02-Apr-2020

1) GBP/USD Analysis: Range Play Continues; Resilient Despite Coronavirus Jitters
2) EUR/USD Battling 1.0950 amid Coronavirus News, Ahead Of US Data
3) Oil Price Is Stabilizing

 

 

1) GBP/USD Analysis: Range Play Continues; Resilient Despite Coronavirus Jitters

The GBP/USD pair settled with modest losses on Tuesday amid broad-based US dollar strength, albeit remained well within this week’s trading range. Despite efforts by major central banks and governments across the world, concerns over the economic fallout from the coronavirus pandemic continued underpinning the USD’s demand as the global reserve currency.

On the other hand, the British pound once again showed some resilience at lower levels and also seemed rather unaffected by a big jump in the coronavirus deaths in the UK. This comes after Fitch last week lowered its UK long-term issuer default ratings to AA- from AA, albeit did little to impress bearish traders or prompt any aggressive selling around the major.

Meanwhile, the already weaker market sentiment deteriorated further after the White House medical experts warned that as many as 240,000 Americans might die from the respiratory disease. However, a modest recovery in the US equity futures assisted the pair to regain some positive traction during the Asian session on Thursday and move back above the 1.2400 round-figure mark.

In the absence of any major market-moving economic releases from the UK, Thursday’s key focus will be on the US initial weekly jobless claims data. Consensus estimates predict that another 3.5 million Americans filed for unemployment benefits during the week ended March 27. The data should influence the USD price dynamics and produce some meaningful trading opportunities.

From a technical perspective, the recent subdued/range-bound price action now seemed to constitute towards the formation of a rectangle on hourly charts. The lower end of the trading range, around the 1.2315-10 region, coincides with 100-hour EMA and should now act as a key pivotal point for intraday traders.

A convincing break through the mentioned confluence support might prompt some aggressive selling and accelerate the slide back towards the weekly lows support, around the 1.2245-40 region. Some follow-through selling has the potential to drag the pair further towards challenging the 1.2200 round-figure mark.

On the flip side, immediate resistance is pegged near mid-1.2400s and is followed by the recent swing highs, around the 1.2475-80 region. A sustained strength above the mentioned hurdles, leading to a subsequent move beyond the key 1.2500 psychological mark might set the stage for the resumption of the pair’s recent strong positive momentum.

 

2) EUR/USD Battling 1.0950 amid Coronavirus News, Ahead Of US Data

EUR/USD is trading around 1.0950, under pressure. Coronavirus cases are nearing one million with the epicenter remaining in Europe but with a rising pace in the US. US jobless claims are highly anticipated.

The four-hour chart is showing that EUR/USD is setting lower lows – forming a downtrend. The currency pair has dropped below the 100 and 200 Simple Moving Averages and is fighting to hold onto the 50 SMA. Momentum remains to the downside.

All in all, bears are in control.

Support awaits at 1.09, a round number that provided support on Wednesday. It is followed by 1.0940, a temporary cap from last week. The next lines to watch are 1.0750 and 1.0640.

Resistance is at 1.0970, which is the daily high, and it is followed by 1.10, where the 200 SMA hits the price. 1.1050, 1.1090, and 1.1150 were all high points in recent days and serve as resistance.

Markets have been finding their feet – but EUR/USD remains pressured and for good reasons. The picture remains dark for the currency pair.

COVID-19 cases and deaths continue rising in the old continent, the epicenter of the disease. France and Spain both announced record numbers of mortalities on Wednesday, above 500 and near 900 respectively.

While the curve is flatter in Italy and Germany, both countries have announced that they will extend their lockdowns beyond Easter. When restrictions are lifted, it will happen only gradually.

The eurozone remains split between the camp demanding to mutualize the debt and show solidarity, and the one opposing it, led by Germany. The European Commission in Brussels is attempting to find a compromise that will likely fall short of what France, Italy, and Spain demand.

The European Central Bank’s massive Quantitative Easing scheme has provided some calm, but it is far from sufficient. The potential political crisis is weighing on the common currency.

The damage is spreading at a rapid clip and monthly figures such as ADP’s private-sector employment figures and the ISM Manufacturing Purchasing Managers’ Index – usually leading figures – are lagging. However, weekly jobless claims have been mainly keeping up with the spread of the virus and the economic fallout.

After skyrocketing to 3.283 million in the week ending on March 14, Thursday’s report for the week that ended on March 21 could be even higher. Goldman Sachs foresees 5.25 million claims. Devastating figures could be positive for the safe-haven US dollar.

One of the factors weighing on the greenback last week was the massive fiscal stimulus plan — $2.2 trillion – approved by Washington. That may be insufficient with mass unemployment and a slow recovery. While Democrats are already mulling a new package,

Republicans are not enthusiastic about President Donald Trump’s calls for infrastructure spending. If they change their mind, the dollar could fall – but until then, the market mood could stay downbeat.

China’s Gross Domestic Gross Product statistics have been in doubt for years, and also the initial COVID-19 reports were met with skepticism. These concerns have been growing after Bloomberg reported that US intelligence agencies suspect that confirmed cases and deaths are far higher.

These reports have implications for the rest of the world, as models estimating the spread and recovery from the outbreak rely on data from Beijing. The news from China implies a worse trajectory and protracted economic suffering – weighing on sentiment and benefiting the US dollar.

 

3) Oil Price Is Stabilizing

There are not many important economic releases today; hence, market focus will continue to be on the virus developments, restrictions to contain the virus and policy responses to cope with the economic fallout.

In Europe, leaders are discussing ways to support the worst hit European countries, like Italy and Spain, ahead of the Euro group meeting. Proposals range from common debt issuances like Corona bonds to setting up an EU coronavirus support fund. Watch out for signals from European leaders, notably the German and French side.

In the US, weekly jobless claims are released. According to consensus among economists, the sad record from last week is about to be beaten, as economists expect another spike of 3.5m applications for unemployment benefit last week. In fact, given the timeliness of this report, it is now more interesting than the jobs report to be released tomorrow, see Research US: Why the March jobs report is already outdated, 1 April. We are likely to continue to see layoffs in coming weeks, while the US economy remains locked down and hence the jobs report for April will be extremely negative. If claims have risen by another 3.5m, the April jobs report will show a decline in employment of at least 7m but, unfortunately, probably more.

Overnight, the Chinese Caixin PMI service number for March is released. The official print earlier this week showed a rebound in the index to 52.3 from the dire print of 29.6 last month. However, market consensus is more wary predicting only a rebound to 39 for the Caixin number tomorrow morning.

In the oil market, the US administration is stepping up pressure on the Russians and Saudis to end the oil price war and signals from the two producers are important for oil markets near term.

The US equity market continues to be under pressure on the back of the negative effects from the coronavirus. There are more and more signs that the negative impact will be substantial. If that is the case, the issuance of US treasuries is set to increase significantly.

The Federal Reserve is easing some of the banking regulations in order to support the lending to households and corporates.

However, despite the losses seen in the US equity markets yesterday, there have only been modest losses in the Asian equity markets and US equity futures are up some 1.3-1.5% in Tokyo trading hours this morning.

The oil price is stabilizing as expectations of a truce between Russia and Saudi Arabia are increasing.