Sive Morten
Special Consultant to the FPA
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Fundamentals
This week markets show low volatility and we only sketchy could talk on rising or falling of the price, at least on EUR. As you know the whole week we talk around intraday trading setups and patterns. Patterns were great, but overall market dynamic was relatively small.
Nevertheless, this fact doesn't hurt the importance of events that have happened. We've got important statistics as in China as in US, important statements, signalling intention to end self-isolation measures and gradually return to common life - France, Austria, Czech and even Spain and US. Analysts better understand now that we can't go dry from the water, but pandemic impact seems not as hard as it was thought earlier, at least by first fruits. We, as FX traders mostly are interested in currencies balance. As EU and US approximately equally are hurt by virus - who will recover first and faster, on what currency we should take a bet? This is crucial question for long-term performance. Personally, I like Australia
But unfortunately it doesn't stand in EUR/USD currency pair.
Let's take a look briefly on news line first...
A flight to safety bid pushed the dollar higher against its peers on Thursday after dire retail and factory data showed the severity of the collapse in U.S. economic activity caused by the novel coronavirus outbreak.
U.S. data showing retail sales fell 8.7% in March, the biggest decline since tracking began in 1992, underlined fears that damage to the economy from the virus outbreak will be deep and protracted. Consumer spending accounts for more than two-thirds of U.S. economic activity. Separately, a report from the Federal Reserve showed manufacturing output plummeted 6.3% last month, the biggest decrease since February 1946. The New York Federal Reserve also reported that its Empire State manufacturing index, which tracks activity in the sector for New York State, fell to an all-time low.
The grim numbers poured cold water on recent improvements in market sentiment and hopes the outbreak may be nearing its peak with many developed countries looking to re-open their economies as soon as next month.
“Given the scale and breadth of the U.S. shutdown, our best guess is the economy contracts by around 13% peak-to-trough before we start to see a rolling process of re-opening in the United States from mid-May,” said James Knightley, Chief international economist at ING. “This will involve some ongoing form of social distancing meaning that a return to ‘business as usual’ could take many months – we don’t expect the lost output to be fully recovered until mid-2022.”
Initial claims for state unemployment benefits dropped 1.370 million to a seasonally adjusted 5.245 million for the week ended April 11, the government said. Record jobless filings underscore the deepening economic slump caused by the coronavirus outbreak.
Dire U.S. retail and factory data and a nosedive in oil prices to 18-year lows on Wednesday strengthened the dollar across the board. Economists are predicting the economy, which they believe is already in recession, contracted in the first quarter at its sharpest pace since World War Two.
“The dollar has fared better this week as record weak data suggested a longer and more uncertain road to recovery, a dimmer outlook that’s revived appetite for haven assets,” said Joe Manimbo, senior market analyst at Western Union Business Solutions.
The greenback has gained broadly during the crisis as investors scramble for the safety of the world’s reserve currency, although it is down from its late-March highs since the U.S. Federal Reserve unleashed a stream of measures to support the economy.
“In the short term, the dollar is expected to remain firm because of its safe-haven status and as the global economic situation remains uncertain,” said Andrew Wilson, chairman of global fixed income at Goldman Sachs Asset Management. “We expect the dollar to underperform in the medium term as economies start to recover.”
U.S. President Donald Trump is due to announce guidelines on re-opening the country’s economy at a press conference later on Thursday.
The euro resumed its drop versus the dollar as a half-trillion-euro compromise deal struck between euro zone governments last week to support countries through the coronavirus outbreak is widely seen as insufficient, especially for debt-laden Italy.
Sentiment was boosted overnight by a media report detailing encouraging partial data from experimental drug trials on severely ill COVID-19 patients at a University of Chicago hospital.
News of Trump’s plans to reopen the world’s largest economy was also taken by investors as a positive sign, even after Thursday’s jobless data showed a record 22 million Americans sought unemployment benefits in the last month.
