Coronavirus and markets in the week from 26/5 – 1/6/2020

Fundamental analysis

The total number of the coronavirus infections as at June 1, 2020, is more than 6,383,000 cases. Since last week, the total number of infected people has increased by 833,000 cases. Daily growth increased last week, mainly due to uncontrolled growth in Brazil.

Figure 1: Daily increase of the coronavirus cases in the world

Figure 2: The distribution of the coronavirus cases among countries

 

• The epicenter has moved to Brazil, where there are currently 529,000 cases (an increase of 162,000 cases since last week).
• In Russia, the number of cases rose to 423,000 (353,000 last week).
• The largest number of 1,859,600 cases is still in the United States (1,698,000 last week).
• In total, more than 2,920,000 people have recovered from the disease (600,000 more than last week).

 

We select the following reports from last week macroeconomic data:

 

• The US reported a further increase in claims for unemployment benefits. 2.1 million unemployed people in the United States applied for support last week. In total, more than 40 million unemployed people have applied for support since March 19, 2020.
• GDP for 1Q 2020 in the USA fell to -5% (previous quarter 2.1%).
• US consumer confidence in May is 86.6 (for April 86.9). Prior to the outbreak of the crisis, the confidence stayed above 120.
• Retail sales in Germany fell by -5.3% in April (-4.0% in March).
• The Central Bank of Australia kept the rate at 0.25%.
• PMIs in China are 50.6 in May. The previous month was 50.8. A value higher than 50 means the expansion of the economy. According to this indicator, China seems to be over the worst (at the peak of the crisis in February, this indicator was at a record level of 35.7). Investors expect similar developments in other countries, which explains the current market optimism.
• The PMI in the euro area also improved, reaching 39.4 in May (previous month: 33.4).

 

COT Report

Let's look at how large traders react to the situation and what is the market sentiment in selected instruments. The data is based on the COT report, which is presented regularly every Friday and shows the number of positions of large speculators in the futures markets in New York and Chicago.


Table n. 1: COT report – position of large traders

Instrument	Data as at 29.5.2020	data as at 22.5.2020	data as at  15.5.2020	data as at 8.5.2020	data as at 1.5.2020	Sentiment
Euro	75 200	72 600	78 100	76 300	79 700	Bullish
Japanese yen	34 600	27 500	27 900	27 200	32 300	Bullish
Australian dollar	-40 500	- 39 600	-35 400	-33 500	-37 700	Bearish
Canadian dollar	- 33 900	- 35 100	-32 200	-32 100	-29 000	Bearish
USD index	14 800	17 300	16 500	16 400	16 100

Technical analysis of selected instruments as at June 1, 2020

The moving averages used in the charts are EMA 50 (orange line) and SMA 100 (blue line).
 

The EURUSD currency pair

 

The EURUSD strengthened strongly last week influenced by the € 750 billion coronavirus pandemic plan presented to European Parliament last week by European Commission President Ursula von der Leyen. The EURUSD rose to resistance at the level between 1.1140 - 1.1160. If it closes above this level, then the price might rise further to around 1.1300. 

Figure 3: The EURUSD currency pair on a daily chart

The nearest support area is at the level of 1.0980 - 1.1020.
The first resistance can be considered in the band of 1.1300 - 1.1320, where Fibo 78.6% is.

 

The USDJPY currency pair

 

The USDJPY moved in a narrow side trend last week and it is oscillating around the moving average of EMA 50. It is still valid that generally, the USDJPY currency pair is in a declining trend.

So far, the US dollar has benefited from being considered the world's reserve currency number 1, and the Japanese yen, which is also the world's reserve currency, has so far lost slightly in the battle. However, the Purple Extreme indicator is now overbought and the USDJPY could start to fall, especially in the case of another batch of weaker economic data from the USA. 
 

Figure 4: The currency pair USDJPY on a daily chart

The nearest support is in the range 106.75 - 106.95, where there is a hidden gap on the candle form on May 11, 2020. However, since this gap has already been filled, it is possible to expect a decline to further support at 105.90 - 106.10.

The nearest resistance is in the range of 107.90 - 108.30. There is a hidden gap in this zone on a candle formed on April 13, 2020. Further resistance is then in the zone 109.20 - 109.50.
 

The USDCAD currency pair

The Canadian dollar broke through the support line of the falling triangle last week. The reason for the strengthening is the further rise in the price of oil, which the Canadian dollar correlates with. From the point of view of technical analysis, the Canadian dollar is heading to close the gap, which was created on March 9, 2020.

In the given situation, it seems more appropriate to look for trades in the short direction. The ideal place could be the current closest. If a trader speculated on a decline with a volume of 0.05 lot and entered the trade at the price of 1.3678, then with the target price to the nearest support at 1.3500 he could earn a profit of EUR 55. 
 

Figure 5: The USDCAD currency pair on a daily chart

Resistance 1 is in the range of 1.3700 - 1.3800.
The nearest support is at the level of 1.3420 - 1.3500, where there is a gap that is likely to be filled.
 

The AUDUSD currency pair

This currency pair continues to move in a rising channel. Last week, there was a fear of another phase of the trade war, which would probably lead to the decline of the pair, but this threat subsided after Friday's speech by US President Trump, who did not impose any significant sanctions on China. He is probably calculating with the fact that the presidential election is approaching, with 6 months left, and he wants to win.

Australia’s central bank left the rate at 0.25% on June 2, 2020, and the Australian dollar, under the influence of optimism and risk-on sentiment in the markets, broke through a strong resistance and continues to strengthen, as we can see in Figure 6: 

Figure 6: The AUDUSD currency pair on a daily chart

The nearest resistance is in the range 0.6900 - 0.6930.
The nearest support is 0.6650 - 0.6680. Support can also be considered as the lower trend line of the growing channel, where it might be ideal to look for trades in the long direction.





 

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