Several hedge fund giants have raised their bullish bets on gold, according to Wall Street source.   These include Elliott Management led by Paul Singer, Caxton Associates managed by Andrew Law and Dymon Asia Capital founded by Danny Yong.   According to latest Commitment of Traders report released by the US Commodities and Futures Trading Commission(CFTC) on May 1st, as of the week ending on April 28th, speculative net longs increased by 13,158 to 262,729 contracts, signaling a growing bullish bet on gold. Speculators are betting that a new round of monetary easing and fiscal stimulus to tackle coronavirus epidemic  around the globe will lead to currency depreciation and benefit gold.   US Treasury estimates that net volume of US T-Bond in circulation in Q2, 2020 will increase by US$3 trillion, which creates a new quarterly record. Analysts observed that measures taken by major global economies in the name of fighting the pandemic are essentially printing money without limit, and in such case gold makes an ideal save-haven asset against depreciating currencies.   Alex Mashinsky, chief executive of Celsius Network, said the massive monetary easing policies by central banks would boost the performance of safe-haven gold, while the rest of the gains could be driven by low interest rates and disruptions to gold mining.   Gold daily pivot points: 1689---1695 S1: 1676             R1: 1702 S2: 1666             R2: 1718  

Overall, EUR/USD is ranging across. Recently, EUR/USD moved lower into the support level of 1.07800. In the released economic forecast yesterday, the European Commission estimated a 7.4% decline in the GDP of the European Union economy this year due to the impact of COVID-19, a drastic change in the direction of growth forecast from the 1.4% growth estimated back in February. European Central Bank President Lagarde will be participating in a Bloomberg webinar later at 2200 (SGT). During this time, there may be volatility in EUR. Currently, EUR/USD is testing the support level of 1.07800 and the next resistance level is at 1.09700. Look for short-term selling opportunities of EUR/USD if it breaks the support level of 1.07800.

The reason behind this discrepancy is that, while both gold and silver are obviously precious metals, priced by the ounce rather than the tonne, their demand profiles are really very different. Estimates of industrial demand for silver vary, but they coalesce around the 50% level. Aside from its coveted beauty, silver is the best thermal and electrical conductor of all elemental metals. Meanwhile gold is much more obviously a financial asset, with industrial use accounting for barely 10% of buyers. It has its industrial uses too, of course, but it’s expensive and that tends to limit them. What that means is that silver is far more vulnerable than gold to the prospect of a global recession. When growth collapses, so does that industrial demand. Some of it will no doubt be replaced by increased buying from the haven-seeking community, but far from all.

It is notable however, that the gold/silver ratio is now extremely stretched. That number is simply the number of ounces of silver it takes to match the price of a single ounce of gold. At current levels it’s around 114. The ratio has in fact been rising steadily since the mid-1960s, but was generally below 80 between 1990 and 2018. It tends to blow out during periods of rising economic uncertainty. The current period certainly fits that bill. The ratio seems likely to snap back quite sharply if national economies manage to re-open and operate without a Covid re-emergence. However, investors should probably bear in mind the overall rising trend here.

The Euro notably diverged from sentiment-driven trade. The single currency faced heavy selling pressure amid worries about an upcoming ruling from the German constitutional court on the legality of the ECB’s emergency asset purchase program (QE). An outcome compromising the central bank’s response to the economic malaise triggered by the Covid-19 pandemic might translate into heavy pressure on the Eurozone’s more troubled sovereigns, like Italy and Spain. A surge in borrowing costs there is likely to broadly punish EUR. It might likewise sour overall sentiment. European shares are on the upswing and futures tracking the bellwether S&P 500 stock index are pointing firmly higher ahead of the opening bell on Wall Street. That ma be reversed if credit stress returns to the Eurozone, with JPY and USD the likely beneficiaries.

