UK100 D1 06 11 2020 2130

Risk appetite evaporated during Asia trade with Dow Jones futures plunging over 1.5%, as the number of confirmed COVID-19 cases in the United States surpasses 2 million.

US Treasury yields fell as the Federal Reserve announced it will continue to purchase bonds and mortgage-backed securities. 

Overnight comments from Chair Jerome Powell have taken the sting out of the recent rally in risk assets, dismissing the better-than-expected Non-Farm Payrolls (NFP) report showing a record 2.5 million jobs added in May as “clear evidence of just how uncertain things are”.

Keeping the target rate for the federal funds rate at 0 to 0.25%, the FOMC is “not even thinking about raising rates” as they remain “strongly committed” to doing “whatever we can for as long as it takes”.

Expanding its balance sheet “at least at the current pace” through Treasury purchases of $80 billion a month and mortgage-backed securities of $40 billion, it’s clear that the central bank doesn’t believe the worst has passed as there are still “considerable risks to the economic outlook over the medium term”.

GBPUSD D1 06 11 2020 2129

Psychological resistance at the 1.28-handle proved too much for GBP/USD as a Spinning Top followed by a Bearish Engulfing candle may signal the reversal of a 10-day ‘bull run’.

Breaking through the April high (1.2643) earlier in the month, price continued its surge above the February low (1.2726) before sellers took over just shy of the 61.8% Fibonacci (1.2840).

Bearish divergence between price and momentum highlights a level of exhaustion in the recent rally, with RSI dipping prior to overbought territory providing further bearish bias.

The 200-day moving average (1.2610) may provide temporary support for GBP, however the sharp correction in RSI suggests strengthening downside momentum that could propel price back to 12-week trend support.

A break and close below trend support and the 23.6% Fibonacci (1.2355) may carve out a path back to the May low (1.2075), with RSI snapping its constructive trend possibly signalling a resumption of primary downtrend.

AUDUSD D1 05 29 2020 2214

RBA Governor Philip Lowe’stestimony to the Senate Select Committee on COVID-19 praised the performance of the central bank’s mid-March emergency package and its assistance in ‘building the necessary bridge to the recovery’.

The success of ‘flattening-the-curve’ of COVID-19 infections in Australia has led to ‘national health outcomes better than earlier feared’ and may result in an ‘economic downturn not as severe as earlier thought’. Outlining that the path for recovery will be dependent on ‘how quickly confidence can be restored’ the Governor may be pleased by the record rebound of the Westpac Consumer Sentiment Index in May (88.1), after falling to the lowest levels recorded on the 47-year old gauge in April (75.6).

Fiscal support through the JobKeeper & JobSeeker initiatives has helped cushion the blow on the labor force resulting in the unemployment rate for April beating market expectations (8.3%), despite rising to the highest level since late-2015 (6.2%). With the participation rate falling to a 15-year low in April, the smooth re-opening of the economy will be pivotal in defining the next steps for the RBA as the central bank ‘maintains its expansionary settings until progress is being made towards full employment’.

The upbeat tone in the RBA meeting minutes for May pushed the AUD/USD back to pre-crisis levels and this push could continue if local economic data supports the ‘upside scenario’ in which ‘employment growth and spending recover more rapidly’ than established in the RBA’s ‘baseline scenario’

Headlining the economic docket for next week will be the June 2nd interest rate decision from the RBA, with the expectation that the official cash rate (OCR) will remain at the record low of 0.25%. The forward guidance provided by Governor Lowe will be intently scrutinized and could continue to spur the recent strength seen in the Australian dollar.

GBPCHF D1 05 28 2020 2216

On May 18, GBP/CHF declined to an over six-week low at 1.1741 then rallied after as some bears seemed to cover. As a result, the weekly candlestick closed in the green with a nearly 0.5% gain.

Alongside this, the Relative Strength Index (RSI) rose from 34 to 42 highlighting that the bearish move was losing momentum.
Based on the analysis of the daily chart, at the start of last week, GBP/CHF rebounded from the low end of the current trading zone 1.1741 -1.2091 then rallied after. This week, price failed twice to close above the 50-day moving average indicating that bears were still in charge.
A close below the low end of the zone reflects a stronger bearish sentiment and could send the price even lower towards 1.1115. Nonetheless, the weekly support level underlined on the chart should be considered.

On the other hand, any close above the high end of the zone could trigger a rally towards the 1.2500 handle. A further close above that level may extend this rally towards 1.2915. In that scenario, the weekly resistance levels marked on the chart should be kept in focus.


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US Dollar Basket 20200529 15.14

The risk rally faded into the Wall Street close after President Trump announced that he will hold a press conference on US measures against China concerning the recent passing of the Hong Kong Security Bill. In turn, with sanctions against Chinese officials likely to be the main outcome, alongside a potential change to Hong Kong’s special trading status with the US. This will mark a fresh escalation in the tensions between the US and China, where the latter has already vowed to announce countermeasures if the US interferes with internal affairs. Therefore, risks are rising for a pullback in risk sentiment.
Another factor to keep in mind is month-end rebalancing. As it stands, major investment bank models have touted USD selling, given the outperformance in US equities relative to its counterparts over the past month. Signs are that month-end has already had an impact on the US Dollar, which has seen a notable pullback throughout the week. Interestingly, despite equities seeing modest softening, the typically safe-haven USD has weakened as well, which has been a rare occurrence as of late, given the increasingly negative correlation between the US Dollar and risk assets.

With that said, given that the tensions between the US and China are likely to persist, we still that risks are skewed towards the upside for the US Dollar in the mid-term.

NAS100 D1 05 28 2020 0955

The Nasdaq 100 stands in a class of its own as the tech-heavy index looks to retake all-time highs which exist just a few hundred points from the current price. Thus, it seems the Nasdaq 100 is in a strong position to make an attempt at the prior peaks in the weeks ahead as long as the ascending channel remains intact
Still, prior highs established earlier this week may prove to be first barrier in a renewed attempt higher. The level roughly coincides with the top of the channel, so the area may provide notable resistance before the Nasdaq 100 can look to target record levels around 9,752.
Initial support may reside at the lower bound of the channel, currently around the 9,150 mark. A bearish break would amount to a significant technical development for the index and may constitute a complete review of the technical landscape. Either way, secondary support may well exist at the nearby Fibonacci level around the psychological 9,000 price point.

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