EURUSD, GBPUSD, USDJPY
Weekly Forex Analysis
(April 20 - April 24, 2020)
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US Dollar Fundamental Outlook: Nothing Matters For Markets But COVID-19 Pandemic – USD To Stay Generally Supported For As Long As We Are In Crisis Mode
As we suggested here in the previous weekly analysis, most major Fx pairs have entered a phase of sideways consolidation as the markets are now trying to digest all the shocks and subsequent massive stimulus measures. Not even key economic reports are moving the markets now because all the bad news is much priced in by now and everyone expects Q2 data to be terrible.
After killing the USD rally with liquidity injections, the Fed is also in wait and see mode until new incoming information regarding the coronavirus makes it clearer in which direction things will move. The main question now is when does this Corona crisis ends and how quickly the economy gets back to the pre-crisis growth. Potential answers to these questions are what can move the markets now, one way or the other.
The US Dollar is likely to stay in demand in this environment of general risk aversion, which still predominates in the markets despite the solid bounce in stocks and risky assets over recent weeks. With that said, we should be aware, that possible unexpected good news regarding the COVID-19 crisis could on set off a sharp USD bear trend as risky currencies would bounce strongly. However, at this time, with the pandemic still raging in most parts of the
world, that seems highly unlikely, and it is much more probable that the world will battle with the coronavirus for at least the rest of 2020.
Euro Fundamental Outlook: EU Existential Issues Resurfacing Again
EU leaders will hold a video summit on Thursday to discuss the economic impact of the pandemic. It is the key focus for the Euro this week as the question of issuing Corona bonds will surely come up again on this meeting. The unity of the EU is becoming a bigger issue, and many investors are concerned that a repeat of the 2012 existential crisis may be next on the cards for the Euro Area.
On the calendar, traders and investors will also have their eyes on the German ZEW and Ifo reports as well as Thursday’s manufacturing and services PMI surveys, which all are expected to stay at depressed levels after nosediving last month as a result of the COVID-19 shock.
Overall, the Euro is likely to stay pressured as the political factor is hitting it in addition to the economic and health crisis. An out of the box breakthrough in EU politics will be needed to lift the dark clouds over the concerns about the EU’s durability, but for now, that seems highly unlikely to occur. In fact, many still view it as more probable that EU countries move in a direction leading to a break up rather than a direction for a much closer
unity and mutualization between EU member states.
EURUSD Technical Outlook:
Nothing exciting happened on the EURUSD charts over the previous week. As we have discussed before, Fx currencies have entered a period of sideways consolidation that may last for a while.
EURUSD is trading in a 1.08 – 1.10 range since the start of April and there isn’t much to suggest it can move out of this range this week. The two levels act as support and resistance zones, respectively.
The 1.07 March lows will act as a stronger support zone a tad lower, while 1.1050 to the upside may also be strong resistance slightly higher than the 1.10 round number.
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