The overnight moves toppled the dollar, which has closely tracked risk sentiment through the coronavirus crisis, from a week high, with the dollar index last down 0.16%. Other safe-haven assets like Treasury yields were lower, while the S&P 500 index rallied 1.3%.
With French President Emmanuel Macron warning that the European Union could collapse unless it finds a way to share the costs of the crisis, the coronavirus has exposed the vulnerability of the single currency.
“EUR’s status might have been evolving since the COVID-19 outbreak but, going forward, we are bearish. This is because we expect European data to decouple further from US data, and that is partly due to the lack of a coordinated European fiscal response - which we remain concerned about,” wrote Bank of America strategists in a note to clients.
Here guys, I'm not occasionally mentioned on Macron's words on EU collapse and weak stabilizing measures from ECB as even BofA points on them. Indeed, Spain and Italy takes the most burden of pandemic strike and situation around Italy becomes tough.
It’s going to be a big week for the euro zone. Italy’s bond yields are drifting higher, concerns are growing about its debt ratios and anti-euro sentiment is rising in bloc’s third-biggest economy.
The European Central Bank calmed markets a month ago with a 750 billion-euro emergency bond-buying scheme. But politicians’ failure to come through with coronabonds undid much of the benefit, meaning markets are again testing policymakers’ resolve by pushing out the Italian/German 10-year bond yield gap.
A key gauge of Italian credit risk, that yield spread is back near levels seen before the ECB announcement. Essentially, the ECB will now have to work harder on capping Italian borrowing costs and preventing the spread from blowing out. It’s probably already front-loading Italian bond buying, but markets have started watching for the ECB to announce another rise in debt purchases.
Could euro zone finance ministers ease the burden? They meet on April 23 to have another stab at pooling euro zone risk, but the chances of success are slim. A S&P ratings review the next day could see Italy downgraded to BBB-. Beyond that, a “junk” rating looms — and even higher borrowing costs.
The global financial crisis buckled but didn’t break the European Union. The coronavirus pandemic may tear it to shreds. As the death toll in Italy soared during late February and March, the 27-nation bloc, founded on the ideal of solidarity among European nations, failed to mount a collective humanitarian response and struggled for weeks to agree on a package of economic aid.
French President Emmanuel Macron, in an interview with The Financial Times, warned that the EU will collapse as a "political project" unless the bloc supports Italy and other economies stricken by the coronavirus pandemic through a commonly issued and guaranteed funding mechanism.
Instead of mutual aid, an every-nation-for-itself mentality gripped the Continent. Denmark, Poland, and the Czech Republic closed their borders, with Germany shuttering crossings with France, Austria, and Luxembourg. Many EU nations imposed export restrictions on medical supplies. France nationalized its entire supply of face masks while Germany blocked shipments of masks intended for Austria, sparking outrage.
It is difficult to disagree with BofA statement above, when you see that major EU nations can't come to consensus and unite at the face of common menace. Instead of uniting they hog the cover to their own. US has a lot problems as well, but US takes dominant role in global economy and despite inner political problems they take strict national course on recovery.
Brussels instead shows full inability to drive EU out of problems and loosing its role as the center of political and economical EU control center. It shows too heavy bureaucracy that creates more problems than assistance. Recent events just naked this. Thus, somehow I suggest that EU will be reformed somehow, in direction of more independence of major countries, such as Germany and eliminating of Brussels control power that calls the shots and suck resources from common EU citizens, trying to feed countless bureaucrats mouths.
Despite awful statistics that we get, longer-term view seems more positive as investors avoid overdramatize the situation. If China is ahead of the curve, it should enjoy a rebound in activity earlier than elsewhere too. The IMF forecasts that GDP will expand by 1.2% this year and 9.2% in 2021. The US economy, meanwhile, is expected to decline by 5.9% this year before expanding by 4.7% in 2021, failing to return to its 2019 level of GDP.
