01-May-2020

1) GBP/USD: Once Again Fails Near 200-Day SMA Amid Deteriorating Global Risk Sentiment
2) The Euro Maintains Positive Tone
3) Stocks Are Softer Once More

1) GBP/USD: Once Again Fails Near 200-Day SMA Amid Deteriorating Global Risk Sentiment

The GBP/USD pair surged over 200 pips intraday and shot to over two-week tops on Thursday amid some aggressive US dollar selling. Against the backdrop of Wednesday’s dovish Fed and awful US GDP report, the greenback was further weighed down by the post-ECB pickup in the demand for the shared currency. The USD bearish pressure aggravated further following the release of Initial Weekly Jobless Claims, which dropped 603k to 3839k in the week ending April 25.

Meanwhile, the latest optimism over the successful stage 1 clinical trial of Gilead Sciences’ antiviral drug remdesivir to treat COVID-19 patients and re-opening of economies in some parts of the world turned out to be short-lived. Worries over the economic fallout from the coronavirus virus pandemic remained the key theme in the global financial markets. The market fears were evident from a fresh leg down in the US equity markets, which extended some support to the USD’s perceived safe-haven status.

This comes amid increasing prospects for an extended lockdown in the United Kingdom and persistent Brexit concerns, which eventually kept a lid on any further gains for the major. The pair stalled its strong intraday bullish momentum near the very important 200-day SMA and finally settled around 50 pips off the daily swing high. A further deterioration in the global risk sentiment led to some follow-through pullback through the Asian session on Friday.

The pair has retreated to mid-1.2500s as market participants now look forward to the final UK Manufacturing PMI for some impetus. Meanwhile, the US economic docket highlights the release of the ISM Manufacturing PMI. Apart from this, developments surrounding the coronavirus and the broader market risk sentiment might influence the USD price dynamics. This, in turn, might contribute towards producing some meaningful trading opportunities on the last day of the week.

From a technical perspective, the pair broke through a one-week-old ascending trend-line resistance but struggled to make it through the 200-day SMA hurdle. The mentioned barrier, around the 1.2640-50 region, coincides with April monthly swing highs and should now act as a key pivotal point for short-term traders. A convincing break through might now be seen as a fresh trigger for bullish traders and pave the way for a move towards reclaiming the 1.2700 mark, en-route the 1.2740 horizontal zone.

On the flip side, any subsequent pullback now seems to find some support near the 1.2520-1.2500 region, which if broken might prompt some technical selling and accelerate the slide further towards the 1.2430 horizontal zone. Bears might then aim back towards challenging the 1.2400 strong support, which if broken might negate any near-term positive bias and set the stage for the resumption of the prior bearish trend.

2) The Euro Maintains Positive Tone

The Euro maintains positive tone and consolidating under new two-week high at 1.0972 in early Friday’s trading.

The pair rallied strongly in the US session on Thursday, boosted by dollar’s month-end sell-off, advancing nearly 0.5% for the day, the biggest one-day gains since 7 Apr.

Decision of the ECB to keep the interest rates unchanged but leaving the door open for further stimulus in order to help bloc’s economy which faces strong economic contraction in Q2 and likely in whole 2020 year, also helped the Euro.

Thursday’s break above pivotal Fibo barrier at 1.0887 which capped the action for two weeks and extension and close above 1.0937/47 (50% of 1.1147/1.0727/55DMA) generated strong bullish signal.

Bulls eye strong barriers at 1.0986/88 (Fibo 61.8%/daily cloud base) and psychological 1.1000 level, reinforced by 100DMA, with 200DMA (1.1033) coming in focus. Momentum indicator turned positive on daily chart after being in neutral mode for several days, underpinning the action, along with faster MA’s (10/20/30) in bullish setup, as holiday-thinned volumes can also help rally.

On the other side, overbought stochastic warns that bulls would face a tough job to clear strong 1.0986/1.1033 resistance zone.

Corrective dips towards 1.0900 zone are expected to provide better opportunities for re-entering bullish market.

3) Stocks Are Softer Once More

Stocks turned broadly weaker yesterday as investors reacted to some stinky data from Europe and the US. Overnight Asian data has also had the whiff of soft cheese that’s been left out too long. Stocks are softer once more, though most of Europe is on holiday so the focus is on London until New York opens.

The S&P 500 eased back almost 1% to relinquish the 61.8% retracement at 2934 but closing at 2912 it finished well off the lows. Both the Dow and the S&P 500 recorded their best months since 1987 as equity markets rebounded on central bank largesse, government bailouts and the outperformance of US tech over just about anything else. The tech-heavy Nasdaq was up 19% for the month and is nearly flat for the year. It’s shame we don’t really have any tech firms left, as nothing else is growing.

The FTSE 100 endured a terrible session, finishing 3.5% weaker as Shell tumbled, just holding onto 5900 and the 38.2% retracement of the drawdown. At Friday’s open the index shipped another 2% to break under 5800 and move back to where it opened on Monday at 5,752, completing a 400-pt round trip this week. This will be a level bulls will seek to defend. RBS shares rallied 3%, whilst Lloyds fell 4%. RBS said profits fell 59% to £288m as it set aside £800 for loan losses. But revenues were down just 1.6% at £3.2bn – Lloyds reported an 11% decline in revenues. Something doesn’t look right.

South Korean exports declined 24.3%, the worst slump in 11 years. Japanese factory activity fell to its lowest since 2009. The AIG Australian PMI dropped by 17.9 points to 35.8 in April, its largest month-to-month fall in the 28 years since it began. New Zealand consumer confidence fell 21 points in April to 84.8, where it troughed in 2008. Today’s main event will be the US ISM manufacturing PMI, which is seen declining to 36.7 from 49.1 a month ago.

Donald Trump is threatening new tariffs on China in retaliation for the coronavirus – trade tensions back on the agenda won’t be terribly positive for risk appetite but for now remains something on the margins. But the US and Europe will demand China steps up – if we talk about what permanent changes are taking place or what trends have accelerated sharply, then deglobalisation has to be at the forefront.

Apple shares declined in extended trading after it reported a slowdown in revenue growth and declined to offer guidance for the June quarter. It will however continue to buy back stock and increased its share repurchase programme by $50bn. Revenues from iPhones declined 7% to $29bn, but Services revenues rose 16% to $13.3bn. Overall revenue growth was down to +0.5% vs 9% in the previous quarter.