The United States has become the center of the global coronavirus pandemic. The overall infection has been increased to 300,000 in last week that post the vice president, who won the nation regarding the outbreak. The unprecedented condition in the forex market makes the situation unusual. What other important events and releases will affect the market this week? Get more insights for the new trading week with AtoZ Markets ‘Forex Weekly Fundamental Forecast’.
06 April, 2020, | AtoZ Markets – Despite the global uncertainty, Europe is showing some signs of improvement. The affection for coronavirus is slowing down in most of the European countries. Therefore, there is a possibility that the lockdowns will close as soon as the virus outbreak is dismissed. However, the bad news is that the US has adopted fewer quarantine measures than Europe, but a week later the outbreak started to peak. Moreover, the UK may extend the current lockdown until September. Overall, the unprecedented condition in the forex market creates fear and frustration among traders.
Forex Weekly Fundamental Outlook an Unprecedented Condition
In financial markets, volatilities have minimized a little. Governments from most of the major countries have announced decent spending packages to halt this crisis from transforming into a depression. Central banks have done everything they could do to mitigate the blow by cutting rates to zero and declaring extensive QE programs.
In the forex market, this would indicate a stronger dollar as the US dollar has been acting as a haven asset during the chaos.
The European economy depends entirely on how quickly infection rates slow down. However, the increase would be the real metric to watch. As regulators, both the ECB and the FED, are now trying to recover their markets with cheap money. However, the effect of the corona crisis was so strong that it might not be controlled quickly. The main focus for investors would be towards the ECB Monetary Policy Meeting Accounts on Thursday where ECB might indicate further about the effect of COVIT- 19.
However, the US labor market data was terrifying. There were 6.648 million requests for unemployment benefits. This figure was increased by 10 million in just two weeks, which is approximate 6% of the total labor force. In addition to that, the new job number outside the agricultural sector has come at -705K in March from +275K in February. Therefore, it is likely that unemployment will move higher during the great depression. On the other hand, the dollar index is growing all week, taking the EURUSD down. It is an indication that the market was getting already ready for such a collapse of the US economy.
The balance sheet of the Federal Reserve is increasing day by day. Therefore, its policy of easing decreases the attractiveness of the US dollar from its safe-haven nature. Therefore, the EURUSD pair has the possibility to return to 1.1500 in the coming days rather than to fall to 1.0000.
The figure for UK COVID-19 cases continues rising and limit the pound’s moves. Officials predict that the UK might be under some form of restraints through September. Despite the better than expected consumer confidence, the pound fell down last week. Currently, the monthly GDP on Thursday is in focus.
On the other hand, the US ISM Manufacturing Index and Markit’s final UK Manufacturing PMI both upbeat expectations but the main focus of investors was towards the pandemic.
The US Non-Farm payroll disappointed with the number and the increase of COVIT-19 within the US makes the US domination questionable. In this unprecedented condition, GBPUSD buyers may take some benefit by extending the correction.
The Australian dollar showed a minor comeback in recent weeks. It is recovering beside stock markets and capitalizing on the US dollar retreat. However, that rebound does not have impulsive pressure. Therefore, a lot will depend on how the Reserve Bank of Australia (RBA) reacts to this week’s meeting on Tuesday.
In an emergency meeting on March 18, RBA cut rates and launched its first-ever QE program. The intention of the rate cut was to help the economy during the COVIT- 19 pandemic. In the meeting minute, policymakers supported these actions. They have agreed that the cash rate was effective, which means they are not interested in cutting rates more. Currently, the question is whether the RBA will extend the amount of its QE program, or do nothing.
In this unprecedented condition, doing nothing looks more appropriate. The RBA may save its final bullets for the worst situation. In the current market, it may lift the Aussie but slightly. Moreover, any upside reaction might be short-lived by risk aversion and collapsing global trade.
The loonie has become a proxy for oil prices again. The correlation between the USDCAD and crude oil has jumped, as crude prices have fallen amid outstanding destruction in demand for the lockdowns. The Bank of Canada cut interest rates to almost zero last week and launched the QE program to protect the economy. This decision may be ravaged due to its reliance on the export-oriented economy and global business.
However, monetary policy is not important for the loonie right now. Hence, jobs data for March on will be published on Thursday. The result may shake the loonie, but the real price driver will probably be the oil prices.
On the oil front, the market is looking grim. Even though there was a sizable rebound last week after President Trump said that Russia and Saudi Arabia would cut 10-15 million barrels from their production. Saudi Arabia said that they are willing to cut their own production only if OPEC members also cut theirs.
On the other hand, the size of the suggested cut is very large. Even if everything goes with the expectation, it’s still difficult to visualize any cut higher than 5 million barrels. Additionally, it would do nothing to balance the oil market that may see 20-30 million barrels in demand dismissed. In that case, there is a good chance markets will disappoint by its size, which may make the recent recovery vulnerable. A virtual meeting is expected to be held between the major oil producers on Monday.
Gold built on Thursday’s gains through the resistance levels despite the rising dollar as the US yields moved higher. This sentiment was boosted by the higher than expected drop in US non-farm payrolls.
The US non-farm payrolls declined by 701,000 jobs in March 2020. Job declines were broad. The payroll decline was the highest monthly drop since March 2009, the most critical month for job declines during the last collapse. The unemployment rate rose to 4.4% from 3.5%, which is the largest one-month rise since January 1975. Moreover, the COVIT-19 cases have been increased above the 300,000 around the US. Therefore, Gold is likely to increase higher this week as a safe-haven asset.
Overall, the unprecedented condition in the forex market makes the overall situation very volatile. Therefore, the movement of price in this week is expected to depend on how the COVIT-19 cases are appearing. A decline in COVIT-19 cases may decrease market volatility.