EUR/USD PRICE ACTION TIGHTENING UP AROUND MAJOR SUPPORT The price action since last month has been tightening up in the Euro, making for a situation that could soon turn explosive as low volatility turns to high volatility. What is particularly interesting about this situation is that it is also occurring at a trend-line dating back to 1985 when you construct EUR/USD prior to the existence of the Euro from its constituents. Given the magnitude of the trend-line a major make or break situation is upon us. With price acting rather soft around the line with multiple and increasingly smaller bounces taking shape, probability is rising quickly that we see a breakdown. The first line of support to watch is 10768, followed by the important March low at 10635. A break of the latter line could quickly give EUR/USD separation from the trend-line towards the January 2017 low at 10340 and parity. Given the significance of the trend-line a break well beyond parity is certainly possible. If, however, support continues to hold it is possible a base is being built and EUR/USD is preparing to trade higher in a meaningful way. It is looking like the lesser likely scenario at this juncture, but one we can’t rule out. Support is support until it’s not. The first level of resistance to break to get things going is 10990, then the falling 200-day at 11046. Beyond there if momentum can pick up then we may see much higher levels come. But don’t be surprised if momentum starts to develop only to fail once again. The long-side has been tough since 2018, and until the Euro can prove itself this may be the case for some time to come.

***Updates will be provided on the above thoughts and others in the trading/technical outlook webinars held at 930 GMT on Tuesday and Friday. If you are looking for ideas and feedback on how to improve your overall approach to trading, join me on Thursday each week for the Becoming a Better Trader webinar series.

When the share of CCC-rated debt in a CLO exceeds the 7.5 percent threshold, the manager of the securitized vehicle has to make a choice between two possible ways forward, both of which could rattle markets. He/she might dump lower-rated loans at fire-sale prices or suspend interest payments to investors with exposure to the bonds in the instrument’s lower-level tranches. According to Bank of America, 30 percent of CLOs may already be exceeding that capacity. The Financial Times wrote that ratings agencies have put more than 1,000 “slices” of debt in CLOs on review, with expectations that the result will lead to a tidal wave of downgrades. The coronavirus pandemic and subsequent shelter-in-place orders that came from governments wanting to contain it, have led regulators to re-evaluate the economic landscape and adjust the ratings of what is now riskier debt accordingly.

The S&P 500 may be on the verse of resuming the steep selloff started in March after prices broke resistance guiding US stocks’ April recovery. Get your S&P500 market update from @IlyaSpivak here:https://t.co/8MD4i1vEmh https://t.co/kufMaKpdcm

A daily AUD/JPY chart also reveals how the Australian Dollar could come under pressure after rejecting the 70.000 handle – a massive zone of confluent resistance noted by the 100-day exponential moving average, March 08 gap lower, 61.8% Fib, as well as the top barrier of its rising wedge pattern. Yet, AUD/JPY might keep marching higher, perhaps toward the 74.000 price mark, if trader risk appetite remains upbeat and volatility compression bolsters the currency carry trade.

Zooming in on a daily AUD/USD chart shows the Australian Dollar is already starting to edge lower with a bearish reaction to its upper Bollinger Band near the 0.6500 price level. Technical support, underpinned by the 61.8% Fibonacci retracement of its year-to-date trading range, may provide AUD/USD a degree of buoyancy. Although, Australian Dollar selling pressure could accelerate if spot AUD/USD price action invalidates its short-term bullish trend noted by the recent series of higher lows.

The Australian Dollar faces a pivotal inflection point as AUD/USD price action rallies into a huge area of resistance. This technical barrier, which threatens to send AUD/USD recoiling back lower, is highlighted by a confluence of its 20-week moving average and 38.2% Fibonacci Retracement level of the January 2018 to March 2020 trading range.

Closely correlated to the S&P 500 VIX Index, and trader sentiment in general, the Australian Dollar remains vulnerable to a broader reversal, and could follow the return of volatility. This bearish scenario for AUD price action appears increasingly likely as complacency builds and market participants refuse to acknowledge progressively woeful economic data. If FX volatility ebbs further, however, the Australian Dollar might continue its recent ascent. Though this seems unlikely for now in light of the latest China tariff threat from Trump. Moreover, the technical backdrop for AUD/USD and AUD/JPY paint bleak pictures for Australian Dollar outlook

CHINA RETURNS FROM ELONGATED BREAK With Chinese market participants away, given the market holiday, the offshore Yuan (CNH) is trading at its largest discount (700pips) to the onshore (CNY) since the beginning of 2016. As such, with China returning from its elongated break, eyes will be on the Yuan mid-point overnight. Signs that China is content in allowing the Yuan to depreciate would leave topside resistance in USDCNH exposed at 7.16 where a breakthrough would leave both emerging and commodity currencies vulnerable.

