Euro Rebounds From Draghi Bottom But You Should Not Be Bullish

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Euro Rebounds From Draghi “Bottom” But You Should Not Be Bullish

The Euro Rebounds, But Don’t Get Too Bullish Yet

The ECB meeting was a big surprise this week. We were expecting some stimulus but maybe not the amount the bank delivered. Not only did Mario Draghi and his crew cut rates another 10 bps deeper into negative territory they started buying bonds again. The prime rate is now -0.50%, this means it costs banks money to leave it lying around, the idea is they will become motivated to lend and increase market liquidity. Market liquidity as you know leads to economic activity, GDP expansion, and the central bankers friend and foe, inflation. The rate cut was not unexpected. The bond buying and, more to the point, the banks overzealous claims, were a surprise.

The ECB says it will buy bonds at a rate of 20 billion euros monthly. This is all well and good but they say they can and will do this indefinitely. While the market appreciated the sentiment, most who know understand there are only so many bonds the bank can buy. Eventually they will run out and some say sooner rather than later. So, the news sparked a major sell-off in the EUR/USD that took the pair down to retest the recent low. Buyers were present at the support target and used the opportunity to close open shorts and/or open new longs.

Now it looks like the EUR/USD is in a reversal. I mean, it just created a double-bottom at a key support level and there are other bullish indications as well. Both MACD and stochastic are both showing entry signals, the caveat is twofold. First, the pair is showing resistance at the short-term moving average and the overall trend is down. Second, the resistance is also consistent with a previous low which makes the chance of bullish break out even less. Third and most important, the FOMC is meeting next week. They FOMC is expected to cut rates with a virtual 100% certainty and the outlook for future cuts is aggressive. The risk is in the data. Data including today’s Retail Sales does not support the idea of U.S. economic weakness so the FOMC is not likely to meet the market’s expectations.

The EUR/USD may continue higher in the near-term, the very near-term, as in the next two trading days. On Wednesday the FOMC will release their next policy decision statement and that I think will drive the dollar strength and this pair lower. PS, a bullish signal in a bear market like we have here is really the precursor (usually, more often than not) to another trend-following entry in the direction of the prevailing trend.

US AM Digest: Euro Rebounds as Draghi Downplays Recent Soft Data

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US Market Snapshot via IG: DJIA +0.3%, NASDAQ 100 +1.4%, S&P 500 0.5%

EUR : ECB kept its main rates on hold as expected, while the comments alongside the decision had been left unchanged. As such, a minimal reaction had been seen in the Euro. EURUSD reclaimed the 1.22 handle after Draghi noted that slight moderation in economic data may reflect temporary factors, while the ECB still sees solid growth. EURUSD briefly made fresh 2020 lows at 1.2143, however this was somewhat short-lived given Draghi’s upbeat assessment that growth remains on track despite recent soft data.

USD : The US Dollar has been on the backfoot today amid the pullback in US yields with the 10yr dipping back below 3%, subsequently providing a much-needed lift for its major counterparts. Much of the USD selling has been seen through GBPUSD which made a mild test of the 1.40 handle, ahead of tomorrow’s GDP report.

SEK : The Swedish Krona is the notable laggard today following the Riksbank rate decision in which the central bank pushed back its rate hike path trajectory by noting that a rate rise is seen at the end of the year as opposed to H2 18 previously. The Riksbank also downgraded its growth forecast while upgrading their inflation forecast with the latter seen as a by-product of the recent rise in oil prices, alongside the significant decline in the SEK.

DailyFX Economic Calendar : Thursday, April 26, 2020 – North American Releases

IG Client Sentiment Index Chart of the Day: EURUSD

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EURUSD: Retail trader data shows 52.0% of traders are net-long with the ratio of traders long to short at 1.08 to 1. The number of traders net-long is 11.0% higher than yesterday and 56.0% higher from last week, while the number of traders net-short is 0.5% lower than yesterday and 15.6% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EURUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EURUSD-bearish contrarian trading bias.

