- EUR/USD regains the upside and tests 1.0880 on Thursday.
- The second Eurogroup meeting is expected later today.
- US Initial Claims, U-Mich index in the limelight later in the session.
The shared currency has regained the smile in the second half of the week and is now lifting EUR/USD to the 1.0870/80 band.
EUR/USD focused on the Eurogroup event
EUR/USD is navigating the upper end of the daily range in the 1.0870/80 band, leaving behind Wednesday’s negative price action amidst the resumption of the selling bias in the greenback.
In the meantime, market participants should be closely following the headlines from the upcoming Eurogroup meeting, where officials are expected to keep debating any form of joint issuance of debt aimed to help members of the bloc to fight the fallout of the coronavirus.
Further out, developments around the coronavirus keep dictating the mood in the global markets, where some stabilization in deaths and infected cases seems to has stabilized in recent days, particularly in Spain and Italy, bringing in occasional bouts of optimism in the risk appetite trends.
In the docket, the German trade surplus widened to €21.6 billion during February, surpassing forecasts. Later in the NA session, the weekly report of Initial Claims will grab exclusive attention seconded by the release of Producer Prices and the preliminary gauge of the Consumer Sentiment for the current month.
What to look for around EUR
The shared currency has managed to regain composure amidst low volatility and thin trade conditions on Maundy Thursday and ahead of the Good Friday holiday. On the macro view, recent better-than-expected results in fundamentals in both Germany and the broader Euroland opened the door to some respite in the prevailing downtrend, although the underlying stance still remains well on the negative side. In the very near term, however, headlines from the upcoming Eurogroup meeting (Thursday) are seen driving the mood around the euro.
EUR/USD levels to watch
At the moment, the pair is gaining 0.17% at 1.0874 and a break above 1.0926 (weekly high Apr.7) would target 1.0976 (55-day SMA) en route to 1.0992 (monthly low Jan.29). On the other hand, immediate contention emerges at 1.0768 (monthly low Apr.6) seconded by 1.0635 (2020 low Mar.20) and finally 1.0569 (monthly low Apr.10 2017).
- Gold gains some positive traction amid a subdued USD price action.
- Concerns over an imminent global recession remained supportive.
- Bulls seemed rather unaffected by the prevailing risk-on environment.
Gold finally broke out of its Asian session consolidation phase and spiked to fresh daily tops, around the $1658 region in the last hour.
Following a directionless trading action over the past two trading sessions, the precious metal gained some positive traction on Thursday and the uptick seemed unaffected by the prevailing risk-on mood.
Investors turned optimistic on forecasts that the coronavirus pandemic may be reaching its peak and the improving risk sentiment evident from some follow-through positive move in the global equity markets.
Meanwhile, concerns over an imminent global recession and expectations of a prolonged period of low/negative interest rates extended some additional support to the non-yielding yellow metal.
This coupled with a subdued US dollar price action, weighed down by a mildly weaker tone surrounding the US Treasury bond yields, provided an additional boost to the dollar-denominated commodity.
Despite the positive move, the metal remains well below multi-week tops set on Tuesday, which should now act as a key pivotal point and help determine the next leg of a directional move.
Moving ahead, Thursday's US economic docket – highlighting the release of initial weekly jobless claims and March PPI figures – will now be looked upon for some short-term trading opportunities.
Technical levels to watch
1.4000 holds for now, as market awaits the confirmation of a deal between the top oil producers, Terence Wu, an FX strategist at OCBC Bank informs.
“Price movement from the crude complex suggest positivity.”
“Prefer a sell on rallies posture for the USD/CAD, barring any mishaps on the OPEC+ front.”
“Initial target on the downside at 1.3814, before 1.3643 (55-day MA).”
EUR/USD Thursday's four-hour chart is pointing to an advantage for the bears, as FXStreet’s analyst Yohay Elam notes.
“Momentum on the four-hour chart has turned positive, but EUR/USD trades below the 50, 100, and 200 Simple Moving Averages.”
“Support awaits at 1.0830, which provided support earlier this week, and it is followed by 1.0770, the weekly low.”
“Euro/dollar faces resistance at 1.0880, the daily high, followed by 1.0930, the weekly high.”
Governments have reacted to the coronavirus crisis with extraordinary fiscal packages. Countries that keep the people at work and earning money may come on top, according to FXStreet’s analyst Yohay Elam.
“Helping keep workers on the payroll means employees do not need to run and claim jobless benefits and instead have the confidence that their pay is guaranteed for a while. That encourages consumption.
