The pair reached at 1.0913 the highest level since May 5 and it is hovering near the peak, holding a strong bullish tone. EUR/GBP eared losses while EUR/CHF jumped above 1.0550, to the highest in two weeks.
The US dollar is under pressure hit by risk appetite. The DXY is falling 0.65% and bottomed at 99.70. In Wall Street, the Dow Jones gains 3.45% and the Nasdaq 2.38%. Hopes about a vaccine for coronavirus triggered optimism.
More recently, equity prices rose even further after German Chancellor Merkel and French President Macron announced a recovery fund of around 500 billion euros for the recovery of the coronavirus crisis. Macron said it will be grants and not loans.
EUR/USD drops to 1.0815 during the early Monday trading session. In doing so, the quote stays depressed below 200-HMA while also staying inside a short-term triangle formation. Although the pair’s immediate failures to cross 200-HMA drags it towards 1.0800 mark, the formation support, at 1.0775 now, will keep the sellers in check. Should there be a clear break below 1.0775, April month bottom surrounding 1.0730/25 will be the bears’ favorite.
On the contrary, an upside break of 200-HMA level of 1.0823 will push the pair towards a three-day-old resistance line, at 1.0840 now. Though, the pair’s further rise past-1.0840 will be hindered by the said triangle’s resistance line near 1.0860.
Looking ahead, the upside in EUR/USD could stall if China objects to the German minister's appeal to the European Union to block Chinese takeovers of companies.
"We have to see that Chinese companies, partly with the support of state funds, are increasingly trying to buy up European companies that are cheap to acquire or that got into economic difficulties due to the coronavirus crisis," said Manfred Weber, a senior German conservative and head of the center-right EPP grouping in the EU Parliament, according to Reuters.
Moreover, the US-China trade tensions are already on the rise and
could weigh on risk assets. On the data front, German Bundesbank's
Monthly Report is scheduled for release on Monday. Across the pond, the
focus will be on the NHB Housing Market Index (May).
The EUR/USD pair closed the week as it started it, a handful of pips above the 1.0800 mark. News over the weekend showed that German EU parliamentarian Weber said that he favours declaring a twelve-month ban on Chinese investors who want to buy European firms.
The pound was the worst performer, undermined by Brexit woes. The UK and the EU, both reported a deadlock in talks, amid disagreement on the EU’s demand for a level playing field. Andrew Haldane, Bank of England's Governor, said that “there are other options beyond that, or alongside that, that we're looking at as well,” when referring to negative interest rates. He also discussed the use of QE, although he later clarified that he was not implied policymakers are poised on any of those options.
Commodity-linked currencies fell on Friday and closed the week with a soft tone against the greenback, despite oil and gold posted substantial weekly gains. WTI settled just below $30.00 a barrel, while spot gold hit a multi-year high of 1,751.75 a troy ounce.
US indexes settled on Friday near its daily highs but remained in the red weekly basis. The market’s sentiment continued to fluctuate between fears of economic downturns and hopes on reopenings. Treasury yields remained depressed throughout the week.
The Kiwi is currently hovering at the very critical support level which has not been broken since April. At the current level there is a huge possibility for the Kiwi to post gains against USD which can potentially take the pair to the region around 0.6100.
All things being equal, the NZD/USD exchange rate would continue to surge in the descending channel pattern. Bulls could aim for the upper line of the descending channel within the next week trading session.
We expect a huge driver for the pair to be from the continual improvement of Risk environment, successful containment of Covid-19, improvement of Chinese economy, and good prospect of US-China trade deal.
The Risk-on environment will likely result to sell-off of USD which has been considered a strong haven consistently for the past 3 months.
1.4480 was an important cushion in April 2000. 1.4310 is next.
1.4159 (mentioned last week) was under pressure last week as USD/CAD posted strong gains.
1.4019 is providing support.
The round number of 1.39 has some breathing room in support.
1.3757 is the final support line for now.
I remain bullish on USD/CAD
The outlook for the Canadian dollar remains negative in the near term. Economic conditions in Canada remain very weak due to Covid-19 and if this week’s inflation and retail sales miss expectations, USD/CAD could gain ground.
Analysts continue to see the USD/JPY pair with risks tilted to the downside after the aggressive Federal Reserve policy action. They have a target for the pair at 104.00 with a stop loss at 1.0900.
