The USD strengthened against a number of its peers yesterday when Fed chairman Powell rejected the idea of negative interest rates for the bank, as we mentioned yesterday. It was characteristic that the Fed chief said, “The Committee’s view on negative rates has really not changed. This is not something we look at, ”. However, Powell also strikes a gloomy tone by noting that an extended period of weak growth may be in the cards for the US economy. In his remarks, Powell also mentioned that further fiscal support could be expensive, but worth it if it helps avoid long-term financial damage. The US economy is slowly restarting, but the risk of another wave of infections is still present and Dr. Fauci, the US top expert on the disease, warned the US Senate that the disease will spread further if the country opens too soon. President Trump dismissed the warning as unacceptable and hinted that he was sticking to his positions to reopen the US economy. The USD could get more havens in the safe haven, but nonetheless, traders can also look at last week’s US original number of unemployed claims due out today. As safe harbor flows tended to favor the Japanese currency yesterday, USD / JPY fell to the 106.60 (S1) support line. As the pair appears to remain under the spell form for a downward trend line recorded since May 11, we tend to maintain a bearish outlook for the pair. Note that 106.60 (S1) provided significant support to the couple from April 27 to May 4. If the pair’s long positions are favored by the market, we could see the USD / JPY reversing price, breaking the aforementioned downward trend line and target if not breaking the 107.75 (R1) resistance line. If the pair stays below the market’s sales interest, we could see it break the 106.60 (S1) line and start aiming for the support level of 105.30 (S2).
EUR is weakening despite the ECB signaling that the bottom is falling
The single currency weakened against the USD yesterday and during today’s Asian session despite ECB officials signaling that the eurozone has hit the low point of its economic crisis caused by Coronavirus infections. It should be noted that the current economic crisis has driven an even greater gap between the richer north and poorer southern Europe, and analysts tend to emphasize that Italy’s sovereign debt may be in spiral, while the German economy may be protected by the government’s fiscal strength. According to the media, the EU is working on an “ambitious” plan for economic recovery, as EU Commission President Ursula Von der Leyen said. The plan is to fund projects in line with European policy and can concentrate on digitization, combating climate change, and von der Leyen also added that it will include grants and not just loans. EUR traders may also be focusing on the release of the interim GDP rate in Q1 expected tomorrow. EUR / USD initially gathered and tested the resistance line 1.0890 (R2) yesterday, but still fell behind and broke the 1.0835 (S1) support line, now facing resistance. We maintain the bearish bias for the couple as more negative financial releases are expected. If the bears retain control of the pairing, we could see it breaking the 1.0775 (S1) support line and aiming for lower ground. If the bulls take over, the EUR / USD could break the 1.0835 (R1) resistance line and aim for higher ground.
Other economic highlights today and early tomorrow
Today during the European session we get Germany’s final CPI rate for April. In the US session, we get the first figures for unemployment in the US last week and Canada’s growth in the manufacturing sector for March. During Friday’s Asian session, we get Japan’s commodity prices, while from China, industrial production and retail sales are up for April. Regarding speakers BoJ Governor Kuroda, BoE Governor Bailey, BoC Governor Poloz on the BoC’s Financial Stability Report, ECB’s de Guindos, Minneapolis Fed President Kashkari, Atlanta Fed President Bostic, RBNZ Governor Adrian Orr, and Dallas Fed President Kaplan is scheduled to speak. Also note that New Zealand’s finance minister must present the budget today.
Support: 106.60 (S1), 105.30 (S2), 104.15 (S3)
Resistance: 107.75 (R1), 109.10 (R2), 110.60 (R3)
Support: 1.0775 (S1), 1.0720 (S2), 1.0655 (S3)
Resistance: 1.0835 (R1), 1.0890 (R2), 1.0935 (R3)