“Employees receiving additional unemployment benefits and for a longer period of time encourage employers to fire workers so they can claim unemployment benefits. The detachment of the worker from the firm undermines confidence and discourages spending.”
“It would be better to grant funds to keep these firms alive, in some cases by nationalizing them, than by lending money. It is better to have either healthy companies or kill them off altogether. Zombies may slow the recovery. It also reduces maintenance costs in the current emergency state and also later on.”
“Keeping people at work and granting money has advantages over propping unemployment benefits and lending money. That may make a mark on currencies.”
According to preliminary figures for Gold futures markets from CME Group, open interest rose by just 420 contracts on Wednesday, while volume went down by more than 89K contracts, reversing two builds in a row.
Gold still eyes a test of $1,700/oz
Wednesday’s correction lower in prices of the ounce troy of gold looks shallow and faces rising probability of reversion on the back of declining open interest and volume. Against this scenario, another move to the $1,700/oz mark and beyond is still on the table.
The OPEC+ and G20 meetings come with huge uncertainty. Economists at Deutsche Bank try to quantify how much the best case scenario would be worth for the oil currencies, CAD and NOK.
“The raw betas imply that a 30% rise in oil prices driven entirely by supply cuts would be worth about 3% and 2% for NOK and CAD, respectively, plus some from any improvement in global risk sentiment.”
“The good news for oil currencies is that about half of this year's decline in oil prices may be due to a supply shock that is still largely in the price, such that a successful deal on comprehensive supply cuts in the coming days would promise a meaningful recovery in oil prices.”
“The bad news is that it is probably the global oil demand shock that accounts for most of the decline in both CAD and NOK this year. Unless or until the global economy ramps up again, even a best case scenario for the OPEC+ and G20 meetings will provide only limited relief.”
Strategists at Westpac Institutional Bank have cut their crude oil price forecasts. This reflects the significant hit to demand from COVID–19 and the breakdown of OPEC+ negotiations.
“Demand is expected to collapse by over 3.2mbpd in Q2 while at the same time Saudi Arabia and Russia turn to maximising production which could see the market being oversupplied by as much as 5mbpd.”
“Our Brent forecast for June has been lowered by US$35/bbl to $30/bbl and the year-end forecast is now 36% lower at U$32/bbl (it was US$50bbl).”
“Moving into the second half of 2020, crude production is set to moderate, mostly from a correction to US tight crude production but also an easing in the OPEC+ tensions.”
“Through 2021, as non–OPEC supply moderates and demand returns to trend, the price recovery will be modest as Saudi Arabia and Russia remain focused on growing market share and as US production starts to lifts again, responding to higher prices.”
UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting reviewed the recently published inflation figures for the month of March in the Philippines.
“Headline inflation slowed for the second straight month to 2.5% y/y in Mar (from 2.6% y/y in Feb), in line with our estimate (2.4%)… Cheaper non-food items such as electricity and transportation were key factors pulling down headline inflation last month.”
“Year-to-date, inflation averaged at 2.7% in 1Q20 (1Q19: 3.8%). The confluence of bleak economic growth prospects, falling crude oil and commodity prices, as well as constrained consumption following the one-month “enhanced quarantine” measures suggests that inflation risks are tilted toward the downside as the year progresses. We maintain our 2020 full-year inflation forecast at 2.5% for now (BSP’s forecast: 2.2%).”
“A benign inflation environment coupled with a gloomier growth outlook provide room for Bangko Sentral ng Pilipinas (BSP) to ease further in the near term. We have factored in another 50bps cut in the overnight reverse repurchase rate to 2.75% in 2Q20. BSP Governor commented yesterday (6 Apr) that the central bank is open to tweaking monetary settings outside its review cycle if warranted. The next monetary policy meeting is scheduled on 21 May”.
Traders scaled back their open interest positions in Copper futures markets by just 240 contracts on Wednesday, reaching the third consecutive drop. Volume, too, went down by around 9K contracts following two daily builds in a row.
Copper: Door open for further recovery
Wednesday’s downtick in prices of the pound of the base metal was in tandem with diminishing open interest and volume, which should be supportive of the continuation of the recovery in the short-term horizon.
Citing two Russian sources on the matter, Reuters reports Russia may cut up to two mln bpd under any global oil pact.
On Wednesday, it was reported that Russia was prepared to cut oil output by about 14% of its Q1 average or 1.6 million bpd.
This comes ahead of the crucial meeting between the OPEC and non-OPEC producers due later today.
