Everyday I love you less and less

Market Update: 25 May 2020

As expected, China’s National Party Congress took greater measures against Hong Kong that commentators believe will reduce their independence – and with that, the US were told to butt out. This may put USDCNY back under the microscope for moves and in turn direction for APAC-ex Japan currencies.

So with this change in stance, the question of domestic demand vs globalisation will be back on the agenda for the Super Powers. How does that affect us? well we’ve obviously had more than a shot across the bow (read scapegoat) in Australian exports, but the US isn’t as reliant on China trade.

If there comes a point to picking sides, that will certainly be an issue – exports to China are almost 10x that of the US. So either we choose our words wisely or figure out a way to innovate.

These potential macro turning points align with a few technical indicators.. GBPAUD on the precipice of a RSI buy signal (as per chart below) and DXY (USD Index) is within an interesting wedge formation that could go either way. It’s not too dissimilar to the pattern in S&P that remains below the 200dma of 2,999.72 and the psychological level of 3,000.

With US, UK and Singapore on holiday today, we don’t expect much direction – but looking forward, we have Germany IFO and GDP, US Claims and Durable Goods later in the week and in Australia private CAPEX and private sector credit.

DXY in a wedge formation

S&P holding under 3,000 and the 200dma.

Sources: Bloomberg

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