“The Fed’s aggressive policy response has helped to reduce the risk of the USD outperforming other traditional safe haven currencies such as the JPY and CHF. It has already resulted in the size of the Fed’s balance sheet expanding rapidly to almost USD7 trillion.”
“The recent improvement in global investor risk sentiment as financial market strains have eased have put a dampener on JPY performance more broadly though. We expect the recent improvement in risk sentiment to be tested by depression like economic data releases and slow progress in reversing lockdown measures. The JPY stands to benefit the most if financial market conditions deteriorate again.”
The price is trending higher but within a range inside a pennant formation, with the pole seen from 43.40 to 44.30.
A bullish breakout would imply a continuation of the recent upbeat momentum, with 45.30, the pattern target on the buyers’ radar.
The renewed upside in the spot gained traction after the 50-hourly Simple Moving Average (HMA) crossed the 200-HMA from below, charting a golden cross pattern.
Also, the hourly Relative Strength Index (RSI) is sitting comfortably above the midline, pointing towards more gains.
Should the bulls face rejection at the falling trendline resistance at 44.30, the coin could retrace towards the rising trendline support at 43.93.
A break below the latter would invalidate the formation, with the next support seen at the upward sloping 21-HMA of 43.53.
If the bears take out the 21-HMA support, the 43.00 round figure would come into play.
USD/JPY has been relatively steady in recent weeks. What is the fair model forecast for USD/JPY in the near and medium terms?
Here is their view, courtesy of eFXdata:
NAB Research discusses USD/JPY outlook and notes that its fair value model favors the view that USD/JPY is likely to pivot around the 107 level in the near term. NAB targets USD/JPY around 109 in Q3 and Q4.
“Our forecast that sees the pair edging back towards ¥109 as we head towards the second half of 2020 is predicated on our base-case scenario that sees a global economic recovery on a strong footing in the second half of this year. This implies buoyancy in equity markets along higher core global yields. Still, we are living in unprecedented times with an elevated level of uncertainty.
Thus, we expect more spikes in risk aversion that should result in USD/JPY dips such as the one we experienced in the past fortnight. ‘Known unknowns’ such the potential risk of a second COVID-19 wave of infection alongside US-China tensions (which are unlikely to go away and may well intensify ahead of the US Presidential election), are potential sources of volatility and on a worse case they could derail our base case for a global economic recovery,” NAB notes.
“Asset managers’ long JPY positioning has also caught our attention. Positioning is now the longest since 2013 and the unwind risk is a potential upside for USD/JPY, if it eventuates. Medium-term we are also keeping a close eye on central banks’ balance expansion, the recent Fed aggressiveness, if sustained is a potential headwind for USD/JPY,” NAB adds.
Gold prices (XAU/USD) rallied over 1% on Friday while settled the week nearly 3% higher, registering the best week in three.
The yellow metal put up a great show in the past week and reached the highest level since November 2012 at 1751.80, as gold’s safe-haven appeal was bolstered by intensifying US-China trade tensions.
The Trump administration accused China of mishandling the coronavirus outbreak and the conflict between the two superpowers escalated after US President Trump said Thursday, he could cut ties with Beijing.
Meanwhile, deepening global economic contraction, in the face of the pandemic, prompted investors to run for cover in the traditional safe-haven.
The German and Eurozone economic output contracted in Q1 while the US Retail Sales slumped by a record of 16.4% in April. These macro news added to concerns over the bleak global economic outlook and, in turn, drove the bullion through the roof while the US dollar wilted on poor US economic data.
From a broader perspective, the massive monetary and fiscal stimulus deployed globally to fight the unprecedented virus impact will continue to benefit gold, which is usually considered hedge-against inflation and currency debasement.
In the week ahead, all eyes will remain on the US Federal Reserve (US) Chairman Jerome Powell’s testimony on Coronavirus Aid, Relief, and the Economic Security Act before the Senate Banking, Housing, and Urban Affairs Committee in Washington DC.
In his speech last Wednesday, Powell downplayed the odds of negative interest rates, which temporarily dragged the prices lower. However, the recent consolidation of the rally above 1700 mark suggested, the precious metal was primed for a test of fresh multi-year highs.
Gold prices closed the week at 1742.22. The next resistances are aligned at 1754.39 (Nov 2012 high) and 1760 (round number). To the downside, immediate support is seen at 1728.67 (May 15 low). A break below which the 1700 mark will be tested.
Banxico cut rates 50bp to 5.50%. Market reaction was fairly muted (albeit slightly MXN positive) given the decision was priced in, economists at Rabobank apprise.
