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Coronavirus and markets in the week from 9/6 – 15/6/2020

Markets weakened sharply last week on fears of another wave of infection and, above all, the US Fed's less-than-optimistic outlook, which said it would take several years to restore employment to pre-coronavirus levels. This also affected currency pairs, with the Australian dollar, the New Zealand dollar and the British pound weakening in particular.

Yesterday, however, markets rose sharply under reports of further increases in US fiscal stimulus and the US Fed's plan to purchase corporate bonds. However, even the Fed cannot stop the infection with its measures. There are still countries in the world where new cases are growing at a relatively high rate, and new cases have reappeared in China and Japan. So far, new cases in China are in low numbers, but if the daily increase starts to reach triple digits, then market sentiment could change quickly.

Fundamental analysis

The total number of coronavirus infections as at June 15, 2020, is more than 8,140,000 cases. Since last week, the total number of infected people has increased by 940,000 cases. This increase is higher than last week when there were 860,000 new cases. Therefore, the disease is still not completely under control in the world, as shown in Figure 1, which shows the worldwide daily increases of infected. 
Figure 1: Daily increase in coronavirus cases worldwide

Figure 2: Distribution of cases in the world by country
 

  • The highest number of cases is still in the USA (2,182,000), the current weekly average is 22,300 cases). In connection with the release of quarantine measures, and the protests that took place in the USA as well, there was a certain increase in the number of new cases in some states.
  • The epicenter moved to Brazil, where 891,000 cases were identified (an increase of 181,000 cases since last week).
  • In Russia, the number of cases rose to 545,000 (476,000 last week). The situation is slowly stabilizing here.
  • Outbreaks have re-emerged in China, with the closure of several residential areas and food markets. If there is a more significant increase in new cases, then market sentiment could change and AUD, NZD, EUR, and GBP, in particular, could weaken.
  • In total, more than 4,250,000 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 support. In total, more than 43.5 million unemployed people have applied for support since March 19, 2020.
  • In the US, an auction of 10-year bonds took place, where a yield of 0.832% was achieved (previous yield of 0.700%). This indicates an improvement in market sentiment.
  • Core inflation in the US in May reached -0.1% (previous month -0.8%).
  • A Fed meeting was held. The Fed said it would keep rates low around zero in 2022. At the same time, it said it would take years to restore full employment to pre-coronavirus levels. The recovery of the "V" economy was thus virtually ruled out.
 


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 – large traders‘positions
Instrument DATA AS AT 12/6/2020 Data as at  
5/6/2020
Data as at 29/5/2020 Data as at 22/5/2020 Data as at 15/5/2020 Sentiment
Euro 95 600 81 200 75 200 72 600 78 100 Bullish
Japanese yen 17 500 32 600 34 600 27 500 27 900 Weak bullish
Australian dollar - 36 600 - 40 700 -40 500  - 39 600 -35 400 Bearish
Canadian dollar - 24 800 - 33 100 - 33 900 - 35 100 -32 200 Bearish
USD index 4 700 8 300 14 800 17 300 16 500 Weak bullish

 

Technical analysis of selected instruments as at June 15, 2020

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

The EURUSD currency pair

 

The sharp appreciation of the EURUSD, which has been going on since May 26, 2020, has now slowed down and the pair is moving in some consolidation around Fibo 78.6% from the March decline. The current risk-on sentiment is positive news for the euro. However, if coronavirus cases in China start to rise significantly, it will have a negative impact on the euro. The euro will also continue to be negatively affected by Brexit as the issue of a trade agreement between the EU and the United Kingdom has not been resolved yet. In any case, according to the COT, big speculators 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 of 1.1200 - 1.1230.
The band 1.1440 - 1.1500 can be considered as the first resistance.


 

The USDJPY currency pair 

 

The USDJPY weakened in the first half of last week under the influence of optimism in the markets, which results in the weakening of the US dollar. After the Fed conference on Wednesday, the dollar weakened due to the negative outlook for the US economy. 

Figure 4: The USDJPY currency pair on a daily chart

The nearest resistance is in the range of 109.50 - 110.
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 bounced back from Fibo 78.6% support last week, with commodity currencies weakening after the Fed conference, including the Canadian dollar. From June 12, 2020, however, the USDCAD continues to decline again, which is in line with the rise in the price of oil with which the Canadian dollar correlates and also with the new risk-on sentiment in the markets. 
Figure 5: The USDCAD currency pair on a daily chart

The first resistance is in the range of 1.3740 - 1.3770.
The nearest support is at the level of 1.3300 - 1.3330. There is a Fibo 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, which was broken on June 15, 2020, but the price closed with a bullish candle above it, so it could be a fake breakout. The current risk-on sentiment is positive for the Australian dollar, which could, therefore, strengthen further. However, ongoing tensions between Australia and China remain a risk. If there is a significant increase in new cases of coronavirus in China, this will also have a negative effect on the AUDUSD. 
Figure 6: The AUDUSD currency pair on a daily chart

The nearest support is 0.6780 - 0.6830. 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 if the price closes below this line, the inputs for speculation on the short side might be considered.







 
 

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