In recent weeks equity investors have become increasingly convinced that we are facing a V-shaped recovery. By close of business on 14 April, the S&P 500 was down just over 15% from its peak on 19 February. In comparison, the peak to trough fall in the S&P 500 through the Global Financial Crisis was close to 60%. On the face of it, that suggests investors are expecting a significantly less severe downturn — measured by the cumulative hit to GDP, and with it company profits — from COVID-19 than was the case back in 2008/09. That is certainly achievable, but it is definitely at the optimistic end of possible outcomes.
Fathom suggests that the partial recovery in equity prices is too soon:
"We do not see clear evidence to shift our weights across the three scenarios V, U and L: they remain 45%, 10% and 45% respectively. A clear shift towards a V would support a rally in equity prices, but we are not yet at that point."
Markets have also changed their minds about the impact of this crisis on inflation. The virus has had an impact on both the supply and the demand side of the economy — people unable to work and supply chains disrupted; people unable to travel, go to restaurants, etc. and suffering a shortfall in income on the other. The balance between those two flavours of impact will determine the impact on inflation: if the shock is predominantly demand, then inflation will fall; if it is predominantly supply, then inflation will rise. Early on, bond markets were interpreting the shock as predominantly a demand shock, therefore disinflationary. More recently, though, that view has moderated, and inflation expectations embedded in bond prices have increased again, though they remain below their levels at the start of the year.
One way of thinking about this chart is as the markets’ judgement on whether the policy response has been sufficient. If policymakers had overdone it in the view of bond markets, the net impact of this shock would be inflationary. As things stand, in the US anyway, markets judge that policymakers have still not done enough. Fathom would concur with that judgement — which is replicated across most advanced economies.
Next week will be under sign of corporate earning reports as in US as in EU. We never look at corporate reports usually as they have low relation to FX market, but not this time. Earning reports could provide as despair as hope to the markets, depending on results. This sentiment makes impact on all markets.
If big banks were the appetiser for the U.S. corporate reporting season, investors are preparing to dig into the main course, with around 100 S&P 500 companies due to post first-quarter results in the coming week. They include Netflix and airlines such as Delta and Southwest, after major carriers agreed in principle to a $25 billion U.S. rescue package. Others include consumer giant Coca-Cola, chip stalwart Intel, defense company Lockheed Martin and wireless carrier Verizon.
Investors are bracing for brutal first-quarter earnings as well as for a big profit swoon in 2020 overall. But they will also look for signs of how soon business can get back on track, with Wall Street factoring in a profit rebound in 2021.
In EU they will be Credit Suisse, Apple component supplier STMicroelectronics, Sanofi and Volvo - all due to report and focus is on the second-half and 2021 outlook.
European companies are expected to report a 22% earnings decline in the first quarter and 34% drop in the second, Refinitiv data show. That would be the sharpest decline in annual profits since at least the global financial crisis.
With the STOXX index down 25% year-to-date, much of that’s already priced in. Those seeking detailed commentary on where companies stand might be disappointed. So far, ASML and Volkswagen have failed to provide outlooks. Given uncertainty surrounding COVID-19 and lockdowns, more companies may follow suit.
Second issue is PMI report. Composite euro zone PMIs, comprising services and manufacturing, plummeted last month to a record low of 29.7 versus February’s 51.6 - the biggest monthly drop since the survey began in July 1998. The 50 mark separates growth from contraction. What’s more, the difference between final composite PMIs between February and March was 21.876, four times the fall seen in November 2008, during the global financial crisis.
U.S. PMIs will also drop further in April, after record-low March readings showed the economy may be already in recession.
Flash PMIs may not drop that dramatically in April, but it won’t be the end of the pain. Consumption may recover only gradually after lockdowns end and unemployment may rise further — putting pressure on central banks to deliver more stimulus.
CFTC Data
In shorter-term it is more difficult to determine the direction. Recent COT report points on rising of net long position on EUR, but it stands due closing of shorts as open interest has dropped, rather than open new longs. On GBP, net position has dropped instead. So, it is difficult to call it as valuable driving factors
That’s being said guys, currently investors will keep an eyes on economy performance, how largest complanies have passed through this difficult period and analyze first results of this journey. Overall situation could be described as indecision as markets has come through the virus shock but it is unclear what has happened with economy. First awful numbers are obvious but what’s next? That’s what everybody waits for. As a result, volatility could rise, especially on daily time frame. In a longer-term, as I said above, it seems that there are more chances on USD appreciation, at least to the EUR.
