Coronavirus and markets in the week 5/5 – 11/5/2020

The total number of coronavirus infections has already exceeded 4.3 million worldwide. The positive news is that the daily increase in newly infected cases is slowly declining. The reproduction number reaches a value ​​of 0.93. A number below 1 means that the infection is declining. This allows national governments to continue to ease restrictive measures. At the same time, however, there is concern about a possible second wave of infection in the markets.

Fundamental analysis

A summary of the most significant events from last week is here:

 
  • The total number of the coronavirus infections as at May 11, 2020, is more than 4,256,000 cases. The largest numbers are in the USA (1,385,000), Spain (268,000), the United Kingdom (223,000), Italy (219,000), France (177,000) and Germany (172,000). 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, where there are currently more than 221,000 cases (145,000 cases last week). Some emerging economies remain at risk, such as India, where there are currently 70,800 cases (46,000 last week).
  • The US reported a further increase in claims for unemployment support. Last week, 3.2 million unemployed in the United States applied for support. In total, more than 33 million unemployed people have applied for support since March 19, 2020.
  • Unemployment in the US in April climbed to 14.7%. 20,500,000 jobs were lost. The PMI in the services sector in the USA in April reached a record low value of 26.7 (in March it was 39.8).
  • In Australia, data on retail sales came as a positive surprise, growing by 8.5% on a month-on-month basis in March (0.5% in February).
  • German orders in production for March fell by - 15.6% (in February - 1.4%).
  • The PMI for services in the euro area fell to 12 in April (previous month: 26.4).
  • Retail sales in the euro area fell to -11.2% in March (0.6% in the previous month).
  • PMI in Canada reached another record low of 22.8 in April (previous month: 26.0)
 


COT Report


Let's 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 – large trader's positions
 
Instrument data as at
8.5.2020
data as at
1.5.2020
data as at
24.4.2020
data as at
17.4.2020
data as at
10.4.2020
Sentiment
Euro 76 300 79 700 87 200 86 600 79 600 Bullish
Japanese yen 27 200 32 300 26 000 22 600 22 400 Bullish
Australian dollar -33 500 -37 700 -34 800 -35 500 -35 400 Bearish
Canadian dollar -32 100 -29 000 -23 900 -23 800 -24 400 Bearish
USD index 16 400 16 100 15 600 15 400 15 000 Strong bullish

 

Technical analysis of selected instruments as at May 11, 2020

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

The EURUSD currency pair

 

The EURUSD is still in its long term downtrend, see Figure 1, which is confirmed by moving averages, as EMA 50 is still below SMA 100. A triangle formation has formed in the chart, see BD and CE lines, in which the pair consolidates since March 23, 2020.

Figure 1: The EURUSD on a daily chart

The nearest support area is at the level of 1.0730 - 1.0780. The next strong support is in the range of 1.0630 - 1.0690.
The band 1.0978 - 1.1020 can be considered as the first resistance. Further resistance is in the zone 1.1140 - 1.1160.
Supports and resistances also form the lines of a previously mentioned triangle and moving averages as well.

 

The USDJPY currency pair

 

The USDJPY currency pair has been on a declining trend for a long time. Also from the perspective of the last month, the price is moving downwards, gradually creating a lower low. Currently, the price has reached the level of resistance, which is our moving average EMA 50.
 
Figure 2: The USDJPY on a daily chart

The nearest support is in the range of 105.90 - 106.10.
Another support is in the zone 105.10 - 105.40.
The nearest resistance is in the range 107.90 - 108.10 and the next resistance is in the zone 109.20 - 109.50.
 

The USDCAD currency pair


The Canadian dollar has been moving in the range of 1.3850 - 1.4350 since March 31, 2020. We can see in the chart (Figure 3) how the EMA 50 forms the level of support, from which USDCAD bounced upwards on May 11, 2020. Overall, the pair is moving in a growing trend from February 20, 2020. How the situation in the oil market develops will be crucial for further direction of the USDCAD as the Canadian collar correlates with it. Low oil prices have a negative impact on the Canadian dollar. 
 
Figure.3: The USDCAD currency pair on a daily chart

The closest resistance is in the range 1.4200 - 1.4340.
The nearest support is at the level of 1.3830 - 1.3870, where Fibo 61.8% is.
 

The AUDUSD currency pair


This currency pair moved in a strong upward trend in April, as did the US stock indices, which it currently correlates with. Now it seems that the growth of the pair is starting to slow down. The reasons for that is that the price halted at SMA 100 moving average, and on May 1, 2020, the pair broke through the bottom line of the rising wedge, which often appears in declining trends. 
 
Figure 4: The AUDUSD currency pair on a daily chart

The nearest resistance is in the range 0.6560 - 0.6580. At the same time, it is the level at SMA 100 moving average, where the price stopped last week.

he next closest horizontal resistance is in the range 0.6650 - 0.6700.

The nearest support is 0.6370 - 0.6400. Further support is at 0.6240 - 0.6270.




 
 

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