Medium
  • S2 1.1200 – 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. Any signs of sustained risk liquidation in 2019, 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

The market has been very well supported since breaking down in early January to multi-year lows. The price action suggests we could be seeing the formation of a major base, though it would take a clear break back above 0.7400 to strengthen this outlook. In the interim, look for setbacks to continue to be well supported on dips below 0.7000 and ahead of 0.6800.

  • R2 0.6960 – 14 May high – Strong
  • R1 0.6933 – 16 May high – Medium
  • S1 0.6865 – 17 May low – Medium
  • S2 0.6800 – Figure – Strong

AUDUSD – fundamental overview

Aussie demand from the news of PM Morrison's victory earlier this week was short lived, with the currency back under pressure and trading near multi-day lows against the Buck. A China liquidity injection and a proposal from the APRA to ease lending rules also failed to inspire Aussie demand. The primary driver of the weakness came from Tuesday's RBA Minutes, which revealed a rate cut would likely be appropriate if there was no further improvement in the Aussie jobs market. RBA Lowe added that the central bank would be considering the case for a rate cut as soon as the next meeting. Looking ahead, the Fed Minutes are the highlight on the Wednesday docket.

USDCAD – technical overview

Despite breaking to a fresh yearly high in recent days, overall, the market has entered a period of choppy consolidation in 2019. However, the longer-term structure remains constructive, with dips expected to be well supported for fresh upside back above the 2018/multi-month high at 1.3665. Back below the psychological barrier at 1.3000 would be required to delay the outlook.

  • R2 1.3522 – 24 April/2019 high – Strong
  • R1 1.3500 - Psychological – Medium
  • S1 1.3377 – 1 May low – Medium
  • S2 1.3336 – 18 April low – Strong

USDCAD – fundamental overview

The Canadian Dollar has held up well on a relative basis, with the Loonie getting a nice boost from a number of places. Last week's news the US would be removing steel and aluminum tariffs on Canada and Mexico was one of those boosts. Meanwhile, ongoing upbeat talk from BoC Poloz and better bid OIL prices have also helped to drive Canadian Dollar demand. Looking ahead, key standouts on the Wednesday calendar come in the form of Canada retail sales and the Fed Minutes.

NZDUSD – technical overview

Despite recent weakness, there's a case to be made for a meaningful low in place at 0.6425 (2018 low). As such, look for setbacks to be well supported above the latter, in anticipation of renewed upside, with only a close below to compromise the outlook. At the same time, a push back above 0.6700 will be required to take pressure off the downside.

  • R2 0.6694 – 19 April high – Strong
  • R1 0.6631 –  7 May high – Medium
  • S1 0.6497 – Today/2019 low – Medium
  • S2 0.6465 – 26 October low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has suffered its way down to yearly lows on the back of softer local data, a recent RBNZ rate cut, and downturn in global sentiment. Tuesday's GDT auction print has been the latest data let down, with the negative print accounting for selling pressure on Wednesday. Looking ahead, the Fed Minutes are the highlight on the Wednesday docket.

US SPX 500 – technical overview

There have been signs of a major longer term top, after an exceptional run over the past decade. Any rallies from here, are expected to be very well capped, in favour of renewed weakness targeting an eventual retest of strong longer-term previous resistance turned support in the form of the 2015 high at 2140. The initial level of major support comes in around 2786, with a break below to strengthen the outlook. A sustained move above 3000 would be required to delay the outlook.

  • R2 2961 – 1 May/Record high – Very Strong
  • R1 2892 – 16 May high – Medium
  • S1 2798 – 14 May low – Medium
  • S2 2786 – 25 March low – Strong

US SPX 500 – fundamental overview

Although we've seen the market extend to another record high in recent days, mostly on the back of the Fed's dovish shift in 2019, exhausted monetary policy tools post 2008 crisis suggest the prospect for a meaningful extension of this record run at this point in the cycle is not realistic. Meanwhile, ramped up tension on the global trade front, should continue to be a drag on investor sentiment. We recommend keeping a much closer eye on the equities to ten year yield comparative going forward, as the movement here is something that could be a major stress to the financial markets looking out.

GOLD (SPOT) – technical overview

There are signs that we could be seeing the formation of a more significant medium to longer-term structural shift that would be confirmed if a recovery out from sub-1200 levels can extend back through big resistance in the form of the 2016 high at 1375. In the interim, look for setbacks to be well supported, with only a close back below 1250 to compromise the constructive outlook.

  • R2 1325 – 25 March high – Strong
  • R1 1311 – 10 APril high – Medium
  • S1 1266 – 23 April/2019 low – Medium
  • S2 1233 – 14 December 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, 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

The market has enjoyed a nice run since breaking out above a consolidation between Q4 2018 and Q1 2019. But the rally has now resulted in extended technical readings after overshooting a previous support zone in the 6k area. As such, look for additional upside to be limited, to allow for these technical readings to unwind from stretched readings. Setbacks should ideally be supported ahead of 5,000, in favour of the next push through the July 2018 high at 8,500.

  • R2 8,491 – July 2018 high – Strong
  • R1 8,329 – 16 May/2019 high – Medium
  • S1 7,000 – 17 May low – Medium
  • S2 5,669 – 24 April high – Strong

BTCUSD – fundamental overview

Bitcoin has enjoyed a stellar rally over the past few weeks, with demand increasing along the way. This month's resiliency in the face of the hack at a major exchange has given the crypto asset a huge credibility boost, while reports of mainstream adoption haven't hurt the cause either. Household names like Starbucks, Microsoft, TD Ameritrade and Whole Foods are all making moves in the space, while governments have been more receptive to working with the crypto asset. The story about an institutional cryptocurrency prime dealer partnering with M.Y. Safra Bank is yet another positive headline keeping the market in bull mode.

BTCUSD - Technical charts in detail

ETHUSD – technical overview

The recovery has recently accelerated to a fresh 2019 high, surging through medium-term resistance at 255. The upside break suggests the market is now looking to establish a meaningful base, in favour of continued upside in the weeks and months ahead. Still, shorter-term, the run is looking stretched and a period of consolidation is expected, to allow for extended readings to unwind.

  • R2 300 – Psychological – Strong
  • R1 279 – 16 May/2019 high – Medium
  • S1 227 – 17 May low – Medium
  • S2 200 – Psychological  – Strong

ETHUSD – fundamental overview

There has been a lot more buzz around adoption as the price of Bitcoin surges, with many mainstream names coming out in support of blockchain integration. Demand for web 3.0 applications is on the rise, and the blockchain with the biggest front end application potential is Ethereum. We've started to see some catch up as well, with ETH finding relative strength off cycle lows versus its older cousin.  At the same time, worry associated with fallout in the global economy, is worry that should weigh more heavily on risk correlated crypto assets like ETH. And considering the possibility an overextended Bitcoin runs into profit taking, there is risk we soon see a healthy adjustment back to the downside.

Peformance chart: This week's performance v. US dollar

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