Technicals
Monthly
You have seen by yourself how narrow trading range was. Thus, we keep our monthly and weekly analysis intact.
In general market has spent the week in relatively tight range that makes no impact on monthly chart. So, as we've said - technically EUR direction depends on breakout. On monthly chart we have doji, that is also the bullish grabber.
Interestingly, that doji levels coincide with Pivots support and resistance levels as well. Downside breakout opens road to the parity, while upside break should open road for equal doji distance to upside - somewhere to 1.23 area. Still, taking in consideration fundamental background it seems that EU is paralyzed in making any decision as countries are not united on the face of common tragedy. Despite outstanding liquidity injection, the consequences of pandemic not necessary should be tragic. Demand for USD could hold for awhile.
Our major indicator here is the Dollar Index chart, or better to say historical resistance level that will provide the direction. This is all time K-level. As you understand, its breakout or reversal out from it will be major event for FX market. Thus, in nearest time, until breakout will happen we mostly will deal with shorter-term setups of a smaller scale.
Weekly
Trend stands bearish and recent week has become an inside one, compares to previous one. In general we talked about two possible scenarios - downside breakout and continuation to next long term target around par (which is our XOP), or appearing of reversal pattern. As we've said - "market reaction on daily chart should have to clarify this and by the result of this week".
Currently we see few moments that hurt idea of bullish reversal, although not cancelled it totally. As we said, we have two potential patterns - widening triangle or diamond shape, second - extended bullish engulfing pattern inside. So, currently it seems downside action is too strong for engulfing as EUR has broken all support levels on daily chart. Although lows of the pattern are still intact and supported by oversold level, downside action is too extended to treat it as just a pullback before upside continuation.
Second, for diamond - we should have seen continuation back to the top, while we've got sharp downside reversal instead. Trend again has turned bearish here. Combination of these two factors make not as attractive taking long position here, at least right now. Still, as EUR stands as depended variable - we do not cancel bullish scenario totally.
Daily
Actually the only things that we need to update is daily intraday charts as longer time frames mostly stand the same. Last week we've traded EUR down, as upward action was doubtful. Indeed, EUR has hit ~1.0805 target, although our COP on daily chart has not been reached. Now we have new important detail here - daily bullish grabber. Yes, it could fail, of course, but, as it just has been formed - it suggests action above "C" point.
In general, as we've said through last week, EUR is forming triangle consolidation where both directions are possible until breakout. Appearing of the grabber tells that downside trading is over by far and bears should stay aside, while bulls get the pattern that lets them to step in with reasonable risk.
Intraday
But, on 4H chart we have nuance. Our OP target has not been hit and EUR has formed another grabber, but in opposite direction. This makes a bit difficult long entry setup. At least, 4H picture tells that initial stop has to be under OP level, as grabber here could work before upward action will start.
In general, we combination of daily and intraday patterns tells, that until recent lows stand – EUR keeps chances on upside bounce. On 1H chart our Friday’s 3-Drive “buy” works but it already has completed its minimal target. Here we have divergence and W&R of recent lows as well. Price is forming some hybrid of double bottom and H&S pattern. It means that we could consider Fib support levels for long entry with stops somewhere below 4H OP target.
Conclusion:
While short-term EUR/USD chart provides context for upside pullback - all eyes will be on corporate earning reports and PMI statistics. Everybody knows that global economy is hurt, harm is significant but this mostly priced-in already. Stock market reflects investors' hope on V-shape recovery, showing fast recovery after 50% drop, but how reasonable these hopes are we will see in April - May.
In longer-term perspective, EU could meet system political crisis and deep reforming if, course, they will recover successfully of epidemic turmoil. This makes us think that USD has better position compares to EU, and they faster should recover from virus strike.
