25-Jun-2020

1) EUR/USD: 1.1215 Holds The Key For Bulls; ECB Meeting Minutes, US Macro Data Eyed
2) GBP/USD : Break Below 1.2400 Will Set The Stage For Further Weakness
3) Dollar Outperforms Despite US Virus Outbreaks

1) EUR/USD: 1.1215 Holds The Key For Bulls; ECB Meeting Minutes, US Macro Data Eyed

The US dollar bounced sharply on Wednesday as the markets turned into risk-off mode amid growing worries about the ever-increasing number of new coronavirus cases globally. This, in turn, fueled fears of renewed lockdowns to control the spread and overshadowed the latest optimism about a sharp V-shaped global economic recovery. This coupled with the risk of transatlantic trade war forced investors to take refuge in the safe-haven greenback.

Resurgent USD demand turned out to be one of the key factors prompted some fresh selling around the EUR/USD pair. Bullish traders seemed rather unimpressed by the release of the German IFO survey, which showed that the Business Climate Index improved to 86.2 for June as compared to 85 expected. Adding to this, the Expectations Index jumped to 91.4 from 80.1 previous and the Current Assessment Index rose less than expected to 81.3 as compared to 78.9 in May.

The already weaker risk sentiment deteriorated further on reports that the US is considering tariffs on $3.1 billion of exports from France, Spain, Germany and the United Kingdom. The latest economic forecasts from the International Monetary Fund (IMF) also did little to provide any respite to the investors. In its updated World Economic Outlook forecast released on Wednesday, the IMF projected a deeper recession in 2020 and a slower recovery in 2021.

The pair tumbled back to mid-1.1200s, reversing the previous day’s positive move to weekly tops and snapping two consecutive days of winning streak. The pair held steady near the mentioned level as market participants now look forward to the ECB monetary policy meeting minutes for a fresh impetus. Later during the early North American session, important US macro data might trigger some volatility and contribute towards producing some trading opportunities.

Thursday’s US economic docket highlights the release of Initial Weekly Jobless Claims and Durable Goods Orders data. This, along with the final Q1 GDP report and Goods Trade Balance figures for May will influence the USD price dynamics.

From a technical perspective, any subsequent slide is likely to find decent support near a descending wedge pattern resistance breakpoint. The mentioned resistance-turned-support is pegged near the 1.1215 region, which should now act as a key pivotal point for short-term traders. A convincing breakthrough might turn the pair vulnerable to accelerate the slide back towards multi-week lows, around the 1.1170-65 region, which if broken decisively might negate any near-term bullish bias and pave the way for a further near-term downfall.

2) GBP/USD : Break Below 1.2400 Will Set The Stage For Further Weakness

The GBP/USD pair failed to capitalize on its early uptick to weekly tops, instead met with some fresh supply near the 1.2540-50 region amid a strong pickup in the US dollar demand. Worries about the ever-increasing number of new coronavirus cases overshadowed the optimism over a sharp V-shaped global economic recovery. This, in turn, triggered a fresh wave of risk-aversion trade and forced investors to take refuge in the safe-haven greenback.

The British Pound was further pressured by reports that the US is considering tariffs on $3.1 billion of exports from the United Kingdom, France, Spain and Germany. Meanwhile, the already weaker risk sentiment deteriorated further after the International Monetary Fund (IMF) projected a deeper recession in 2020 and a slower recovery in 2021. The IMF now expects the global output to contract by 4.9% in 2020 – 1.9% below -3% April forecast – and grow by 5.4% in 2021.

The pair dived nearly 130 pips intraday, reversing the previous day’s positive move and snapping two consecutive days of winning streak. The pair now seems to have entered a bearish consolidation phase and held steady above the 1.2400 round-figure mark through the Asian session on Thursday. In the absence of any major market-moving economic releases from the UK, the USD price dynamics might continue to act as an exclusive driver of the pair’s momentum on Thursday.

Later during the early North American session, a slew of important US macro data will be looked upon for some meaningful trading opportunities. Thursday’s US economic docket highlights the release of Initial Weekly Jobless Claims and Durable Goods Orders. This, along with the final Q1 GDP report and Good Trade Balance figures might trigger some volatility.

From a technical perspective, the pair stalled this week’s goodish recovery move near a resistance marked by the 38.2% Fibonacci level of the 102076-1.2813 positive move. The mentioned hurdle coincides with a one-month-old ascending trend-line support breakpoint and should now act as a key pivotal point for short-term traders. Above the mentioned hurdle, the pair is likely to surpass the 1.2600 mark and test 23.6% Fibo. level near the 1.2645 region.

3) Dollar Outperforms Despite US Virus Outbreaks

The risk rally met a roadblock yesterday as investors pondered the impact of rising infections, mainly in the US and South America. Tensions between the US and Europe and the IMF cutting its global 2020 outlook (contraction of 4.9 %) were a source of concern, too. The risk-off mainly hit equities and currencies. The USD fully played its safe haven role even as the US is one of the hotspots of the new corona outbreak. The TW dollar (DXY) closed north of 97. EUR/USD dropped from 1.1325 to close at 1.1251. A better than expected German IFO this time didn’t help the euro. USD/JPY joined the broad dollar bid finishing the day at 107.04.

This morning, Asian equity indices follow the correction on WS. Chinese markets are closed. USD/JPY gains a few more ticks. The Japanese currency clearly isn’t able to capitalize on its safe haven status. The Aussie dollar is trading off recent top levels, but is holding quite resilient (AUD/USD 0.6872). The loonie yesterday evening underperformed after Fitch deprived the country of its AAA rating. USD/CAD is changing hands in the 1.3635 area. After a tentative further loss early this morning EUR/USD returned to the mid 1.12 area.

There are few data in Europe, but market look out whether the ECB will provide documents to the Bundesbank that might address the remarks of the German constitutional court on the ECB’s APP program. The perspective of this issue being solved in theory is a euro supportive. US durable orders are expected to rebound 10.5% M/M, but the series is notoriously volatile, even in ‘normal’ times. Initial jobless claims are expected lower (1.32 mln) but continuing claims might stay near 20 mln. A surprise might cause some intraday volatility but global sentiment will probably be the main guide for EUR/USD trading. EUR/USD this week started a second (ST?) corrective after touching 1.1422 early June. The first correction left the key 1.1160 area intact. We still expect this key reference to provide solid support.

Sterling initially resisted the global risk-off quite well yesterday, maybe supported by headlines that the UK and the EU are looking for a more pragmatic approach to reach a (minimal) trade deal this autumn. EUR/GBP eased to the 0.9020 area, but sterling finally had to give up intraday gains against the euro.