Weakening U.S. economic conditions are adding to global worries, writes Bill Baruch, President of  BlueLineFutures.com.

Euro (ECM)

Session close: Settled at 1.1271, up 84

Fundamentals: Deteriorating global conditions are now being led by the United States. The Eurozone has displayed dismal growth for months, but U.S numbers had been shaking the broader trend. Going back to May 23, U.S Manufacturing PMI surprised to the downside and yesterday’s final May read matched the worst on record at 50.5. ISM Manufacturing was also weaker than expectations. Although the Eurozone reads were worse, there is more downside for the United States to be priced in as rate-cut expectations skyrocket. In fact, there is a 97.9% probability the Fed cuts rates by 25 basis points and an 84.4% probability they cut by 50 basis this year. The U.S 10-year Treasury note is hovering just above 2%, the lowest level since September 2017.

The 10-year’s 0.5% slide in about five weeks forces the currency side to reposition. Today, the dovish St. Louis Fed President Bullard said a “downward policy adjustment may be warranted soon”. Furthermore, the euro rejected a technical floor and this overall landscape sets it up for additional gains. This morning, we look to prelim Eurozone CPI at 4:00 am CT. Chicago Fed President Evans speaks around 7:00 am CT, NY Fed President Williams speaks at 7:30 am CT and all eyes will be on Fed Chair Powell at 8:45 am CT. Factor Orders will be watched closely at 9:00 am CT on the heels of dismal manufacturing reads and Fed Governor Brainard speaks at 2:45 pm CT.

Technicals: Price action in the euro has rejected support at the 1.11565 region, ripping to its highest settlement since April 22. It has not broken the intermediate-term downtrend line which aligns with major three-star resistance at 1.1325-1.1330; watch this area closely and a close above here should gather legs. Support now comes in at 1.1203-1.1220 and a move back below here will be considered a failure. We have introduced a Bullish Bias today until the Euro can prove otherwise.

Bias: Bullish/Neutral

Resistance: 1.12695-1.1282**, 1.1325-1.1330***, 1.1379-1.13855**

Support: 1.1203-1.1220**, 1.11265-1.11565***

Japanese yen (JYM)

Session close: Settled at .9266, up 29.5

Fundamentals: The Japanese yen broke out above major three-star resistance on Friday, gathering technical and fundamental steam through today’s session. Both dollar weakness and deteriorating risk-sentiment helped to lift the yen. Not only has the economic data turned sharply south, the beleaguered tech sector now holds tremendous headline risk. With odds racing to price in a rate-cut and the U.S 10-year Treasury note nearing the psychological 2% mark, at some point the safe-haven trade will need to take a breather. Even still, pullbacks should prove to be buying opportunities up until the aftermath of a cut or economic growth beginning to show a stronger than anticipated expansion. There is an overnight 10-year JGB auction.

Technicals: Price action has succeeded through the first hurdle but now faces strong major three-star resistance at .9284, a level in which it stopped at today. For this reason, we will hold only a Neutral/Bullish Bias, but believe pullbacks that hold .9185-.9217 should present a buy opportunity.

Bias: Neutral/Bullish

Resistance: .9284***, .9326**, .94585***

Support: .91815-.9217***, 9102-91075***

Aussie (ADM)

Session close: Settled at .6982, up 39

Fundamentals: The Reserve Bank of Australia met last night and was expected to cut interest rates by 25 basis points. Given that the cut is priced in, what matters most is the path that the committee sets for future cuts and the rhetoric in which they wrap it. The market is leaning towards at additional cuts this year and a more neutral statement. We expect the Aussie to react directly in relation to these expectations but the technicals must not be forgotten. Retail Sales is due at 8:30 pm CT, ahead of the policy decision at 11:30 pm CT.

Technicals: The Aussie has met strong support and could not chew through. It has been enjoying a relief rally over the last two trading sessions as the U.S dollar lost ground. Major three-star resistance comes in at .6970-.7001 and a failure to close out above there tomorrow will signal the ceiling is still intact. A close above here though should pave the way for further relief from depressed conditions.

Bias: Neutral

Resistance: .6970-.7001***, .7042-.7056**

Support: .6931-.6951**, .6809-.6861***

Canadian (CDM)

Yesterday’s close: Settled at .7445, up 46.5

Fundamentals: What a rally for the Canadian dollar in the face of immense weakness in the energy sector. Although the Reserve Bank of Canada Manufacturing PMI contacted more than expected, it was the U.S dollar that needed to catch up to rate cut expectations and deteriorating conditions. If commodity prices and risk sentiment cannot hold footing, look for these gains to sour quickly.

Technicals: Price action rejected the .7400 floor and settled today just above our pivot. There are two layers of resistance, but the big level up above does not come in until .7600-.7630 and a stable environment coupled with U.S dollar weakness should provide a tailwind to here. However, we find this upside limited given the fundamental risks and remain Neutral.

Bias: Neutral

Resistance: .7491-.7509**, .7544-7564**, .7600-.7630***

Pivot: .7443

Support: .7404-.7427***, .7330-.7347***

Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.

You can sign up to receive these levels here