This week markets show low volatility and we only sketchy could talk on rising or falling of the price, at least on EUR. As you know the whole week we talk around intraday trading setups and patterns. Patterns were great, but overall market dynamic was relatively small.
Nevertheless, this fact doesn't hurt the importance of events that have happened. We've got important statistics as in China as in US, important statements, signalling intention to end self-isolation measures and gradually return to common life - France, Austria, Czech and even Spain and US. Analysts better understand now that we can't go dry from the water, but pandemic impact seems not as hard as it was thought earlier, at least by first fruits. We, as FX traders mostly are interested in currencies balance. As EU and US approximately equally are hurt by virus - who will recover first and faster, on what currency we should take a bet? This is crucial question for long-term performance. Personally, I like Australia
But unfortunately it doesn't stand in EUR/USD currency pair. Let's take a look briefly on news line first...
A flight to safety bid pushed the dollar higher against its peers on Thursday after dire retail and factory data showed the severity of the collapse in U.S. economic activity caused by the novel coronavirus outbreak.
U.S. data showing retail sales fell 8.7% in March, the biggest decline since tracking began in 1992, underlined fears that damage to the economy from the virus outbreak will be deep and protracted. Consumer spending accounts for more than two-thirds of U.S. economic activity. Separately, a report from the Federal Reserve showed manufacturing output plummeted 6.3% last month, the biggest decrease since February 1946. The New York Federal Reserve also reported that its Empire State manufacturing index, which tracks activity in the sector for New York State, fell to an all-time low.
The grim numbers poured cold water on recent improvements in market sentiment and hopes the outbreak may be nearing its peak with many developed countries looking to re-open their economies as soon as next month.
“Given the scale and breadth of the U.S. shutdown, our best guess is the economy contracts by around 13% peak-to-trough before we start to see a rolling process of re-opening in the United States from mid-May,” said James Knightley, Chief international economist at ING. “This will involve some ongoing form of social distancing meaning that a return to ‘business as usual’ could take many months – we don’t expect the lost output to be fully recovered until mid-2022.”
Initial claims for state unemployment benefits dropped 1.370 million to a seasonally adjusted 5.245 million for the week ended April 11, the government said. Record jobless filings underscore the deepening economic slump caused by the coronavirus outbreak.
Dire U.S. retail and factory data and a nosedive in oil prices to 18-year lows on Wednesday strengthened the dollar across the board. Economists are predicting the economy, which they believe is already in recession, contracted in the first quarter at its sharpest pace since World War Two.
“The dollar has fared better this week as record weak data suggested a longer and more uncertain road to recovery, a dimmer outlook that’s revived appetite for haven assets,” said Joe Manimbo, senior market analyst at Western Union Business Solutions.
The greenback has gained broadly during the crisis as investors scramble for the safety of the world’s reserve currency, although it is down from its late-March highs since the U.S. Federal Reserve unleashed a stream of measures to support the economy.
“In the short term, the dollar is expected to remain firm because of its safe-haven status and as the global economic situation remains uncertain,” said Andrew Wilson, chairman of global fixed income at Goldman Sachs Asset Management. “We expect the dollar to underperform in the medium term as economies start to recover.”
U.S. President Donald Trump is due to announce guidelines on re-opening the country’s economy at a press conference later on Thursday.
The euro resumed its drop versus the dollar as a half-trillion-euro compromise deal struck between euro zone governments last week to support countries through the coronavirus outbreak is widely seen as insufficient, especially for debt-laden Italy.
Sentiment was boosted overnight by a media report detailing encouraging partial data from experimental drug trials on severely ill COVID-19 patients at a University of Chicago hospital.
News of Trump’s plans to reopen the world’s largest economy was also taken by investors as a positive sign, even after Thursday’s jobless data showed a record 22 million Americans sought unemployment benefits in the last month.
The overnight moves toppled the dollar, which has closely tracked risk sentiment through the coronavirus crisis, from a week high, with the dollar index last down 0.16%. Other safe-haven assets like Treasury yields were lower, while the S&P 500 index rallied 1.3%.
