Earnings Season In Focus

As traders get back to their desks following a long Easter weekend, markets hinting at a fairly constructive appetite for risk meet them. The discussion over exit strategies across the major economies following their periods of lockdown is playing into this improvement in market sentiment, as has better than expected Chinese trade data. With several countries in Europe now beginning to ease lockdown restrictions, President Trump suggests that the US is close to completing its own plan to re-open the country.


However, we will begin to get some clarity on the scale of the impact on first quarter corporate data as earnings season kicks off this week. It could make very sobering reading. The big banks report this week, with JP Morgan and Wells Fargo in focus today. Furthermore, although the recovery on equity markets continues today, there is still a significant risk that they are simply bear market rallies. We have not seen the scale of second wave of COVID-19 infections/deaths yet, something that should become a factor as economies reduce restrictions on the movement of their populations once more. For now, the recovery is still progressing, but for how long?


Treasury yields are higher, the US dollar less strong, and equities also stronger. After a weekend of tense negotiations amongst major oil producers, driving price volatility, oil is relatively settled today. With estimates of well over 20m barrels of oil per day out of demand, are the OPEC+ production cuts even going to make a difference?


AUDUSD


Trend: First signs of bearish reversal visible.


Relevant Key Levels: Resistance zone 0.6462 - 0.6500; Support 0.6300.


Price Action: Price vulnerable below 0.6400 - 0.6500 forming rejection candles with uptick in sell volume.


Potential Trade Idea: The Australian Dollar has recovered to challenge the bounds of its 2020 downtrend against its US counterpart. The bounce seems to reflect ebbing credit market stress after the Federal Reserve delivered back-to-back liquidity-boosting measures amid signs that the coronavirus outbreak is stoking a cash crunch.


From here, a daily close above the 0.65 figure would suggest that near-term selling pressure has been neutralized. That might open the door for another challenge of support-turned-resistance in the 0.6671-90 zone, a former range floor in play since August 2019.


If prices are rejected downward, initial support appears to be marked by the 61.8% Fibonacci retracement at 0.6236. Breaching this barrier – with confirmation on a daily closing basis – would also mark the break of counter-trend support and set the stage for the still-dominant bearish bias to be reasserted.


Zooming into the four-hour chart cautiously argues in favour of the latter scenario. The appearance of negative price action speaks to ebbing upside momentum may speak to a bearish reversal in the cards.



Speculators raised their net shorts on the AUD by $240mln.



Good luck trading,

Dom

Dominik Stone

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