06/04/2020
6th April Market Analysis:
1) EUR/USD Edges Higher Amid Encouraging Coronavirus Developments
2) A Combination of Factors Exerted Some Downward Pressure on GBP/USD on Friday
3) AUD/USD Clings to Modest Gains, Lacks Follow-Through beyond Mid-0.6000s
1) EUR/USD Edges Higher Amid Encouraging Coronavirus Developments
EUR/USD is rising above 1.08 as Europe’s largest countries have reported slowdowns in the number of cases and deaths from coronavirus. The safe-haven dollar is on the back foot. German Factory Orders dropped by 1.4% in February.
Bears remain in control, with momentum on the four-hour chart pointing to the downside and the currency pair trades below the 50, 100, and 200 Simple Moving Averages. Moreover, the Relative Strength Index is above 30, outside oversold conditions.
Support awaits at around 1.0770, which is Friday’s low. The next support line is only at 1.0640, the 2020 trough. Further down, 1.0580 and 1.05 await EUR/USD.
Some resistance awaits at 1.0840, the daily high, and it is followed by 1.09, which was a cushion last week. The next level to watch is 1.0970, a resistance line from late March, and then 1.1050, which held euro/dollar down beforehand.
Light at the end of the tunnel? All of the Euro zone’s four large countries have reported encouraging COVID-19 statistics. However, the old continent faces a slow economic recovery and disagreements between leaders cast a dark cloud.
Germany, the largest economy, has reported the fourth consecutive drop in the daily rate of infections, rising by 3,677 or 4%, lower than in previous days. The death has risen by 92 to 1,434. France, the second-largest country, has confirmed 357 mortalities compared with 441 beforehand.
Italy, the third-largest economy and the country hardest hit by the pandemic, registered only 525 deaths on Sunday, the slowest since March 19. Spain, the fourth-largest economy and the country with the highest number of infections in the old continent, announced 674 new mortalities, the most depressed since March 26.
However, while the recent trends are unified, leaders remain at loggerheads over how to mitigate the economic fallout. Pedro Sanchez, Spain’s Prime Minister, has written that the survival of the European Union rests on the response to the crisis. Sanchez and his peers in Italy and France have demanded to mutualize the debt – issuing “coronabonds.” However, Germany refuses to support such a proposal and insists that hard-hit countries could use existing bailout mechanisms.
Another economic concern is the slow exit from the lockdowns. Spain extended its state of emergency through April 26 and clarified that the economy will not open up at once. Italy is mulling easing restrictions in mid-May. Health officials fear that a return to normal may trigger a second wave of infections. Without widespread testing of people sick with COVID-19 – or carrying antibodies – every step will be gradual.
Another reason to doubt EUR/USD’s recovery comes from the other side of the pond. The US economy is also struggling and the dollar benefits from safe-haven flows. US Surgeon General Jerome Adams said that the country is facing a “Pearl Harbor” moment in the upcoming week, which may be the peak.
US President Donald Trump has expressed some optimism amid stabilizing figures in New York and as he announced the buying of hydroxy chloroquine – an anti-malaria drug that has yet to prove efficient against COVID-19.
The world’s largest economy has lost 701,000 jobs in March, far worse than expected, and while the Non-Farm Payrolls surveys have been taken in the middle of the month – before the latest lockdowns. The drop in America’s participation rate is an indication that fewer people are looking for jobs.
Later in the day, coronavirus headlines from both European and the US are of interest.
2) A Combination of Factors Exerted Some Downward Pressure on GBP/USD on Friday
The GBP/USD pair extended the previous session’s rejection slide from the 1.2475 supply zone and witnessed some selling on the last trading day of the week. Against the backdrop of a sustained buying around the US dollar, the pair was further pressurized by a downward revision of the UK services PMI. A sharper-than-anticipated contraction in the UK services sector activity comes amid a nationwide lockdown and undermined the British pound.
On the other hand, the greenback maintained its bid tone following the release of the US monthly jobs report, which showed that the economy lost 701K jobs in March and the unemployment rate jumped to 4.4% from 3.4%. The data further illustrated the extent of the economic fallout from the coronavirus pandemic and continued benefitting the USD’s perceived safe-haven status against its British counterpart.
Separately, the US ISM Non-Manufacturing PMI surprised positively and came in at 52.5 as against market expectations for a drop to 44.
The pair dropped to fresh weekly lows, albeit managed to find some support ahead of the 1.2200 round-figure mark. The pair recorded its third week of a negative move in the previous four and remained on the defensive through the Asian session on Monday. Reports that the UK Prime Minister Boris Johnson has been hospitalized after suffering persistent coronavirus symptoms for 10 days, combined with a continuous rise in the number of deaths in the UK took its toll on the sterling. The downside, however, remained limited, at least for the time being, amid a goodish recovery in the global risk sentiment.
Moving ahead, market participants now look forward to the release of the final UK Construction PMI for some short-term trading impetus amid absent relevant market-moving economic data from the US. Apart from this, developments surrounding the coronavirus saga, which remains a key determinant of the broader market sentiment, might influence the USD price dynamics and further contribute towards producing some meaningful trading opportunities.
From a technical perspective, the convergence of 50-day SMA and 200-day SMA points to the increasing possibility of a bearish death-cross on the daily chart. The set-up indicates that the recent strong recovery from 35-year lows might have already run out of the steam and thus, supports prospects for the resumption of the pair’s prior/well-established bearish trend.
However, it will be prudent to wait for a sustained break below the 1.2200 round-figure mark before positioning for a further near-term depreciating move towards challenging the 1.2100 mark en-route the 1.2075-70 support zones. The latter coincides with 38.2% Fibonacci level of the recent rally and should now act as a key pivotal point for short-term traders.
On the flip side, the 1.2300 round-figure mark now seems to act as immediate resistance and any subsequent positive move is likely to confront some fresh supply near the 1.2375-80 regions. Some follow-through buying, leading to a move beyond the 1.2400 mark, has the potential to lift the pair further, though seems more likely to remain capped near the 1.2475-85 strong resistance zone.
3) AUD/USD Clings to Modest Gains, Lacks Follow-Through beyond Mid-0.6000s
The AUD/USD pair traded with a mild positive bias through the Asian session, albeit lacked any strong follow-through beyond mid-0.6000s.
The pair gained some positive traction on the first day of a new trading week and for now, seems to have snapped four consecutive days of losing streak amid a goodish recovery in the global risk sentiment.
A decline in fatalities from the COVID-19 boosted investors’ confidence and the same was evident from strong gains in the US equity futures, which provided a modest lift to the perceived riskier aussie.
However, persistent worries over the economic fallout from the coronavirus pandemic continue benefiting the US dollar’s perceived safe-haven status and turned out to be one of the key factors capping gains.
The market concerns were further fueled by Friday’s US monthly jobs report, which showed that the economy lost 701K jobs in March and the unemployment rate spiked to 4.4% from 3.5% previous.
Hence, it will be prudent to wait for some strong follow-through buying before confirming that the recent pullback from levels beyond the 0.6200 mark is already over and positioning for any further positive move.
In the absence of any major market-moving economic releases, developments surrounding the coronavirus saga might continue to influence the USD price dynamics and provide some meaningful trading impetus.