Five Things Traders are Reading

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— Written by Justin McQueen, Market Analyst

To contact Justin, email him at [email protected]

Follow Justin on Twitter @JMcQueenFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

EUR/USD News (Euro US Dollar)

EUR/USD extends slump after NFP shows massive job loss

EUR/USD is trading below 1.08, down on the day. The Non-Farm Payrolls report has shown a loss of 701,000 jobs, worse than expected. The ISM Non-Manufacturing PMI surprised to the upside with 52.5 points.

Latest EURUSD News

Forex Today: Dollar the strongest as risk aversion rules

EUR/USD steadies near 1.0800, erases more than 300 pips weekly

EUR/USD: Heading firmly lower

Technical Overview

EUR/USD has lost more than 50% of the gain from 1.0640 to 1.1150, raising the chances that the rise was the correction and that new lows are on the cards. The currency pair is trading below the 50, 100, and 200 Simple Moving Averages, and the Relative Strength Index is above 30 – outside oversold conditions.

Support awaits at 1.0820, Thursday’s low, followed by 1.0750, which was a stepping stone on the way up. The 2020 trough of 1.0640 is critical support.

Resistance awaits at 1.09, which provided support earlier this week, and it is followed by 1.0970, which held it down around the same time. The next levels to watch are 1.1050 and 1.1090.

Fundamental Overview

Around half of global COVID-19 deaths are concentrated in Italy, Spain, and France – and that is only one of the factors erasing over 50% of late March’s gains.

1) Worrying coronavirus figures in Europe

While Italy has seen as a flattening of the curve – fewer deaths and new cases under control – Spain is setting records in mortalities on an almost daily basis. France, which counts only losses of lives in hospitals, is also seeing rising numbers. The three countries have 29,650 out of 53,146 global deaths.

Updates figures from Spain are due out in the European morning, followed by France and Italy.

2) No coronabonds

Leaders in the old continent remain at loggerheads over the economic relief for the crisis. The three countries and others are demanding “coronabonds” – issuing joint European debt. Germany is leading the opposite camp. Ursula von der Leyen, President of the European Commission, is looking for a compromise alongside the Eurogroup – European finance ministers.

However, without an immediate solution to the fast-evolving problem, the euro has room to the downside. Sapin reported a leap of 300,000 in jobless claims, allowing the first look into the economic carnage of coronavirus. Markit’s final Service Purchasing Managers’ Indexes will likely confirm the weakness.

3) When the US sneezes, the world catches a cold

Crossing the Atlantic, US Unemployment Claims also paint a grim picture. Requests for benefits have more than doubled to 6.648 in the week ending March 28 – beyond the worst estimates. Moreover, figures could have been even higher as some states struggled to process the flood of claims. The current level of applications represents an unemployment rate of roughly 10%.

The US dollar gained ground in response to the figures and remains the currency of choice in times of trouble. If the US struggles, the rest of the world suffers, and the dollar is demand.

The focus now shifts to the first coronavirus-impacted Non-Farm Payrolls report – yet it lags jobless claims by around two weeks. March’s labor market surveys were taken on the week including March 12. While it is unlikely to show the devastating destruction of jobs, a loss of 100,000 positions is on the cards. The figures could be a win-win for the dollar.

  • Nonfarm Payrolls Preview: Is the dollar’s fate sealed?
  • US Non-Farm Payrolls March preview: If it’s terrible, it’s expected, if it’s not, April will be

The ISM Non-Manufacturing PMI is due out after the NFP, but may still move markets. Services sectors all over the world have struggled more than the manufacturing sectors. Economists expect a sharp drop below 50 – reflecting contraction.

See: Non-Manufacturing PMI Preview: The disaster may be delayed. until April

What about the coronavirus situation in the US? It remains dire, with nearly a quarter of the million infections gripping the world’s largest economy. Nevertheless, the rapid spread of the disease in America may prove as another boost for the safe-haven greenback.

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