EURUSD, GBPUSD, USDJPY
Weekly Forex Analysis
(March 09 - March 13, 2020)
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Wow… It’s been a hell of a week in the Fx market, and this week - judging by the moves at the Monday open - is likely to prove no less entertaining.
A good piece of advice in such times is to grab a cup of coffee, sit back, and just watch the markets. There is no need to trade large/risky positions in this environment, especially as the risks for sharp reversals and giant spikes are quite high now (as we’ve seen on the Asian open today). The right opportunities will certainly come, and patience can be the greatest advantage for a trader.
US Dollar Fundamental Outlook: USD Tumbles As Fed Slashes Rates In First Emergency Rate Cut Since 2008
The biggest news and surprise last week was the emergency Fed’s move to cut interest rates by 50 bp in response to the coronavirus crisis that has hit US stocks hard. The Fed’s decision to aggressively slash rates without waiting for the regular meeting hit the Dollar hard and triggered a complete reversal of the broad USD bullish trend.
Furthermore, the markets are now expecting another 50 bp in rate cuts at their regular meeting next week on March 18. That would place the Fed fund rates at 0.50% - 0.75% - significantly eroding the USD’s yield attractiveness, hence sending the currency sharply lower. Considering this, the new USD bearish trend is likely to extend for now.
At the same time, it’s worth noting that other central banks will probably also react to the coronavirus crises by cutting interest rates and doing QE. Thus, it’s possible that this USD plunge may reverse as other currencies might be next to suffer in such a case. But, for now, the Dollar is the one that’s taking a beating.
Economic data didn’t matter much last week in turbulent trading, and that is likely to remain the case this week too. Markets are now all focused on the spreading of the coronavirus, its economic impact, and the subsequent response from governments and central banks, and that is what will drive currencies for the time being.
To make things more complicated, oil prices have collapsed over the weekend in what seems to be a price war declared by Saudi Arabia. Such a drop in oil prices only makes the task of policymakers harder and makes this whole market environment even more uncertain on all fronts.
Euro Fundamental Outlook: All Eyes On The ECB – Will They Follow The Fed With Easing Action?
The Euro short squeeze extended higher last week and over the weekend, taking EURUSD to almost 1.15 this Monday morning.
The sharp depreciation of the Dollar as well as the worsening risk sentiment sent the Euro higher versus the USD and risky currencies (NZD, AUD, CAD), but the Euro is down versus the safe havens (JPY, CHF). This clearly reflects the dynamics behind this Euro rally and tells us that there is no underlying strength in the Euro, but it is mainly rising because of selling in other currencies.
The ECB meets this Thursday, and traders will be closely watching if they will unleash any easing measures such as the Fed. If the ECB goes full bazooka mode, it will probably cap Euro gains for now and may cause additional sharp price gyrations.
On the other hand, short covering does have some more room to take the Euro further higher, and especially if the ECB chooses a more moderate approach for easing policy than the Fed.
Trading is likely to remain uncertain as volatility spikes up massively after months of being confined to record lows.
EURUSD Technical Outlook:
EURUSD made a significant breakout last week in a powerful rally that is extending into this week as well.
The pair broke the 18-month bearish channel that we have discussed here numerous times over the past months. This is a significant bullish development for the technical picture across several timeframes, including the long-term weekly and monthly. The weekly technicals are now shifted to bullish, while the monthly chart is also showing signs that a significant bottom may have been put in place around the 1.08 lows from mid-February.
EURUSD stopped at the 1.1350 resistance last week and then gapped higher over the weekend to reach the 1.15 resistance area as well. The next resistance is at the 1.18 – 1.20 area, which is a significant area for the pair as it represents a multi-year resistance trendline that goes back to the 2008 highs.
To the downside, 1.12 and also 1.11 will be the support areas and defining points for this bullish move. The technical picture now remains bullish as long as the price is above these two levels/zones.
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