US30 D1 05 13 2020 2204

The Dow Jones has an intriguing short-term price sequence to pay attention to here as pattern is underway. These patterns are built as a result of increasingly larger swings that eventually resolve themselves. If a lower low beneath 23361 occurs then the anticipation is for stocks to sell-off, with the Dow potentially filling the 4/3 gap at 21054.

Should the Dow firm up and rally it will still need to deal with the underside of the 2016 trend-line and gap from March 6/9, with the biggest portion of resistance around 24900. For now, the path of least resistance is looking lower, but will need to get a confirm on a break of 23361 before running with a more aggressive bias.

EURJPY D1 05 12 2020 2206

The optimism in the Euro doesn’t seem to jive with the harsh realities emerging on the ground. Despite the ECB signaling its willingness to do more, extraordinary monetary policy on the ECB’s part may be limited. It’s not just that new ECB President Christine Lagarde has been slow on the draw to match the fervor of her predecessor’s “whatever it takes” bazooka-like response, but that the German constitutional court has now demanded that the ECB justify its bond buying program within the next three-months, or else the Bundesbank must withdraw its participation.

This is significant news, insofar as it could set a dangerous precedent moving forward: that national central banks are no longer beholden to the ECB’s bidding, and in turn, that the European Court of Justice – which has previously ruled that the ECB’s QE program was legal – can be bucked by national court systems. The entire episode, particularly during a time of crisis, threatens to do more harm than good.
nd so, interest rate markets are not expecting the ECB to act again in a meaningful way in the very near future. If the ECB finally decides to embrace more substance rate changes rather than working on the margins, traders are discounting a 55% chance of a 10-bps rate cut materializing in October 2020.

After a decade of stagnant growth and failure to fully recover from The Great Recession and the Eurozone debt crisis, the European Union is ill-equipped to deal with the task at hand. The coronavirus pandemic demands coordinated efforts across institutions, borders, and boundaries, and in many respects, the EU has failed as its member states have failed one another.

It was only on April 9, after all, that the Eurogroup agreed to a rescue deal that clocks in at €540 billion (paltry compared to what the United States is doing), in part made available through the well-worn European Stability Mechanism (ESM). But the coronavirus pandemic has exposed an old wound: the desire by the less fiscally stable member states to have a federalized European budget. Germany, Austria, and the Netherlands remain opposed to jointly-issued debt among member states, otherwise known as “Eurobonds” – just as the bloc of northern member states did throughout the crisis of the past decade.

And so, the European Union may be nearing a breaking point anew. A lack of a federalized response mechanism, blockaded by the more fiscally stable members of the EU, may be the spark that forces countries to turn inward even faster – and tear the union apart. The ECB failed to inspire a meaningful recovery by the Euro, and now attention shifts back to the Euro more prominently reflecting this fundamental risk vis-à-vis pair EUR/JPY.

GER30 D1 05 12 2020 1613

The DAX has been in a sluggish state lately even if it isn’t rolling over with any real type of momentum. The 2011 trend-line and gaps from March 6/9 continue to be the big hurdle for the German benchmark to jump. Another push up into the 11235/11541 area could find yet another rejection. If the market can muster that much of a gain.

Right now, short-term momentum is generally heading sideways to south, and on that a dive lower to the important 10200 support level could soon be in the works. This could be a big test as it may determine whether weakness is a pullback that could lead to another drive higher, or whether another leg towards the March low is in the works.

For now, watch how the strong top-side resistance plays out on any test as well as the 10200 level on selling. These levels can could be helpful for traders from both sides of the market structuring good risk/reward trades.

GBPUSD D1 05 12 2020 2109

The British Pound is off more than 0.70% against the US Dollar since the start of the week with price continuing to contract into the April monthly range. We’re on the lookout for a breakout of this pattern for guidance with the broader risk still weighted to the downside while below a critical resistance zone just higher. These are the updated targets and invalidation levels that matter on the GBP/USD price charts.
The GBP/USD breakout approaching downtrend resistance targets and leaves the immediate advance at risk heading into 1.2710/53. - a region defined by the 61.8% retracement of the December decline and the 2019 yearly open. Price failed just ahead of this zone last week (high registered at 1.2643) with Cable holding a contractionary range just below downtrend resistance.


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UK100 D1 05 11 2020 2136

The recovery in the FTSE has been slow since it hit a capitulation bottom in March. It was only last week that the index was trading at levels achieved during the first few days of the rally dating back five weeks ago. The bottom line is that the overlapping price action is making for a tepid recovery, and one that is vulnerable to getting derailed, or experiencing a setback at the least.

Right now the general near-term trend is higher, with higher highs and higher lows keeping the chart tilted upward. The high created on April 30 at 6151 could be important as the market tries to climb back towards the threshold. A failure to climb above would be a sign the market may roll over again soon.

To confirm this notion we would want to see a decline below last week’s low at 5702, which puts in place the sequence of a lower high from the April 30 high and lower low below the May 4 low. A trend lower at that point will have begun along with a breaking of the channel structure since late-March.



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