The euro fell 500 points or 5.30% to 1.0640 last week, the lowest level since March 2017. Like the rest of the G10 currencies, the euro has witnessed a panic selling. After the past four weeks mayhem, we expect financial markets could remain volatile in the week ahead as well. Extreme fear is the ultimate driving machine now. As long as a fear surface on the markets, we don’t expect a recovery, whereas central banks are coming actively to support the economies, which will help to prevent collapse.
Global coronavirus cases cross 370K as per Johns Hopkins University (JHU). The death toll from this Pandemic is brutal in Italy. So far, Italy coronavirus deaths at 6000, reporting an above-average mortality rate at 4%. A lot of stuff is available on the internet on this Global Pandemic, so I’m not repeating that again. In contrast, my focus remains on the models available to forecast the end of the Pandemic.
Here’s some reading on the law of epidemic.
The number of COVID-19 cases so far has conformed to Dr. Farr’s Law of Epidemics, exhibiting a somewhat predictable bell-shaped- curve normal-like distribution.
Farr’s Law of Epidemics first formulated in 1840 by British epidemiologist Dr. William Farr and resurrected by Brownlee in early 1900. These laws predict that epidemics usually follow a pattern of sharp increase, a peak, and then a decline back to a baseline. (ex: China and S.Korea). This law applied to AIDS, Ebola, & SARS.
Data review: Ifo Business Climate Index Collapses as Sentiment among German managers has worsened drastically.
- The euro area annual inflation rate was 1.2% in February 2020, down from 1.4% in January. A year earlier, the rate was 1.5%, according to Eurostat.
- The preliminary ifo Business Climate Index plummeted from 96.0 in February to 87.7 points in March. This marks the most significant drop since 1991 and brings the index to its lowest level since August 2009.
Data preview: The Covid-19 is delivering a heavy blow to the global economy.We are closely monitoring this week’s PMI data to gauge the economic impact of the virus.
Today both EA and US PMIs are likely to surprise the viewers, fortunately, downside. Later this week, US unemployment claims due on Thursday, and we expect a significant surge in claims.
Last week the euro lost 5.30% to close 1.0690- its worst weekly crash since March 2010, a perfect storm.
The euro currency has witnessed a v-shaped collapse. From the recent high of 1.1500, the common currency lost the height rapidly as dollar funding dominated across the board.
The last two weeks sell-off force me to have another look at the higher time frame charts (weekly and Monthly). The weekly A-B-C corrective pattern suggests 1.0550 followed by another deeper cut towards 1.0460 and 1.0340 levels in the coming weeks to months. The 78.6 fib reaction located at 0.9880 and the 80.0 fibs at 0.9770 (below chart).
Turning to the dollar side, the dollar index pauses the rally at the parallel resistance at 103.80 a decisive breakout above could allow the price to rally towards 105.40 and 107.15 levels.
The week ahead: The key support level for EURUSD is placed at 1.0660-1.0630. If the price moves up, key resistance levels to watch out are 1.0830 and 1.0880. A decisive breakout above 1.0830 could bounce further towards 1.0880. Euro selling for the past two weeks was attributed to the dollar bidding. For all the euro bears wait for a dollar bounce to take fresh euro shorts, rest follow the trend.
It is important to always keep in mind the risks involved in trading with leveraged instruments.
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