With French President Emmanuel Macron warning that the European Union could collapse unless it finds a way to share the costs of the crisis, the coronavirus has exposed the vulnerability of the single currency.
“EUR’s status might have been evolving since the COVID-19 outbreak but, going forward, we are bearish. This is because we expect European data to decouple further from US data, and that is partly due to the lack of a coordinated European fiscal response - which we remain concerned about,” wrote Bank of America strategists in a note to clients.
Here guys, I'm not occasionally mentioned on Macron's words on EU collapse and weak stabilizing measures from ECB as even BofA points on them. Indeed, Spain and Italy takes the most burden of pandemic strike and situation around Italy becomes tough.
It’s going to be a big week for the euro zone. Italy’s bond yields are drifting higher, concerns are growing about its debt ratios and anti-euro sentiment is rising in bloc’s third-biggest economy.
The European Central Bank calmed markets a month ago with a 750 billion-euro emergency bond-buying scheme. But politicians’ failure to come through with coronabonds undid much of the benefit, meaning markets are again testing policymakers’ resolve by pushing out the Italian/German 10-year bond yield gap.
A key gauge of Italian credit risk, that yield spread is back near levels seen before the ECB announcement. Essentially, the ECB will now have to work harder on capping Italian borrowing costs and preventing the spread from blowing out. It’s probably already front-loading Italian bond buying, but markets have started watching for the ECB to announce another rise in debt purchases.
Could euro zone finance ministers ease the burden? They meet on April 23 to have another stab at pooling euro zone risk, but the chances of success are slim. A S&P ratings review the next day could see Italy downgraded to BBB-. Beyond that, a “junk” rating looms — and even higher borrowing costs.
The global financial crisis buckled but didn’t break the European Union. The coronavirus pandemic may tear it to shreds. As the death toll in Italy soared during late February and March, the 27-nation bloc, founded on the ideal of solidarity among European nations, failed to mount a collective humanitarian response and struggled for weeks to agree on a package of economic aid.
French President Emmanuel Macron, in an interview with The Financial Times, warned that the EU will collapse as a "political project" unless the bloc supports Italy and other economies stricken by the coronavirus pandemic through a commonly issued and guaranteed funding mechanism.
Instead of mutual aid, an every-nation-for-itself mentality gripped the Continent. Denmark, Poland, and the Czech Republic closed their borders, with Germany shuttering crossings with France, Austria, and Luxembourg. Many EU nations imposed export restrictions on medical supplies. France nationalized its entire supply of face masks while Germany blocked shipments of masks intended for Austria, sparking outrage.
It is difficult to disagree with BofA statement above, when you see that major EU nations can't come to consensus and unite at the face of common menace. Instead of uniting they hog the cover to their own. US has a lot problems as well, but US takes dominant role in global economy and despite inner political problems they take strict national course on recovery.
Brussels instead shows full inability to drive EU out of problems and loosing its role as the center of political and economical EU control center. It shows too heavy bureaucracy that creates more problems than assistance. Recent events just naked this. Thus, somehow I suggest that EU will be reformed somehow, in direction of more independence of major countries, such as Germany and eliminating of Brussels control power that calls the shots and suck resources from common EU citizens, trying to feed countless bureaucrats mouths.
Despite awful statistics that we get, longer-term view seems more positive as investors avoid overdramatize the situation. If China is ahead of the curve, it should enjoy a rebound in activity earlier than elsewhere too. The IMF forecasts that GDP will expand by 1.2% this year and 9.2% in 2021. The US economy, meanwhile, is expected to decline by 5.9% this year before expanding by 4.7% in 2021, failing to return to its 2019 level of GDP.