“Banxico cut rates 50bp to 5.50% in a unanimous decision that was widely expected.”
“We remain of the view that Banxico will cut rates to 4.50% this year but the risk is skewed to more rather than less rate cuts.”
“USD/MXN is currently trading in ‘no man’s land’ between 23 and 25 with positioning neutral. We expect 24-24.5 will be the dominant range but in order to break below 23 we would need carry trades to return and in order to attract MXN shorts above 25 we would need another event.”
ETH/BTC went up from 0.0207 to 0.02010 in the early hours of Friday. This followed four straight bullish days, after failing at the 0.02117 resistance line. The SMA 50 has crossed over the SMA 20 to chart a bearish cross. RSI has bounced up from the edge of the oversold zone to 37.50.
On the upside, ETH/BTC has strong resistance at 0.02116 and 0.02117. On the downside, healthy support lies at 0.02044
BTCUSD
BTC/USD dropped from $9,792.80 to $9,495.55 in the early hours of Friday. The price lost steam as soon as it neared the $10,000 psychological level. This means that the bulls probably won’t have the momentum required to break past crucial resistance at $10,025, which has thwarted the price twice before. On the downside, healthy support levels lie at $9,540 and $9,171.
The MACD indicates an upcoming reversal of bearish momentum. Finally, William’s %R is trending around -12.80 inside the overbought zone, indicating that the price is currently overvalued and will face short-term bearish correction.
ETHUSD
ETH/USD bears took control following three straight bullish days as the price fell from $203.33 to $199.90. The price has faltered after encountering resistance at the SMA 20 curve, The MACD shows decreasing bearish momentum, while the Elliott Oscillator has had a green session following 11 straight red sessions.
If the bulls somehow manage to break past the SMA 20, there are two strong resistance levels at $212.50 and $218.25. On the downside, there are healthy support levels at $197.50 and $187.65.
XRPUSD
XRP/USD fell from $0.2040 to $0.2007 as it neared the red Ichimoku cloud. The MACD indicates sustained bearish momentum, while the Elliott Oscillator has had a green session following 12 consecutive red sessions.
XRP/USD bulls will want to take the price up to $0.212 to conquer the strong resistance level and cross above the SMA 20. Beyond that, another strong resistance lies at $0.218. On the downside, healthy support levels lie at $0.196 and $0.182.
Ethereum price is pivotal $200 level after soaring to highs above $205. The bullish momentum which was triggered by Bitcoin’s surge towards $10,000 hit a wall at the 100 SMA in the 4-hour range. A retreat from the weekly highs failed to find support at $200, culminating in an extended action to $197 (intraday low). For now, the price has recovered slightly but still unable to overcome the seller congestion zone at $200.
The 50-day SMA is the key short term support, without it, ETH/USD could spiral to test $190. The RSI in the same 4-hour range appears to have slowed down the bearish momentum. As it seeks reprieve at 55, a sideways price action is anticipated. This way, Ether can start to consolidate the gains accrued from last week’s lows at $180. Buyers will also have time to join the market while shifting their focus to $220 and $230 resistance levels.
Interestingly, the MACD suggests that all hope is not lost for the bulls after all the indicator is comfortably seating above the mean line and features a bullish divergence. In other words, there is still potential and room for growth ahead of the weekend session.
Analysts at Bluepipsforex have opened a long position on the AUD/USD pair as they think the Aussie has become cheap with a risk on economic condition that is start anticipated on the global economy owing to increase in measure to control Covid-19 pandemic.
“We enter a long AUD/USD position (spot reference: 0.6412) with a target of 0.6485 and a stop-loss of 0.6371.”
“The rhetoric between the US and China has been easing, which puts the spotlight on the upcoming trade discussions and broader political dialogue. The resulting improvement leaves AUD to a potential advancement upward against other pairs.”
The Swiss central bank is battling strong upward pressure on the Swiss franc. What is the near-term bias for the currency?
Here is their view, courtesy of eFXdata:
Bank of America Global Research maintains a structural bullish bias on CHF over the coming months.
“SNB is stepping up its interventions to weaken CHF. This will fail in absence of re-establishing peg which is low pro…SNB may be reluctant to push sight deposit growth to levels in 2012. Balance sheet growth will become a concern,” BofA notes,.
“Path of least resistance remains for CHF to grind higher and for EUR/CHF to breach 1.05 as EZ debt concerns dominate m/term,” BofA adds.
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