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Coronavirus and markets in the week from 16/6 – 22/6/2020

While in developed countries the coronavirus infection is under control and economies are continuing to open up, new cases of the coronavirus are growing worldwide, mainly due to the deteriorating situation in South America and also in India. Record increases in new cases were also reported in southern US states. However, the markets have not been affected much so far and are moving on a wave of optimism. Currencies such as the euro, the Canadian dollar and the Australian dollar benefited from this optimistic sentiment.

Fundamental analysis

The total number of the coronavirus infections as at June 22, 2020 is more than 9,200,000 cases worldwide. Since last week, the total number of infected people has increased by 1,060,000 cases. This increase is higher than previous last week, when there were 940,000 new cases. Thus, the disease in the world is not completely under control yet, as shown in Figure 1, which shows the worldwide daily increments of infected people. 
Figure 1: Daily increase in new coronavirus cases worldwide

Figure 2: The distribution of total cases in the world

  • The highest number of cases is still in the USA (2,388 thousand), the current weekly average of new cases is 28,000. This is a significant increase compared to the previous week, when the weekly average was 22,300 new cases). The cause may be protests and related gatherings of people. The increase in new cases is strong, especially in the southern states of the USA.
  • The situation is not under control in Brazil, where there are currently 1,111,000 cases. The increase since last week is 220,000 new cases (the previous week there were 181,000 new cases).
  • In Russia, the number of cases increased to 599,000 (last week 545,000).
  • The situation is deteriorating in India, where there is a daily increase of around 15,000 new cases.
  • In total, more than 4,956,000 people have recovered from the disease.
 

We select the following news from last week's macroeconomic data:

 
  • The US reported a further increase in applicants for unemployment benefits. Last week, 1.5 million unemployed people in the United States applied for insurance in unemployment.
  • In the US, retail sales increased by 17.7% in May (previous month - 14.7%).
  • The ZEW economic sentiment index in Germany reached 64.4 in June (51 in May). Investors and analysts, therefore, believe in faster improvement of the economic situation.
  • Inflation in the euro area is a 0.1% year-on-year basis in May (0.1% in April).
  • In Canada, inflation in May is 0.3% year-on-year basis (April - 0.7%).
  • Unemployment in Australia in May is 7.1% (previous month 6.2%).
  • Retail sales in Australia increased by 16.3% (April - 17.7%).
  • Retail sales in Canada in April fell by -26.4% (previous month -9.9%).
  • Real estate sales in the US fell by -9.7% in May (down -17.8% in April).


COT Report


Let's look at how large traders react to the situation and what is the market sentiment in 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. 

 
Table 1: COT report – positions of large traders
Instrument DATA AS AT 19.6.2020 DATA AS AT 12.6.2020 DATA AS AT 5.6.2020 DATA AS AT 29.5.2020 DATA AS AT 22.5.2020 Sentiment
Euro 117 100 95 600 81 200 75 200 72 600 Bullish
Japanese yen 22 100 17 500 32 600 34 600 27 500 Bullish
Australian dollar  - 6 500 - 36 600 - 40 700 -40 500  - 39 600 Bearish
Canadian dollar - 25 500 - 24 800 - 33 100 - 33 900 - 35 100 Bearish
USD index  -5 300 4 700 8 300 14 800 17 300 Bullish

Total net positions in the US dollar are in bearish territory for the first time in 110 weeks.

 Technical analysis of selected instruments as at June 22, 2020

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

The EURUSD currency pair


The current risk-on sentiment is positive news for the euro and the euro is starting to strengthen again. According to the COT, speculators also believe in further strengthening of the euro.
Figure 3: The EURUSD currency pair on a daily chart

The nearest support area is at the level 1.1140-1.1160.
The band 1.1440 - 1.1500 can be considered as the first resistance.

 

The USDJPY currency level 

 

The USDJPY is moving in some consolidation. According to the COT report, big players trust the Japanese yen more than the US dollar. Therefore, there is more sentiment on the decline of the USDJPY. This speculation might be considered near areas of resistance.
 
Figure 4: The USDJPY currency pair on a daily chart

The nearest resistance is in the range of 107.40 - 107.70. Another strong zone is in the area 109.50 - 110.00.
The first support is at the level of 106.50 - 106.90. Another strong support is in the range of 106.00 - 106.20.

 

The USDCAD currency pair


The Canadian dollar consolidated last week. The current market optimism is positive for the Canadian dollar and therefore USDCAD might fall further. 
 
Figure 5: The USDCAD currency pair on a daily chart

The first resistance is in the range of 1.3620 - 1.3680.
The nearest support is at the level of 1.3300 - 1.3330. There is a Fibo of 78.6% and at the same time, it is the upper edge of consolidation, which occurred in 2019.

 

   If a trader had entered a trade at a price of 1.36 and closed it at a price of 1,336, then with a volume of 0.05 lots and with short speculation, he could have made a profit of EUR 74. If the transaction had ended at a stop loss of 1.3700, then a loss of EUR 38 would have occurred.

 


The AUDUSD currency pair


Although this currency pair got out of the growing channel as it moved sideways last week, the current market sentiment is also positive for this pair and it might further strengthen. The negative news for the strengthening could be the escalation of the trade war between the USA and China or between Australia and China. 
 
Figure 6: The AUDUSD currency pair on a daily chart

The nearest resistance is in the range of 0.7020 - 0.7060.
The nearest support is 0.6780 - 0.6830.







 
 

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