In recent weeks equity investors have become increasingly convinced that we are facing a V-shaped recovery. By close of business on 14 April, the S&P 500 was down just over 15% from its peak on 19 February. In comparison, the peak to trough fall in the S&P 500 through the Global Financial Crisis was close to 60%. On the face of it, that suggests investors are expecting a significantly less severe downturn — measured by the cumulative hit to GDP, and with it company profits — from COVID-19 than was the case back in 2008/09. That is certainly achievable, but it is definitely at the optimistic end of possible outcomes.
Fathom suggests that the partial recovery in equity prices is too soon:
"We do not see clear evidence to shift our weights across the three scenarios V, U and L: they remain 45%, 10% and 45% respectively. A clear shift towards a V would support a rally in equity prices, but we are not yet at that point."
Markets have also changed their minds about the impact of this crisis on inflation. The virus has had an impact on both the supply and the demand side of the economy — people unable to work and supply chains disrupted; people unable to travel, go to restaurants, etc. and suffering a shortfall in income on the other. The balance between those two flavours of impact will determine the impact on inflation: if the shock is predominantly demand, then inflation will fall; if it is predominantly supply, then inflation will rise. Early on, bond markets were interpreting the shock as predominantly a demand shock, therefore disinflationary. More recently, though, that view has moderated, and inflation expectations embedded in bond prices have increased again, though they remain below their levels at the start of the year.
One way of thinking about this chart is as the markets’ judgement on whether the policy response has been sufficient. If policymakers had overdone it in the view of bond markets, the net impact of this shock would be inflationary. As things stand, in the US anyway, markets judge that policymakers have still not done enough. Fathom would concur with that judgement — which is replicated across most advanced economies.
Next week will be under sign of corporate earning reports as in US as in EU. We never look at corporate reports usually as they have low relation to FX market, but not this time. Earning reports could provide as despair as hope to the markets, depending on results. This sentiment makes impact on all markets.
If big banks were the appetiser for the U.S. corporate reporting season, investors are preparing to dig into the main course, with around 100 S&P 500 companies due to post first-quarter results in the coming week. They include Netflix and airlines such as Delta and Southwest, after major carriers agreed in principle to a $25 billion U.S. rescue package. Others include consumer giant Coca-Cola, chip stalwart Intel, defense company Lockheed Martin and wireless carrier Verizon.
Investors are bracing for brutal first-quarter earnings as well as for a big profit swoon in 2020 overall. But they will also look for signs of how soon business can get back on track, with Wall Street factoring in a profit rebound in 2021.
In EU they will be Credit Suisse, Apple component supplier STMicroelectronics, Sanofi and Volvo - all due to report and focus is on the second-half and 2021 outlook.
European companies are expected to report a 22% earnings decline in the first quarter and 34% drop in the second, Refinitiv data show. That would be the sharpest decline in annual profits since at least the global financial crisis.
With the STOXX index down 25% year-to-date, much of that’s already priced in. Those seeking detailed commentary on where companies stand might be disappointed. So far, ASML and Volkswagen have failed to provide outlooks. Given uncertainty surrounding COVID-19 and lockdowns, more companies may follow suit.
Second issue is PMI report. Composite euro zone PMIs, comprising services and manufacturing, plummeted last month to a record low of 29.7 versus February’s 51.6 - the biggest monthly drop since the survey began in July 1998. The 50 mark separates growth from contraction. What’s more, the difference between final composite PMIs between February and March was 21.876, four times the fall seen in November 2008, during the global financial crisis.
U.S. PMIs will also drop further in April, after record-low March readings showed the economy may be already in recession.
Flash PMIs may not drop that dramatically in April, but it won’t be the end of the pain. Consumption may recover only gradually after lockdowns end and unemployment may rise further — putting pressure on central banks to deliver more stimulus.
CFTC Data
In shorter-term it is more difficult to determine the direction. Recent COT report points on rising of net long position on EUR, but it stands due closing of shorts as open interest has dropped, rather than open new longs. On GBP, net position has dropped instead. So, it is difficult to call it as valuable driving factors
That’s being said guys, currently investors will keep an eyes on economy performance, how largest complanies have passed through this difficult period and analyze first results of this journey. Overall situation could be described as indecision as markets has come through the virus shock but it is unclear what has happened with economy. First awful numbers are obvious but what’s next? That’s what everybody waits for. As a result, volatility could rise, especially on daily time frame. In a longer-term, as I said above, it seems that there are more chances on USD appreciation, at least to the EUR.
