The common currency remained weak against a number of its counterparts yesterday as financial releases showed the damage done by the corona crisis to the European economy in April. It was characteristic that the main PMI readings under-performed market expectations showing how wide the contraction of economic activity actually is for April in the Eurozone. Some analysts noted that the results should probably be the worst of it, as the economy of the Eurozone could be bottoming out. On the flip side the teleconference of EU Leaders, as mentioned yesterday, showed limited progress yet seems to have a positive sign as more unity seemed to be present and it was agreed that a trillion EUR emergency fund will be build. Italy’s Prime Minister Conte stated that there was great progress fuelling hopes for more unity in the EU. However, it should be mentioned that the main issue now is to what amount the aid will consist of grants and to which of debt. French President Macron stated that should Europe raise debt so as to lend to others, it may not be the response Europe needs. We expect the EUR to remain under pressure as long as negative headlines dominate, yet EU states slowly restart their economies. The tricky part of the attempt may be to restart the economy without increasing new infections. Hence, we expect the in the background fundamentally over the next weeks for the common currency to be whether infections increase as the economy reopens. EUR/USD continued its drop yesterday, slipping below the 1.0775 (R1) support line now turned to resistance. We maintain our bearish outlook technically for the pair as the downward direction of the pair seems to be firming. Should the pair remain under the selling interest of the market, we could see it breaking the 1.0720 (S1) line and aim for the 1.0650 (S2) level. Should the pair’s long positions be favored by the market we could see EUR/USD breaking the 1.0775 (R1) resistance line and aim for the 1.0835 (R2) resistance level.
USD weakens against commodity currencies
The USD weakened against the AUD as well as the CAD yesterday, as the oil crisis continues to echo loudly in the market, albeit it should be mentioned that the USD recovered some ground during today’s Asian session. The US House of representatives yesterday approved a $484 billion to support small businesses and hospitals, thus raising the total response of the US government to almost $3 trillion. It should be noted though that the additional funding of local state governments is to be discussed and disagreements could come afloat there. Also please bear in mind that the financial releases yesterday tended to provide little help for the USD as the US initial jobless claims figure for the past week improved by dropping yet it still remains massive and the market may have expected it to drop a bit more. Please note that in the last few weeks initial jobless claims figure aggregated around 26 ½ million job losses, shocking the markets. Hopes are for the job losses to be more of a temporary nature, yet as the lockdowns and the social distancing measures are still in effect, hopes fade. It’s characteristic of the slowdown in the US economy that all the readings for April’s Markit PMI’s released had marked drops, mirroring the situation of the US economy. We maintain a bearish outlook in general as financial releases could be at extreme lows shocking the markets in the next two weeks or so. AUD/USD rose to reach the 0.6385 (R1) resistance line yet corrected lower during the Asian session. As the pair proved unable to break the upper boundary of its sideways movement, we maintain our bias for it. If the bulls are in control, we could see AUD/USD breaking the 0.6385 (R1) line and aim for the 0.6490 (R2) level. If the bears take over, we could see the pair breaking the 0.6280 (S1) line aiming for the 0.6180 (S2) level.
Other economic highlights today and early tomorrow
Today during the European session, we get UK’s retail sales growth rates for March and Germany’s Ifo Business climate for April. In the American session, the US releases include the durable goods orders for March, the U. Michigan Consumer Sentiment for April and the Baker Hughes oil rig count.
EUR/USD 4 Hour Chart
Support: 1.0720 (S1), 1.0650 (S2), 1.0580 (S3)
Resistance: 1.0775 (R1), 1.0835 (R2), 1.0890 (R3)
AUD/USD 4 Hour Chart
Support: 0.6280 (S1), 0.6180 (S2), 0.6075 (S3)
Resistance: 0.6385 (R1), 0.6490 (R2), 0.6615 (R3)
