EURUSD, GBPUSD, USDJPY
Weekly Forex Analysis
(March 23 - March 27, 2020)
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US Dollar Fundamental Outlook: The Name Of This Game Is “Cash Is King” (That Is USD Cash)
Last week the markets entered a phase where fundamentals and usual market indicators don’t matter, and instead, all that matters is liquidity. It is precisely these liquidity problems and the scarcity of cash that are driving up USD demand in recent days. In the current market environment, the name of the game is “cash is king.”
The US Dollar pushed to multi-year highs, almost reaching the 2016/17 highs, as the global demand for US Dollars skyrocketed amid the stock market meltdown. The upcoming economic tsunami will deliver a significant hit to the global economy. It’s still too early to determine any reliable estimates, but some have thrown in the possibility for an unheard of 20% or 30% rate in US unemployment. Treasury Secretary Steven Mnuchin and Fed President James Bullard warned about such grievous scenarios for
the second quarter.
In either case, turning to this week, initial unemployment claims are expected to spike up to as high as 1 to 2.25 million as people are laid off work due to coronavirus lockdowns. Last week, jobless claims already surged to 281k – up 60k from recent averages of around 220k. It is clear at this point that the economy is rolling downhill. Many people will be left without jobs and massive wealth is to be lost in this crisis.
For the US Dollar, the bull run is unlikely to be over. With the worst yet to come for the economy, stock markets are to remain in turmoil. And as long as the panic/fear mode stays, so will Dollar scarcity and liquidity issues. The liquidity induced demand for Dollars probably has further to run in this global market rout and upcoming recession.
Euro Fundamental Outlook: COVID-19 Crisis To Inflict Profound Damage On Eurozone Economy; Ifo & PMI Surveys To Provide The First Clues
The rapid spreading rate of the coronavirus triggered a wide lockdown in Europe. Pretty much every EU country now has fully closed restaurants, hotels, air travel, and any events that may include large groups of people. Italy, the hardest hit European nation by the COVID-19 pandemic, also announced that they will close down the whole industrial sector this week, which will wreak additional havoc on the economy.
The ECB stepped up its efforts to provide aid to the economy in these difficult times and announced last week a 700 billion euros emergency quantitative easing package. The German Government also changed its mind and announced they are ready to increase fiscal spending.
In the Fx market, the Euro currency remains resilient on a broad basis, except versus the US Dollar, against which it lost considerable ground. Other riskier currencies such as AUD, NZD, CAD, and the European NOK and SEK suffered the most damage in this panicky “dash for cash” market. From the calendar, traders will be watching the manufacturing/services PMIs and German ifo Business Climate Index for clues about the upcoming recession.
EURUSD Technical Outlook:
The volatile price action last week flipped the technical picture back to bearish and pushed the EURUSD pair to 3-year lows.
The price was able to stabilize somewhat around the 1.0650 level, but this seems only to be a temporary pause within a major downtrend. The weekly (and monthly) timeframe now looks much more bearish than at any time during the 18-month gradual downtrend. The coronavirus crisis has caused volatility to spike and set off the largest moves in currencies that we have not seen for years.
To the downside, EURUSD looks headed toward the 1.03 – 1.05 and. The speed of the ongoing bearish trend suggests that exceeding them and reaching parity may also be on the cards.
To the upside, the 1.08 – 1.0850 area is the first moderate resistance, while the 1.10 resistance would be strong resistance to keep this bearish trend intact.
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