• Most European currencies are higher overnight.
  • Symmetrical triangle in focus.

The common currency closed in the red on May 11 against the dollar. Technically, we maintain our rangebound stance as the Euro has been trading in a symmetrical triangle. And we also expect the EURUSD to fall back to 1.0770 and 1.0720 in the coming days. Flipside, immediate resistance is placed at 1.0875 and 1.0925 levels.

Latest developments on COVID-crisis: Lockdowns are easing across Europe after weeks of unprecedented restrictions. Different countries are now taking measures to kick start their economies. The sentiment is improving as traders focus turned to the partial reopening of many countries and economies, which should see activity improvement markedly over the coming weeks. Whereas the recovery will be gradual, we believe.

  • Economists at ABN Amro said, “We are skeptical about the idea of a durable, strong recovery taking shape quickly. A bounce in activity around the middle of this year will most likely be followed by renewed weakness.”.

Eurozone economy registered fresh record drop in activity in April, according to the official report. The latest survey data are indicative of GDP falling at a quarterly rate of around 7.5%, far surpassing the worst decline seen in the global financial crisis. The manufacturing and the service sector has taken a hit from the COVID crisis.

“Reflective of the ongoing restrictions to nonessential economic activities in place across the region, the severe and unprecedented contraction in activity was replicated at the sector level. Both the manufacturing and services economies recorded record falls in output during April, with service providers again registering the sharper contraction”, according to IHS Markit.

Recovery: The recovery is expected to be gradual as we are in a deep recession. Historically, the Great Recession of 2008 dried up resources and led to failures in the matter of a few weeks. This recession is much evilest than the previous recessions.

Economic activity in the EU dropped by around one third, practically overnight, Maarten Verwey said.

“A DEEP AND UNEVEN RECESSION, AN UNCERTAIN RECOVERY” European Commission cited in its latest European Economic Forecast. The EC warned the stability of the euro area is at risk.

EC’s latest European Economic forecast highlighted that “In the current quarter, economic output in the EU is set to be almost 16% lower than in the last quarter of 2019”.

FX: Overnight the Euro outperforms against the most trading currencies. EURNZD was the leader with 1.20% gains, followed by EURJPY 0.90%, whereas the Euro was down by 0.15% each against Swiss Franc and the dollar. Among EUR crosses, I am a bit worried about EURCHF price action. 1.0500 is the floor now. Will it hold is the key concern to me. On the four-hour chart, the price is developing a bearish H&S pattern but still holding 1.0500 levels.

The EURCHF is likely to be affected by the Italian BTP. Overnight Treasury yields inch higher, Italy 10 Year yield is now up to 1.88%, and U.S 10-year yields up to 0.73%.  

Data review: 

  • May Sentix investor confidence improved slightly to -41.8 from -42.9 in April 2020. We are at the beginning of a stabilization phase, which is already clearly visible in Germany and especially Austria, according to the official report.
  • The Services PMI registered just 12.0, down from March’s 26.4 as efforts to contain the COVID-19 outbreak placed considerable strain on business operations.
  • Following March’s record low reading, the Eurozone Services PMI sank even further below the 50.0 no-change marks in April to indicate an unprecedented contraction in service sector activity, according to IHS Markit.
  • Industrial production decreased in Germany and Italy. In March, Germany’s IP decreased by -9.2%, and Italy’s IP decreased by -28.4%.

Data preview: It is a quiet week for EZ economic data. Whereas we focus on Industrial production for EA and the U.S. Besides, CPI for the U.S grabs some attention.

TECHNICAL OVERVIEW

EURUSD has strong support at 1.0770 and 1.0720; a revisit of 1.0600 levels looks unlikely in Q2.

Technically we are keeping a close eye on 1.0770 and 1.0720 levels on the EURUSD, which would mean a reversal of the recent rally seen from March 23 low of 1.0635.

A fall below 1.0720 can take the Euro down further to as much as 1.0630 and 1.0550 levels, but we don’t see the price revisiting the March lows in the coming days.

Flipside, the 20-MA of the EURUSD, is around 1.0875, which is acting as a solid resistance. 1.0950 and 1.1010 are the next level to watch out if the price starts moving higher. Since mid-April, the price rejected four-times at 20-MA (Weekly).

Until the Euro stays above the support at 1.0720, it can be approached with a bullish bias (rebound only). Below the support, 1.0675 and 1.0630-1.0600 are the next destinations. We are going to trade between 1.0720-1.1050 ahead of this week’s data points.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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