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Coronavirus and markets in the week 28/4 – 4/5/2020

The total number of coronavirus infections has already exceeded 3.6 million and has affected 210 countries. The positive news is that in some countries the contagion has stopped and the gradual opening of economies continues. Investors' attention will thus gradually shift to economic data. It is clear that they will not be good. The question is how bad they will be and what further measures central banks and governments will take to support a restart of the economy. 

Fundamental analysis

 

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

 
  • The total number of coronavirus infections as at May 4, 2020, is more than 3,640,000 cases. The highest numbers are in the USA (1,212,000), Spain (248,000), Italy (211,000), the United Kingdom (190,000), France (169,000) and Germany (166,000). As the growth of new cases in these countries is slowing down, governments continue to cautiously ease restrictive measures.
  • The situation in Russia continues to deteriorate sharply as there are currently more than 145,000 cases (89,000 cases last week). Some emerging economies remain at risk, such as India, where there are currently 46,000 cases (29,000 last week).
  • The US reported a further increase in claims for unemployment benefits. Last week, 3.8 million unemployed people in the United States applied for insurance. In total, more than 30 million unemployed people have applied for insurance in unemployment since March 19, 2020. The situation in the US labor market will be confirmed this Friday by the NFP indicator, when a record decline in jobs is expected.
  • Consumer confidence in the US fell sharply, falling to 86.9 in April (118.8 in the previous month)
  • The US GDP fell to -4.8%. The governor of the Fed said that further stimulus to support the economy would be necessary.
  • German 10-year bonds reached a yield of -0.480% in last week auction.
  • Unemployment in Germany rose by 373,000 unemployed in April. Overall, the unemployment rate in Germany is 5.8% (in March it was 5%).
  • The ECB left rates unchanged at Thursday's meeting. The key rate is at 0.0%.
  • Retail sales in Canada fell to -15.6% (-0.1% in January). The lowest value in the 2009 crisis was - 3.2%.
  • Australia‘s central bank left rates at 0.25% on Tuesday.
 


COT Report


Let's take a 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. Traders use this information to decide whether to speculate on a decline or a strengthening of the instrument. A positive number means expectations of a strengthening of the instrument, while a negative number means a weakening. 




Table 1: COT report - positions of large traders

 
Instrument Data as at
1.5.2020
Data as at
24.4.2020
Data as at
17.4.2020
Data as at
10.4.2020
Data as at
4.4.2020
Sentiment
Euro 79 700 87 200 86 600 79 600 74 200 Bullish
Japanese yen 32 300 26 000 22 600 22 400 18 300 Strong bullish
Australian dolar -37 700 -34 800 -35 500 -35 400 -31 700 Bear
Canadian dolar -29 000 -23 900 -23 800 -24 400 -21 900 Bear
USD index 16 100 15 600 15 400 15 000 14 100 Strong bullish

 

Technical analysis of selected titles as at May 4, 2020

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

The EURUSD currency pair 

 

A meeting of the ECB took place last week, at which rates were kept at the same level. The EURUSD responded by growing. No significant data is expected from the euro's point of view this week, but the euro could potentially be affected by reports on the further steps in opening up the German economy, which German leaders will discuss on Wednesday. Positive information could send the euro to higher levels.

Generally, the EURUSD is still in a declining trend, see Figure 1, which is confirmed by moving averages, because EMA 50 is still below SMA 100. The triangle lines we drew in previous articles were not respected and last week's price broke through the trend line between CE points and it stopped at the horizontal resistance at point G. Candle from May 4 is strongly bearish. The Purple Extreme indicator was in the overbought zone and is now falling downward. This suggests that the euro could weaken to the nearest support zone (a point F).
 

Figure 1: The EURUSD currency pair on a daily chart

The nearest support area is at the level of 1.0770 - 1.0790. Another significant support is in the range of 1.0630 - 1.0690.

The band 1.0978 - 1.1020 can be considered as the nearest resistance.

 

The USDJPY currency pair


A meeting of the US Fed took place last week, at which the Chair Jerome Powell stressed the need for further support for the economy. The US dollar weakened in response, so the USDJPY currency pair broke through the level of support we mentioned in the last article. At the moment, the USDJPY seems to be respecting the declining CE trend line.

The US NFP will be reported on Friday, where a record decline in jobs is expected. This could lead to a further decline in the USDJPY pair, which remains in a downtrend overall.
 
Figure 2: The USDJPY currency pair on a daily chart

The nearest support is in the range 105.00 - 105.30, where 61.8% Fibo of the XA movement is. The nearest resistance is in the range 107.90 - 108.10 and the next resistance is in the zone 109.20 - 109.50.

If a trader entered with a sell order at 106.70 and speculated on a decline to a support 105.30 with a volume of 0.05 lot, he would earn approximately EUR 56.
 

The USDCAD currency pair


The Canadian dollar weakened on Friday after the new governor of Canada's central bank said he could imagine negative interest rates. This week, the Canadian dollar may be significantly affected by Thursday's PMI data and on Friday by information from the Canadian labor market. 
 
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 the Fibo 61.8% is and it is also close to EMA 50 average, from which the price bounced up last week.
 

The AUDUSD currency pair


This currency pair moved in a strong uptrend throughout April, together with the US stock indices which it currently correlates with. Last week, however, the Australian dollar weakened due to growing tensions between the US and China as the US President Trump accused China of suppressing and covering up the coronavirus and threatened to impose tariffs on Chinese products. 
 
Figure 4: The AUDUSD currency pair on a daily chart

Current resistance is SMA 100 moving average, where the price halted last week. The next closest horizontal resistance is in the range 0.6650 - 0.6700.

The nearest support is 0.6240 - 0.6270.


 
 

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