Global stock markets somewhat strengthened last week as most countries continued with their coronavirus lockdown exit plan. Yet, with the exception of NASDAQ, major indices were capped below prior week’s high. Tensions between US and China remained a major focus. News flows on the topic were confusing. US Trade Representative issued a formal statement regarding a phone call between top officials of the two countries, saying that progress were made in trade deal implementation. But President Donald Trump sounded non-committal.
In the currency markets, Australian Dollar ended as the strongest ones. But just like stock indices, it’s kept below prior week’s high. Aussie pairs, in particular, AUD/JPY would be seen by us as a major gauge of risk sentiment for the near term. Dollar suffered some selling on talk of negative Fed interest rates by 2021. But European majors were generally weaker. Dollar index and Gold were also range bound only. The greenback hasn’t take up a clear direction yet.
NASDAQ extended impressive rebound but DOW struggled
NASDAQ extended the impressive rebound from 6631.42 last week. However, at this point, we’re not seeing any reason of a break of 9838.37 record high yet. Hence, while further rally is expected for the near term, focus will stay on topping signal as NASDAQ approaches 9383.37 high. Break of 8537.83 support will be the first sign of near term bearish reversal.
Comparatively, DOW’s performance was much worse, reflecting the economy outside of tech suffered much more in the current coronavirus pandemic. We’d continue to expect strong resistance from 61.8% retracement of 29568.57 to 18213.65 at 25230.99 to limit upside to complete the corrective rebound. Break of 22941.88 support should bring near term reversal for retesting 18213.65 low.
Dollar index range bound, as corrective pattern unfolds
Despite some notable volatility, Dollar index continued to gyrate around 55 day EMA last week. Outlook remains unchanged that price actions from 102.99 are seen as a corrective pattern, which hasn’t completed yet. Deeper fall cannot be ruled out but we’d expect strong support from 61.8% retracement of 94.65 to 102.99 at 97.83 to contain downside. Break of 100.93 resistance will bring retest of 102.99 high.
Gold also stayed in (triangle) consolidations
Gold also continued recent sideway consolidation that started at 1747.75. A triangle pattern is the most likely case but deeper pull back cannot be fully ruled out yet. But even in that case, downside should be contained by 38.2% retracement of 1451.6 to 1747.75 at 1634.45 to bring rebound. Upside breakout through 1747.75 is expected sooner or later to resume up trend.
Aussie’s strength in question, AUD/JPY remains a focus
While Aussie ended last week as the strongest one, it actually closed below prior week’s highs against all other major currencies. That was a sign of indecisiveness. EUR/AUD is back pressing 1.6597 key support level but couldn’t break through it yet. AUD/USD is held well below 0.6670 key resistance so far. AUD/CAD is also still pressing 0.9105 resistance without follow through buying to knock it out. Even AUD/NZD started to lose upside momentum after hitting 1.0748, as seen in daily MACD.
We’d to continue to use AUD/JPY as a gauge on how genuine the return of risk appetite is. Last week’s rebound saved near term bullishness. Yet, the cross hasn’t overcome key resistance zone of 69.95, 61.8% retracement of 76.54 to 59.89 at 70.17. Focus will remain on this 69.95/70.17 resistance zone this week. Decisive break there, accompanied by strong global stock rallies, would argue that investors are finally back in risk-on mode. Rejection by the zone, followed by break of 67.29 support, might be an early indicate of stock market weakness even if they lag.
GBP/USD stayed in range of 1.2247/2647 last week and outlook is unchanged. Initial bias remains neutral this week first. On the downside, sustained break of 1.2247 will suggest completion of whole rebound from 1.1409. Intraday bias will be turned back to the downside for retesting this low. On the upside, break of 1.2647 will resume the rebound from 1.1409 to 1.3200 resistance next.
In the bigger picture, while the rebound from 1.1409 is strong, there is no indication of trend reversal yet. Down trend from 2.1161 (2007 high) should still resume sooner or later. Next medium term target will be 61.8% projection of 1.7190 to 1.1946 from 1.3514 at 1.0273. In any case, outlook will remain bearish as long as 1.3514 resistance holds, in case of strong rebound.
In the longer term picture, long term outlook remains clearly bearish, as it’s held well below long term falling trend line that started back at 2116 (2007 high). Rejection by 55 month EMA also affirmed bearishness. Break of 1.1946 will target 61.8% projection of 1.7190 to 1.1946 from 1.3514 at 1.0273.
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