Oil price reaction
Both crude benchmarks are picking up fresh bids on the above headlines, with WIT jumping nearly 6% to regain 26.50 levels.
- AUD/USD witnessed a modest intraday pullback from multi-week tops.
- A combination of supporting factors helped limit any meaningful slide.
The AUD/USD pair edged lower on Thursday and refreshed session lows in the last hour, albeit showed some resilience below the 0.6200 mark.
The pair stalled its recent positive momentum near mid-0.6200s and witnessed a modest intraday pullback from near four-week tops following the release of the RBA’s Financial Stability Report (FSR).
The report cited that the Aussie financial system was strong initially before now faces increased risks due to heightened uncertainty related to the coronavirus pandemic, which prompted some selling.
However, fresh optimism over forecasts that the pandemic peak could come soon remained supportive of the risk-on mood and continued lending some support to perceived riskier currencies, like the aussie.
This coupled with a subdued US dollar price action, possibly on the back of a weaker tone surrounding the US Treasury bond yields, further collaborated towards limiting any meaningful downside for the pair.
The pair quickly recovered around 30-35 pips from daily lows and is currently placed in the neutral territory, around the 0.6230 region as the market attention now turns to the US macro releases.
Thursday's US economic docket highlights the release of initial weekly jobless claims, which along with March PPI figures might influence the USD price dynamics and provide some trading impetus.
Technical levels to watch
Supported risk appetite helped the AUD overcome the downgrade in credit rating outlook to outperform across the G-10 space and the AUD/USD hammered the 0.6200 resistance, per OCBC Bank.
“The AUD/USD breached the 0.6200 resistance, as stabilizing risk appetite offset the S&P’s cut of Australia’s credit-rating outlook.”
“If the pair sustains above 0.6200, there may be a renewed upside momentum into next week.”
“Note also that short-term implied valuations have pushed higher, while spot still lags even after the recent extension higher.”
Economists at Rabobank have looked at their assumptions in more detail and have revised global growth forecasts again due to the development of coronavirus all over the world.
“We now expect global GDP to decline by 2.6% in 2020. In terms of the peak in contraction, we expect the impact of the corona-crisis to overshadow even the impact of the Global Financial Crisis.”
“Countries that are expected to face the largest contraction are the US (-6.4%), Italy (-7.2%) and the UK (-6.8).”
“Large emerging markets such as China and India are expected to grow by a little over 1% in 2020. However, keep in mind that these economies would under normal condition be able to grow by 5% to 6%.”
“If the lockdowns are successful in containing the virus, we expect to see the first (tentative) signs of a recovery in Q3 2020. Hence, we do not include a second wave of infections in late 2020, nor do we assume an extension of the lockdowns beyond Q2.”
The government may relax some lockdown measures by the end of April, said the Italian Prime Minister (PM) Giuseppe Conte in an interview with BBC News.
Earlier today, La Stampa, reported the government is reportedly said to extend the lockdown by two weeks, as the new virus cases continue to emerge at a quicker pace.
Coronavirus in Italy has claimed another 542 lives, it was reported Wednesday. There were 542 new fatalities reported on Wednesday. In total, 17,669 lives have now been lost to the virus in Italy.
- EUR/USD: 1.0700 at sight
NZD/AUD caught the bid on what some felt that the RBA isn’t all that committed to QE, which is incorrect in the opinion of economists at ANZ Bank.
“The move lower overnight to a post-parity low also broke resistance at 0.9670, which makes for a weak technical picture.”
“We think the market has read the RBA a bit wrongly and expect AUD and NZD to both come off, which should commensurately revert this cross to levels near 0.98. Any notion of RBA tapering is very premature.”
“Support 0.9500 Resistance 0.9880”
While speaking to BBC TV on Thursday, the UK Culture Minister Oliver Dowden said that the UK Prime Minister (PM) Boris Johnson remains as we said, stable and improving condition in intensive care.
Dowden said: "In terms of the prime minister's condition, it remains as we said yesterday: he's stable, improving, sat up and engaged with medical staff.”
"I think things are getting better for him," he added.
- UK Treasury and BOE announce temporary extension of the Ways and Means facility
Analysts at OCBC Bank prefer to position for weakness in the EUR/USD on potential further disappointment on the fiscal rescue front.
“The inability of politicians to cobble together a coherent fiscal rescue package will inhibit any EUR/USD resurgence, especially in a time where speed and decision are key.”
“Note that the bounce yesterday failed to touch 1.0900. Risk-reward probably favours downside for now, even though the USD itself is also soggy.”
