Coronavirus and markets in the week from 12/5 – 18/5/2020

At the end of the week, optimism prevailed in the markets that the economic recovery could be faster than expected in response to reports of a successful coronavirus vaccine test by Moderna company. Experts expect that the vaccine could be available within 12 months. As a result, commodity currencies strengthened and the euro reached its highest price in two weeks.

Fundamental analysis

Aggregate statistics of coronavirus cases show that new daily increases in the coronavirus infection worldwide have remained constant between 75,000 and 100,000 cases since April.
 

  • The total number of the coronavirus infections as at May 18, 2020, is more than 4,870,000 cases.
  • A new epicenter has evolved in South America, where there are currently 246,000 cases in Brazil with a daily increase of 15,000 cases.
  • In Russia (total number of cases 291,000), the sharp increase in new cases recorded in the first half of May has stopped, and currently, it stands at around 9,000 cases per day.
  • The largest number of cases is in the USA (1,543,000). There is a slowly decreasing trend of new cases, currently, the daily increase is between 18,000 and 27,000 cases.
  • There are 246,000 cases in the UK, with a daily increase of around 3,500 cases. The situation is not completely under control yet, the government is criticized for easing restrictive measures too quickly.
  • In Italy, France, and Germany, the situation is gradually coming under control and there are less than 1000 new cases per day.


Following reports have been selected from last week's macroeconomic data:  

 
  • The US reported a further increase in claims for unemployment insurance. Last week, 3 million unemployed people in the United States applied for support. In total, more than 36 million unemployed people have applied for support since March 19, 2020.
  • Retail sales in the US fell by 16.4% in April (down from 8.7% in March). Sales are under pressure due to high unemployment.
  • Australia's business sentiment index reached -46 in April (-66 in March).
  • In Australia, the number of unemployed increased by 594 thousand in April. Unemployment is 6.2% in Australia.
  • The positive news is that industrial production in China grew by 3.9% on year on year basis in April. Even in February, in the middle of a pandemic, production fell to -13.5%. The improvement gives hope that similar development might follow in other countries.
  • April retail sales in China reached - 7.5% (for March - 15.8%).
  • GDP in the euro area fell by -3.2% in 1Q 2020.
  • On Monday, May 18, 2020, Macron and Merkel agreed on a proposal to create a recovery fund to support the EU economy. The plan means the creation of a fund of EUR 500 billion, from which the grants will be given to the regions most affected by the coronavirus crisis. The fund will be part of the EU budget. The euro has responded to this news with strong growth.
  • The Fed chair Powell has so far ruled out considerations about negative US interest rates.
 


COT Report


Let's look at how large traders react to the situation and what is the market sentiment on selected instruments. The data is based on the COT report, which is presented regularly every Friday and shows the number of positions of large speculators in the futures markets in New York and Chicago. 


 COT report – positions of large traders
 
Instrument Data as at
15/5/2020
Data as at  
8/5/2020
Data as at  
1/5/2020
Data as at 
24/4/2020
Data as at 
17/4/2020
Sentiment
Euro 78 100 76 300 79 700 87 200 86 600 Bullish
Japanese yen 27 900 27 200 32 300 26 000 22 600 Bullish
Australian dollar -35 400 -33 500 -37 700 -34 800 -35 500 Bearish
Canadian dollar -32 200 -32 100 -29 000 -23 900 -23 800 Bearish
USD index 16 500 16 400 16 100 15 600 15 400 Strong bearish

Technical analysis of selected titles as at May 18, 2020

The moving averages used in the graphs are EMA 50 (orange line) and SMA 100 (blue line).
 

The EURUSD currency pair

 

It is still true that the EURUSD has been moving in a declining trend for a long time, see Figure 1, which is confirmed by moving averages, as the EMA 50 is still below the SMA 100. The EURUSD has moved recently in a triangular formation. The sharp appreciation of the euro on May 18, 2020, is due to the news on a plan to set up a € 500 billion EU recovery fund.

Figure 1: The EURUSD currency pair on a daily chart

The nearest support area is at the level of 1.0730 - 1.0780. Another strong support is in the range of 1.0630 - 1.0690.
The band 1.0978 - 1.1020 can be considered as the first resistance. Another resistance is in the zone 1.1140 - 1.1160.
The lines of said triangle and moving averages also form supports and resistances.

 

The USDJPY currency pair


Not much has changed in this pair since last week. The USDJPY currency pair has been on a declining trend for a long time. Also from the perspective of the last month, the price is moving downwards, gradually creating a lower low. Currently, the price has reached the level of resistance, which is moving average EMA 50.
 
Figure 2: The USDJPY on a daily chart

The nearest support is in the range 105.90 - 106.10. Another support is in the zone 105.10 - 105.40. The nearest resistance is in the range 107.90 - 108.10 and the next resistance is in the zone 109.20 - 109.50.
 

The USDCAD currency pair


The Canadian dollar has been in the range of 1.3850 - 1.4350 since March 31, 2020. In Figure 3 we can see how EMA 50 forms the level of support from which USDCAD bounced upwards on May 11, 2020. Now the pair is approaching this moving average again. Overall, the pair is moving in a growing trend since February 20, 2020.

How the situation in the oil market, which the Canadian dollar correlates with, develops, will be crucial for further direction of the pair. Oil prices are currently rising. This, along with optimistic sentiment for a rapid economic recovery, could support the Canadian dollar‘s strengthening. 

 
Figure 3: The USDCAD currency pair on a daily chart

Resistance 1 is in the range 1.4200 - 1.4340.

The nearest support is at the level of 1.3830 - 1.3870, where Fibo 61.8% is.

 

Měnový pár AUDUSD


This currency pair moved in a strong upward trend throughout April along with the US stock indices which it currently correlates with. The BF trend line was broken on May 1, 2020, and the AUDUSD growth seemed to have stopped. Now the situation seems to be that AUDUSD is moving in a rising channel, which is defined by points CE and BG. The growth on May 18, 2020, is due to optimistic expectations about a faster economic recovery. 
 
Figure 4: The AUDUSD currency pair on a daily chart

The nearest resistance is in the range 0.6560 - 0.6580. The next closest horizontal resistance is in the range 0.6650 - 0.6700.
The nearest support is 0.6370 - 0.6400. Further support is then at 0.6240 - 0.6270.



 
 

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