EURUSD, GBPUSD, USDJPY
Weekly Forex Analysis
(March 30 - April 03, 2020)
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US Dollar Fundamental Outlook: Fed Kills Dollar Rally For Now, But USD Could Stay Bid As Risk Remains Fragile
The Dollar reversed nearly all of the gains driven by liquidity stress last week just as disruptively as it straightened on the week before.
The Fed was able to kill the Dollar rally after they announced unlimited QE and expanded swap lines with more big central banks in the world. This provided the much-needed USD liquidity in a world where all that matters is Dollar liquidity. Congress also passed the 2 Trillion USD package to support the economy during the coronavirus lockdowns, which was positive for risky assets. It helped stocks to rebound and eased risk aversion. However, most
investors agree that this is just a rally within a bear market and are expecting fresh lows in US equities, considering that the recession ahead is projected to be bigger than the one from 2008-2009.
While they did the trick for now, it remains to be seen if Fed’s liquidity injections will be enough to stem recurring Dollar strength over the coming weeks. Risk aversion has not gone away, but merely investors are pausing to reevaluate the situation. But with coronavirus cases now skyrocketing across the US and with no end in sight for the nationwide quarantines, the outlook for the economy remains bleak.
The US recorded 3.2 unemployment claims last week, the highest ever. That number is expected to be even higher on Thursday, resulting in a much higher unemployment rate and negative Non-Farm Payrolls number on Friday. Thus, risk sentiment remains fragile, and equities could plunge into another wave of selling. If that happens, the safe-haven US Dollar could return as the biggest winner once again.
Euro Fundamental Outlook: No Unity Among EU Leaders For Coronavirus Response
The Euro rose against the safe-havens Dollar, Yen, and Swiss Franc last week, but ended lower versus the risky currencies, in what was a broad Fx reversal of the recent USD-driven disorderly moves.
Euro-area leaders met last week to come up with a common fiscal response to the COVID-19 crisis, but the meeting produced no agreement, in disappointment for the hard-hit nations of Italy and Spain. Without a quick and swift compromise soon that provides credit to Southern EU nations, there are risks that anti-EU sentiment in these two countries could rise again, possibly triggering renewed existential fears for an EU breakup.
Matteo Salvini, leader of the Northern League, already expressed his disappointment in the solidarity of fellow EU members who have done too little too late to help the country in greatest need. He said last week, dealing with the pandemic is the priority at the moment, but Italians should reconsider their EU membership after the crisis is over. Nonetheless, the Euro has not reacted negatively so far on these developments, but it’s unlikely that will remain the
case for too long without EU leaders coming together for a more effective response.
On the calendar, last week’s sentiment surveys, such as the PMIs, confirmed the dismal outlook for the economy with the services sector falling far below the 2009 crisis levels. For this week, the calendar is relatively light, and the Euro will continue to trade on coronavirus developments, risk sentiment flows, and possibly a return of liquidity issues in case of intense risk aversion like it was the case two weeks ago.
EURUSD Technical Outlook:
If, at the start of the last week, the technical picture was not perplexing enough, then the technical situation at the beginning of this week certainly will be.
All the market has been doing for the past 5 – 6 weeks is pushing the price beyond previously established extremes and then sharply reversing the whole moves. As a result, we are now back near the 1.10 psychological equilibrium rate with not much direction on EURUSD price action.
The monthly candle for March will probably close as a doji or a high-wave candle, which indicates market confusion but also confirms the 1.08 - 1.09 lows as support on a monthly basis. Thus, the monthly technicals lean slightly on the bullish side from this perspective.
On the weekly chart, support is likely to sit toward the 1.0800 area and resistance around the 1.1350 area.
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