“Immediate downside target at 1.0833, while 1.0920 caps.”
“We initiate a tactical short EUR/USD (spot 1.0856), targeting 1.0435, with a stop loss at 1.1065.”
EUR/GBP has reached a convergence of support and Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, favors recovery.
“EUR/GBP is holding over the 0.8750 200 day ma. In this vicinity we also find the 61.8% retracement at 0.8747, the uptrend at 0.8737 and the 55-day ma at 0.8685 and we look for the market to recover from here.”
“We also note Two 13 counts on the 240-minute chart and a TD perfected set up on the daily chart, they imply the end of the down move.”
“Recovery above 0.9022 will target 0.9225 and then last week’s high at 0.9501.”
GBP/USD gained some positive traction for the second straight session on Wednesday while a slew of important UK macro data failed to impress bulls or provide any meaningful impetus, FXStreet’s analyst Haresh Menghani briefs.
“A slew of important UK macro data did little to impress bullish traders or assist the pair to capitalize on its positive move witnessed over the past two trading session. The market focus now shifts to the US economic docket, which highlights the release of initial weekly jobless claims.”
“A sustained strength above the 1.2420 supply zone might prompt some near-term short-covering move and accelerate the momentum towards the next major hurdle near the 1.2475-80 region.”
“On the flip side, immediate support is now pegged near the 1.2330-25 region and is closely followed by the 1.2300 round-figure mark.”
FX option expiries for Apr 9 NY cut at 10:00 Eastern Time, via DTCC, can be found below.
- USD/JPY: USD amounts
- 108.00 663m
- 108.40 1.2bn
- 109.00 978m
- USD/CAD: USD amounts
- 1.4100 1.0bn
- EUR/GBP: EUR amounts
- 0.8835 788m
Oil producers meet to discuss production cuts. The market seems to be pricing in some sort of agreement, raising the risk of weaker oil prices if they fail, per ANZ Bank.
“As producers prepare for a meeting to discuss potential curbs, news emerged that Russia was willing to cut oil production by as much as 1.6mb/d. This amounts to approximately 14% of its total production.”
“The US remains the key, with most producers expecting the world’s biggest producers to be part of the agreement. However doubts remain. President Trump said ‘nobody has asked me’, when probed about the discussions, adding ‘if they ask I will make a decision’.”
“The EIA reported 15.2mbbl rise in US inventories, the biggest gain in data since 1982.”
The kiwi followed AUD higher but looks vulnerable to a correction, in the opinion of analysts at ANZ Bank.
“NZD/USD consolidated on the break through 0.60 and has gone higher yet on the coattails of the AUD, which caught the bid on what some felt (we think incorrectly) that the RBA isn’t all that committed to QE.”
“As the reality that they are sinks in, the Antipodeans will be under pressure again but the NZD does have trade and our ‘island nation’ status as supports.”
“Support 0.5900 Resistance 0.6100”
EUR/USD came under some fresh selling pressure on Wednesday. The near-term set-up remains tilted in favour of bearish trades, according to FXStreet’s analyst Haresh Menghani.
“It will be prudent to wait for a sustained weakness below the 1.0775-70 region before positioning for any further near-term depreciating move.
“Below the 1.0775 support, the EUR/USD pair is likely to accelerate the fall towards challenging the 1.0700 round-figure mark before eventually dropping to test YTD lows, around the 1.0635 area.”
“On the flip side, the 1.0900 round-figure mark might continue to act as an immediate resistance, above which a bout of a short-covering move has the potential to lift the pair further towards 50-day SMA, around the 1.0970-75 region.”
The UK Treasury and Bank of England (BOE) released a joint statement on Thursday, announcing a temporary extension of the Ways and Means (W&M) facility.
This will provide a short-term source of additional liquidity to the government if needed to smooth its cashflows
Any use of the W&M facility will be temporary and short-term.
W&M facility supports market function by minimizing the immediate impact of raising additional funding in gilt and sterling money markets.
GBP/USD off the lows
The pound is offered a fresh lift on the above announcement, as GBP/USD extends the bounce from a daily low of 1.2362 to now trade at 1.2375, almost unchanged on the day.
Meanwhile, markets digest the latest headlines carried by the Guardian, citing that the UK Foreign Secretary Dominic Raab is preparing to extend the lockdown, as reported earlier today.
- UK GDP arrives at -0.1% MoM in Feb vs. +0.1% expected, GBP/USD keeps losses
- UK Manufacturing Production rises by 0.5% MoM in Feb vs. +0.1% expected