Technicals
Monthly
You have seen by yourself how narrow trading range was. Thus, we keep our monthly and weekly analysis intact.
In general market has spent the week in relatively tight range that makes no impact on monthly chart. So, as we've said - technically EUR direction depends on breakout. On monthly chart we have doji, that is also the bullish grabber.
Interestingly, that doji levels coincide with Pivots support and resistance levels as well. Downside breakout opens road to the parity, while upside break should open road for equal doji distance to upside - somewhere to 1.23 area. Still, taking in consideration fundamental background it seems that EU is paralyzed in making any decision as countries are not united on the face of common tragedy. Despite outstanding liquidity injection, the consequences of pandemic not necessary should be tragic. Demand for USD could hold for awhile.
Our major indicator here is the Dollar Index chart, or better to say historical resistance level that will provide the direction. This is all time K-level. As you understand, its breakout or reversal out from it will be major event for FX market. Thus, in nearest time, until breakout will happen we mostly will deal with shorter-term setups of a smaller scale.
Weekly
Trend stands bearish and recent week has become an inside one, compares to previous one. In general we talked about two possible scenarios - downside breakout and continuation to next long term target around par (which is our XOP), or appearing of reversal pattern. As we've said - "market reaction on daily chart should have to clarify this and by the result of this week".
Currently we see few moments that hurt idea of bullish reversal, although not cancelled it totally. As we said, we have two potential patterns - widening triangle or diamond shape, second - extended bullish engulfing pattern inside. So, currently it seems downside action is too strong for engulfing as EUR has broken all support levels on daily chart. Although lows of the pattern are still intact and supported by oversold level, downside action is too extended to treat it as just a pullback before upside continuation.
Second, for diamond - we should have seen continuation back to the top, while we've got sharp downside reversal instead. Trend again has turned bearish here. Combination of these two factors make not as attractive taking long position here, at least right now. Still, as EUR stands as depended variable - we do not cancel bullish scenario totally.
Daily
Actually the only things that we need to update is daily intraday charts as longer time frames mostly stand the same. Last week we've traded EUR down, as upward action was doubtful. Indeed, EUR has hit ~1.0805 target, although our COP on daily chart has not been reached. Now we have new important detail here - daily bullish grabber. Yes, it could fail, of course, but, as it just has been formed - it suggests action above "C" point.
In general, as we've said through last week, EUR is forming triangle consolidation where both directions are possible until breakout. Appearing of the grabber tells that downside trading is over by far and bears should stay aside, while bulls get the pattern that lets them to step in with reasonable risk.
Intraday
But, on 4H chart we have nuance. Our OP target has not been hit and EUR has formed another grabber, but in opposite direction. This makes a bit difficult long entry setup. At least, 4H picture tells that initial stop has to be under OP level, as grabber here could work before upward action will start.
In general, we combination of daily and intraday patterns tells, that until recent lows stand – EUR keeps chances on upside bounce. On 1H chart our Friday’s 3-Drive “buy” works but it already has completed its minimal target. Here we have divergence and W&R of recent lows as well. Price is forming some hybrid of double bottom and H&S pattern. It means that we could consider Fib support levels for long entry with stops somewhere below 4H OP target.
Conclusion:
While short-term EUR/USD chart provides context for upside pullback - all eyes will be on corporate earning reports and PMI statistics. Everybody knows that global economy is hurt, harm is significant but this mostly priced-in already. Stock market reflects investors' hope on V-shape recovery, showing fast recovery after 50% drop, but how reasonable these hopes are we will see in April - May.
In longer-term perspective, EU could meet system political crisis and deep reforming if, course, they will recover successfully of epidemic turmoil. This makes us think that USD has better position compares to EU, and they faster should recover from virus strike.
