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Coronavirus and markets in the week  14/4 – 20/4/2020

The total number of cases infected with coronavirus is nearly 2.5 million, of which 652 thousand are cured. As the growth of infected cases is slowing down, some governments are considering relaxing restrictive measures. The evidence of how the restrictive measures dampened demand is Monday's oil crash, where the WTI oil price reached historical negative value. This was reflected in the weakening of the Canadian dollar. Speculators on the euro have further strengthened their positions, expecting the euro to appreciate, but this has not happened yet.

Fundamental analysis

A summary of the most significant events of the past week is here:​

 
  • The total number of infected with the coronavirus as at April 20, 2020, is 2,483,000 cases. The highest numbers are in the USA (793,000), Spain (200,000), Italy (181,000), France (155,000) and Germany (147,000). As the growth of new cases is slowing down in these countries, governments are beginning to announce plans for loosing of restrictive measures.
  • Some emerging economies, such as India, where there are currently more than 18,000 cases, remain at risk. The situation in Russia, where there are more than 52 000 cases, twice as much as in the previous week, is also of concern. Very low numbers of infected cases have been reported in Africa. 
  • An example of how coronavirus affects a demand are low oil prices, as the WTI crude oil was traded on Monday at a negative price of $-38. The reason for this is, in addition to low demand for this commodity, also the approaching limit of the storage capacities.
  • The US reported a further increase in unemployment insurance claims. Last week, 5.2 million unemployed people applied for support. In total, since March 19, 2020, 22 million unemployed have applied for support. Before the outbreak of the pandemic, the total US workforce peaked in February 2020, with a total of 165 million people employed. Currently, unemployment in the US is around 17%.
  • Retail sales in the US dropped to -8.7% in March, it was -0.4% in the previous month.
  • The Philadelphia Fed Manufacturing Index (it measures the level of economic activity in Philadelphia) plummeted to - 56.6 (the lowest level in the last crisis 2008–2009 it was - 41.3).
  • Consumer confidence in the economy fell to -17.7% in Australia. Last time it was at similar levels in 2006.
  • Surprisingly, the labor market situation in Australia has improved. Instead of the expected drop of 40 thousand jobs, there was an increase of 5.9 thousand jobs in March.
  • Bank of Canada left the interest rate at 0.25%.
  • China's 1Q GDP fell on a year-on-year basis to -6.8%. In the previous quarter, it was 6.0%.
  • China's central bank lowered the rate from 4.05% to 3.85%.



Let's see how big traders react to the situation and what is the market sentiment on selected instruments. The data is based on the COT report, which is regularly presented every Friday and shows the number of positions of large speculators in the futures markets in New York and Chicago. Traders use this information to decide whether to speculate on the decline or the strengthening of the instrument. A positive number means an expectation of a strengthening of the instrument, a negative number means a weakening. 

 
Table 1: COT report - position of large traders
Instrument Data as OF
17/4/2020
Data as OF
10/4/2020
Data as OF
4/4/2020
Data as OF
27/3/2020
Data as at
20/3/2020
Sentiment
Euro 86,600 79,600 74,200 61,300 32,500 Strong bullish
Japanese jen 22,600 22,400 18,300 23,900 32,900 Bullish
Australian dollar -35,500 -35,400 -31,700 -25,200 -28,700 Bearish
Canadian dollar -23,800 -24,400 -21,900 -29,200 -9,600 Bearish
USD index 15,400 15,000 14,100 12,500 7,200 Strong bullish

The euro has been bullish for 5 weeks as the overall net positions of the big players rise. However, the price of the euro against the US dollar has not appreciated yet. The bullish sentiment continues on the Japanese yen as well.

The reason for the negative sentiment on the Australian dollar is a dependence on the Chinese economy, which is strongly affected by the pandemic coronavirus.
 

Technical analysis of selected instruments as at April the 20th, 2020

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

The EURUSD currency pair

 

The EURUSD has long been in a downward trend, see Figure 1, which is confirmed by a lower low at point B and also by moving averages, as the EMA 50 is below SMA 100.

Figure 1: The EURUSD currency pair on the daily chart

The impact of bullish sentiment according to COT was short-term since April 7, 2020, when the price started to rise from a point D, but then it stopped to rise at the moving average of EMA 50. During the subsequent decline, it broke through the rising BD line, indicating that there is currently more bearish momentum which is also confirmed by the declining Purple Extreme indicator. The decision of the EU leaders on the EUR 500 billion supporting package, which they are to discuss on April 23, 2020, will have an impact on the further move. 

The closest support is at the point D, which is in the zone 1.0770 - 1.0790. Strong support is in the band 1.0630 - 1.0680.

The closest resistance is in the region 1.0978 - 1.0993.


 

The USDJPY currency pair
 

Yen is historically considered a safe haven, so in times of crisis we often see that it is strengthening, so the USDJPY should decline. The overall bearish tendency on the USDJPY is currently confirmed by the fact that EMA 50 is below SMA 100. Given the continuous flow of bad US data, this trend might continue. 
 

Figure 2: The USDJPY currency pair on the daily chart

Not much has changed on this pair since last week. The price approached a support in the zone 106.90 - 107.20, which has so far held the price. This was the first test. If a break occurs here and the candlestick closes below this level, the price could further drop to the support in the band 105.00 - 105.30, where 61.8% Fibo is from the BD movement. The nearest resistance is in the zone 109.20 - 109.40
 

If a trader took a trade with 0.05 lot, after break of the current support, with a sell order at 106.70 and speculating on the price reaching to 105.30, he might earn approximately CZK 1,500. Such speculation can be done even with a small account, wherein the case of a deposit of CZK 15,000, it would reach 10% appreciation of the account.


The closest resistance is in the band 109.20 - 109.30.

 

The USDCAD currency pair


Although OPEC and other countries agreed on April 12, 2020, to the record reduction in oil production by 9.7 million barrels per day in May and June, it was too little and too late. The crude oil has been declining ever since, and on April 20, 2020, it recorded a historical price when the WTI was trading at a negative value of nearly $-40 per barrel. The Canadian dollar correlates with oil and responded to this fact with a sharp depreciation, which is reflected in the USDCAD increase, see Figure 3:
 
Figure 3: The USDCAD currency pair on the daily chart

The graph shows the Fibo between high and low for March. The price broke through the declining line between BD points and approaching resistance in the band 1.4230 - 1.4340. Until the situation in the oil market improves, the USDCAD would probably continue upwards. We will see if the price reaches the maximum on March 19, 2020.

The closest support is in the zone 1.3820 - 1.3850, where Fibo 61.8% is and it is also close to EMA 50 average.


The AUDUSD currency pair


This currency has weakened strongly in the current crisis. This is justified by the link between the Australian economy and China, to which it exports industrial commodities such as coal and iron ore. Since March 19, 2020, however, the AUDUSD strengthened strongly, as it correlates with stock indices that rose as well. The economic situation in China is also expected to improve. While production in China is recovering, the problem now is the decline in global demand. This was probably the reason for the price growth to stop near significant resistance and the AUDUSD seems to start to decline, see Figure 4:
 
Figure 4: The AUDUSD currency pair on the daily chart.

The resistance is in the range 0.6440 - 0.6460, where the price stopped. There is a monthly Fibo 78.6% of the movement between AB points, which is the movement for the month of March. The previous support was flipped to resistance here as well. The price has already broken the rising line between BD points, which could be a signal for further decline.

The nearest support is 0.6160 - 0.6200. 






 
 

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