Coronavirus and markets in the week 7/4 – 14/4/2020
The total number of infected cases with the coronavirus has already exceeded 2 million. However, the light seems to appear at the end of the tunnel as the growth of new cases slows down. Some currency pairs reached interesting levels of resistance in the past week so some corrections or turnover could occur. The speculators on the euro have further strengthened their positions, expecting the euro to appreciate.
Fundamental analysis
A summary of the most significant events of the past week is here:
- The total number of infected cases with the coronavirus as of April 15, 2020, already exceeds 2,000,000 cases. The highest numbers are in the USA (614,000), Spain (174,000), Italy (162,000), France (143,000) and Germany (132,000).
- The positive news is that in these countries the increase in new cases is starting to decrease significantly.
- Some emerging economies, such as India, where there are currently more than 11,000 cases, remain at risk. The situation in Russia, where there are 21,000 cases so far, is also of concern. Very low numbers of infected are reported from Africa.
- The Fed meeting minutes on April 8, 2020, reported that an optimistic scenario could lead to economic recovery in the second half of 2020. The worst scenario is a recession in 2020 and a very slow recovery in 2021. In both scenarios, low inflation is expected due to lower resource use and low energy prices. The scenario development depends on the development of the pandemic.
- The Fed also states that the current situation is not comparable to the 2008-2009 financial system crisis. The current healthy banking system suggests that an economic shock caused by the coronavirus may not have long-term negative economic consequences such as the last financial crisis.
- The US reported another, near previous record number, 6.6 million claims for unemployment insurance. In total, over 16 million applications were made in the last 3 weeks.
- The 10-year US bond auction reached 0.782%. In February it was still 1.6122%.
- The Canadian PMI fell to 26. In 2009 it reached its lowest value of 36.1.
Let's see how big traders react to the situation and what is the market sentiment on selected instruments. The data is based on the COT report, which is regularly presented every Friday and shows the number of positions of large speculators in the futures markets in New York and Chicago. Traders use this information to decide whether to speculate on the decline or the strengthening of the instrument. A positive number means an expectation of a strengthening of the instrument, a negative number means a weakening.
Table 1: COT report - position of large traders
| Instrument |
Data as OF
10/4/2020 |
Data as OF
4/4/2020 |
Data as OF
27/3/2020 |
Data as OF
20/3/2020 |
Data as at
13/3/2020 |
Sentiment |
| Euro |
79,600 |
74,200 |
61,300 |
32,500 |
-12,700 |
Strong bullish |
| Japanese jen |
22,400 |
18,300 |
23,900 |
32,900 |
8,200 |
Bullish |
| Australian dollar |
-35,400 |
-31,700 |
-25,200 |
-28,700 |
-54,000 |
Bearish |
| Canadian dollar |
-24,400 |
-21,900 |
-29,200 |
-9,600 |
-2,000 |
Bearish |
| USD index |
15,000 |
14,100 |
12,500 |
7,200 |
12,400 |
Strong bullish |
The euro has bullish sentiment for 4 weeks as the overall net positions of the big players grow. However, the price of the euro against the US dollar was not yet significantly affected. The bullish sentiment continues on the Japanese yen.
The reason for the negative sentiment on the Australian dollar is dependence on the Chinese economy, which is strongly affected by the pandemic coronavirus. But improving the economy in China could lead to a turnaround and a strengthening of the Australian dollar.