The proximity of the Easter holidays, although different this time due to the pandemic, is increasingly noticeable in the market. The market lacks defined direction, and there are broad movements motivated by specific flows rather than by fundamental news.
Northern hemisphere
The US Dollar performed neutrally, strengthening slightly against the Euro and the Canadian Dollar and weakening against the Sterling Pound and the Australian Dollar. Against the Japanese Yen, it had the narrowest trading range in recent weeks.
EUR/USD moved in negative territory, falling to 1.0828 in the first hours of trading and then slowly recovering to 1.0865.
The reason for this fall in the Euro is the failure of the European Commission to reach an agreement on financing the negative effects of the crisis. The countries of southern Europe, including France, are asking for the issuance of mutual bonds, the so-called Coronabonds.
Still, they collide with the refusal of Germany and the Netherlands, countries that want to activate the ESM (European Stability mechanism) with what it implies of restriction and conditionality for countries that need it.
The confrontation is ferocious, and what is more worrying is that it is calling into question the principles of the EU and raising the fear of a breakup.
Any decision on this matter has been postponed for two days, but if an agreement is not reached or the deal is not satisfactory, the Euro would suffer the consequences. In any case, it is surprising that the single currency remains relatively stable, given the worrying situation. All this without taking into account the devastating effects that the pandemic will have on countries such as France, Italy, and Spain, the second, third and fourth economies of the Eurozone respectively
EUR/USD has first support in the zone around 1.0830 and lower at 1.0790. The general sentiment of the market is negative towards the Euro, although, at the moment, it is not reflected in trading.
EUR/JPY would be the Euro pair most negatively affected if Euro sales started for this reason. Typically, EUR/JPY is considered a barometer of market risk, and in a risk-off scenario, it could move lower. EUR/JPY has had a corrective movement of the fall between March 25 and April 3, correcting up to 50% of this leg and stopping below 4H MA (moving average) 100 and 200 that have acted as resistance levels. To break this trend and start a bearish path, the pair needs to close below 117.50.
Southern hemisphere
On the other hand, the Australian Dollar suffered a severe fall during the Australian session, initially motivated by the increase in risk aversion after the lack of momentum of the American stocks that were unable to sustain the slight gains of the previous day and accentuated by the S&P rating downgrade that was announced yesterday.
However, a relatively ambitious stimulus package put forth by the Australian government subsequently was enough for the AUD/USD to rally and exceed pre-fall levels. The pair has already corrected 61.8% Fibonacci of the bearish leg that started after the crisis. Market analysts agree that it is too early to be positive on the Australian Dollar, even taking into account that China, its main commodity client, is already showing signs of an exit from the crisis caused by the pandemic. The effects on the prices of raw materials, the drop in international demand and the fall in world GDP have yet to be determined and are certainly not going to be encouraging.
Sources: tradingview.com