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Coronavirus and markets in the week from 2/6 – 8/6/2020

The optimistic sentiment in the markets continued last week as investors are hoping in the economic recovery to be faster than generally expected. Fundamental data from last week also show signs of an improving economic situation. The movements in currencies corresponded to this, with the euro, the Canadian dollar, and the Australian dollar strengthening. However, currency pairs have reached strong levels of resistance, where some corrections may occur.

Fundamental analysis

The total number of coronavirus infections as of June 8, 2020, is more than 7,200,000 cases. Since last week, the total number of infected people has increased by 817,000 cases.
Figure 1: Daily increase in the coronavirus cases in the world

Figure 2: The distribution of the coronavirus cases among countries
 

  • The highest number of cases is still in the USA (2,026 thousand), but the daily increase in new cases is constantly decreasing (the current weekly average is 21,000 cases).
  • The epicenter moved to Brazil, where 710,000 cases were detected (an increase of 181,000 cases since last week).
  • In Russia, the number of cases rose to 476,000 (423,000 last week). The situation seems to be starting to stabilize a bit.
  • In total, more than 3,552,920 people have recovered from the disease.
 

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

 
  • The US reported a further increase in claims for unemployment benefits. 1.9 million unemployed people in the United States applied for support last week. In total, more than 42 million unemployed people have applied for support since March 19, 2020.
  • According to Friday's labor market data, however, the situation in the US is stabilizing as nonfarm payroll data came out as a positive surprise, with the number of new jobs rising by 2.5 million (expected to fall by 8 million). Unemployment in the US is 13.3% in May (19.7% was expected). This could indicate a faster economic recovery than expected.
  • In Canada, better labor market data in May were also reported. The number of jobs increased by 290 thousand (a decrease of 500 thousand was expected).
  • Optimism can also be seen in the PMI index in Canada, which reached 39.1 in May (previous month: 22.8)
  • Retail sales in Australia in April fell by - 17.7% (previous month 8.5).
  • The euro area reported a PMI for May of 31.9 (previous month: 13.6).
 


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 – the large traders‘positions 
 
Instrument DATA AS AT
5/6/2020
DATA AS AT
29/5/2020
DATA AS AT 
22/5/2020
DATA AS AT 
15/5/2020
DATA AS AT
8/5/2020
Sentiment
Euro 81 200 75 200 72 600 78 100 76 300 Bullish
Japanese jen 32 600 34 600 27 500 27 900 27 200 Bullish
Australian dollar - 40 700 -40 500 - 39 600 -35 400 -33 500 Bearish
Canadian dollar - 33 100 - 33 900 - 35 100 -32 200 -32 100 Bearish
USD index 8 300 14 800     17 300 16 500 16 400

Technical analysis of selected instruments as at June 8, 2020

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

The EURUSD currency pair

 

EURUSD continued to grow strongly last week, reaching 1.1382, where growth stopped at Fibo 78.6% of the March decline. The strengthening is influenced by the risk-on sentiment that has so far prevailed in the markets due to the easing of measures against the coronavirus, and investors believe in a rapid economic recovery. However, the euro will be negatively affected by Brexit, in which the issue of a trade agreement between the EU and the United Kingdom has not been resolved yet.

Figure 3: The EURUSD currency pair on a daily chart

The nearest support area is at the level of 1.1130 - 1.1160.
The band 1.1440 - 1.1500 can be considered as the first resistance.

 

The USDJPY currency pair

 

Last week, the USDJPY broke through a narrow sideband upwards to the nearest resistance, where the price was rejected yesterday by a strong bearish candlestick. The price is now approaching support, which is defined by an upward trend line, and it is also the consolidation zone in which the price remained for two weeks.
 
Figure 4: The currency pair USDJPY on a daily chart

The nearest resistance is in the range of 109.50 - 110.
The first support is at the level 107.60 - 107.80. Another strong support is in the range of 106.00 - 106.20.
 

The USDCAD currency pair


The Canadian dollar approached a massive level of support last week. The reason was a further strengthening of the price of oil, which the Canadian dollar correlates with. On the contrary, the easing of measures against coronavirus has led to a weakening of the US dollar. As a result, the USDCAD pair closed the gap that was created on March 9, 2020.

Last time, we presented a trading idea to speculate short with an entry price of 1.3678 and a target price of 1.3500. Should have this opportunity been realized, it would have brought a profit of EUR 55 with a volume of 0.05 lot.

 
Figure 5: The USDCAD currency pair on a daily chart

The first resistance is in the range of 1.3700 - 1.3800.
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 the consolidation that occurred in 2019.
 

The AUDUSD currency pair


This currency pair continues to move in a growing channel. The price has reached resistance, which was formed on December 31, 2019, and currently, the price is sharply rejected here. This could signal a further decline. The fundamental reason for the current decline in the AUDUSD is the continuing tension between Australia and China. The price of gold has also fallen, which has a negative effect on the Australian dollar.

In growing trends, however, it is risky to speculate short. To confirm the trade in the short direction, it would be good to wait for the confirmation, which could be breaking the bottom line of the growing channel. 
Figure 6: The AUDUSD currency pair on a daily chart

The nearest resistance is in the range of 0.7020 - 0.7040.
The nearest support is 0.6650 - 0.6680. Support can also be understood as the bottom line of the growing channel, where it would be ideal to look for entrances in the long direction. Only in the case of breaking this line the inputs for short speculation could be considered.






 
 

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