Gold volatility (as measured by the Cboe’s gold volatility ETF, GVZ, which tracks the 1-month implied volatility of gold as derived from the GLD option chain) is trading at 23.72, breaking its coronavirus pandemic low set on March 16 at 23.96. It’s worth noting that, despite gold volatility breaking its coronavirus pandemic lows, gold prices have not: gold prices were trading at 1696.94 at the time this report was written; on March 16, gold prices traded as low as 1451.43. As such, the 5-day correlation between GVZ and gold prices is 0.08 while the 20-day correlation is -0.41; one week ago, on April 28, the 5-day correlation was 0.68 and the 20-day correlation was -0.43; and one month ago, on April 7, the 5-day correlation was 0.99 and the 20-day correlation was -0.55. It remains the case that, as has occurred many times over the past year, when gold volatility falls but gold prices do not follow, leading to a situation of negative correlations in the short-term, it has typically indicated a digestion period for the market prior to further gains. If history is a guide, the recent sideways move in gold prices in context of the decline in gold volatility may be setting up the conditions for a rally after all.

CHFJPY daily price chart zoomed in 05-05-20. Based on analysis of the daily chart, on March 31 CHF/JPY broke below the uptrend line originated from the March 9 low at 109.58. Last month, the price failed on multiple occasions to overtake the 50-day moving average, indicating that bears were still in charge. On April 13, the pair fell and stuck in the current trading zone 10.7.76- 111.68. A close below the low end of the zone could embolden bears to press towards 103.93. A further close below that level could send CHFJPY towards 101.87. In that’s scenario, the weekly support levels underscored on the chart (zoomed in) should be watched closely. In turn, a close above the high end of the zone would mean a weaker bearish sentiment. This may trigger a rally towards 114.38. A further close above that level could extend this rally towards 116.43. Although, the weekly resistance levels printed on the chart would be worth monitoring.

With that in mind, we can surmise much of the market’s focus has shifted to the expected recovery timeline, not the current despair. Still, I find it difficult to accept the jobs lost will immediately return and suspect the recovery will be more treacherous than the market is currently projecting. Regardless, price action has shown its ability to climb higher in the face of bad news so it seems unlikely Friday’s report will shift the tide, but it could erode sentiment into the rest of the month. While the fundamental side develops, bullish technical traders will look to retake recent highs around 9,157 and establish a fresh high in pursuit of a continuation higher. Such a move would also require a break above 9,000 and the Fibonacci level nearby, while support may exist underneath from the ascending band around 8,565. So, the Nasdaq may take the upcoming news in stride, but the chickens will come home to roost eventually which leaves risks tilted to the downside in my opinion.

Generally speaking, there is a strong inverse relationship observed among the direction of risk assets, like stocks, and level of market volatility. This is indicated by the negative correlation typically held between S&P 500 price action. An influx of coronavirus optimism since mid-March, though supportive of the S&P 500, has largely kept the VIX Index and several cross-asset volatility benchmarks under pressure. The retracement lower in market volatility over recent weeks might seem encouraging on the surface, but VIX Index term structure indicates that investor uncertainty remains extremely high, and leaves the stock market rally in jeopardy, even as spot VIX falls.

Without going too far down the academic rabbit hole, there are two takeaways of the IS-LM model that carryover into understanding the Mundell-Fleming model. First, that the downward sloping IS curve demonstrates that as the level of interest rates fall, the level of economic activity rises. This is intuitive: the more readily credit is available, the more economic activity will flourish. Second, the upward sloping LM curve demonstrates that as economic activity rises, the level of interest rates rise too. This is also intuitive: stronger economic activity provokes inflation and higher bond yields in response.

That being said, the FTSE is far from a position of power despite early signs that European and American cities have begun to ease restrictions. Therefore, one of the few bright spots for the index may exist in the series of higher highs and higher lows starting in late March and holding above the recent low around 5,670 will be crucial in keeping the formation alive. While the upcoming event risk may provide the spark to make or break the level, evidence for a broader continuation higher might exist even if the immediate reaction to the news is negative – as long as it holds above the recent low. Should it fail however, the FTSE 100 may slip to an area of subsequent support around 5,500. This would muddy the series of successive higher highs and lows and would deal a technical blow in the short-term. If, on the other hand, the event risk passes and market participants are happy with the bank’s intentions, establishing another high above resistance around 6,225 will be important for staging the next leg higher. A gap exists immediately above the area, which may allow for bulls to capture the zone and enjoy a quick rush higher. Either way, price action may remain subdued until Thursday’s rate decision has passed. Join my colleague Justin McQueen for a live webinar of the event in which the resultant price action and implications will be discussed.