- Pandemic fears grip the financial markets
- The dollar remains the dominant player in G10 space.
On Monday, the risk-off sentiment has surfaced again on the sudden spread of covid-19. The precious metal opened with a big gap-up of 1.50% as a sudden increase of coronavirus infections outside Chinese boarders unwound earlier confidence the outbreak might be contained.
Whereas, if you look at the final tally on the EURUSD, the price managed to hold last week’s low at 1.0770 and traced out a triple bottom. Gold opened strongly overnight but lost momentum into the close, following couple of days of heavy buying.
Last week we noted the euro is waiting to touchpoint C located at 1.0670 as a final move before a consolidation. However, By the end of the previous week, the pattern has changed its outlook, traced out a double bottom followed by a popup. What makes this interesting pop is positive daily indicators.
Markets are busy with analyzing the risk of sudden spread of covid-19, whereas we focus on the technical picture as I am not worried about the market sentiment.
As mentioned above, the EURUSD formed a triple bottom at its 80.0% fib reaction. At a longer time, frame it has solid support between 1.0670 its wave C and 1.0550. The weekly RSI is approaching oversold levels. Based on these facts, I’m considering buying the dip instead of selling at the 32-month low. If the euro responded to my dip-buying view, we could see a multi-month rally. We think it is too early to take a long position but worth to focus on closely.
Turning to the FX positioning, “EURUSD net positioning kept inching lower,” ING reported.
We also focus on EURCHF, which swings a lot during the risk-off mood. Overnight, the turnaround in the dollar and Gold saw a sharp rise to close the day at 1.0625. The double bottom is spread between 1.0600-1.0589, with positive divergence on the daily chart. The EURUSD followed a similar patter, rising from the triple bottom to close the day near 1.0850.
Data review: February’s ‘flash’ PMI results show that the German economy managed to eke out another marginal increase in business activity, despite a fresh setback to exports in the wake of the outbreak of the coronavirus. Also, the eurozone economy grew at its fastest rate in six months during February, according to flash PMI data.
- The ZEW Indicator of Economic Sentiment for Germany decreased sharply in February, falling 18.0 points to a new reading of 8.7 points.
- February saw the headline Flash Germany Manufacturing PMI climb from January’s 45.3 to a 13-month high of 47.8.
- Flash Germany Services PMI Activity Index at 53.3 (Jan: 54.2). 2-month low.
- Flash Eurozone Manufacturing PMI at 49.1 (47.9 in January). 12-month high.
- Flash Eurozone Services PMI Activity Index at 52.8 (52.5 in January). 2-month high.
- The ifo Business Climate Index rose from 96.0 points in January to 96.1 points in February, according to ifo Institute.
The week ahead: COVID-19 remains in the main focus. Data wise today’s main focus will be on the release of the GDP data for German and the US.
The EURUSD formed a bullish candle and closed at a week high but failed to breach the first resistance at 1.0880, which coincides with 20MA.
In the next few sessions, if EURUSD failed to breach the resistance zone located between 1.0880 and 1.0925 levels, then we expect a consolidation phase into March. Flipside if a fresh leg to the upside from the recent lows of 1.0770 should open to 1.0980-1.1000 levels.
For the time being, downside shall remain sealed around 1.0800-1.0770 levels, hence traders are advised to stay neutral even on the short side as EURUSD indicators are currently positive.
It is important to always keep in mind the risks involved in trading with leveraged instruments.
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