COVID-19 update in Europe pressurizes Euro

As per the latest COVID-19 data from Germany’s Robert Koch Institute (RKI), 39,000 active cases were found as of yesterday. The latest update today sees 13 deaths so that brings the total tally to 9,634 persons. Additional details suggest that the cases grew 4,122 to 329,453 by Tuesday. In doing so, the pandemic figures defy the recent weakness below the 4,000 round-figure, observed in the last two days. Furthermore, the COVID-19 death toll also crosses the previous two days’ figures of 11 and 6 respectively with 13 more fatalities to 9,634.

“France reported nearly 27,000 new cases in one day this weekend. Many Eurozone nations are in a similar boat with virus cases surging,” BK Asset Management’s Kathy Lien said, and added that, “No matter how you look at it, the Eurozone economy will be hit hard by the second wave.”

The European Central Bank moved a step closer to exploring the creation of virtual currency after president Christine Lagarde said on Monday it was “very seriously considering” a digital Euro. At a virtual meeting hosted by the International Monetary Fund, Lagarde said:  “The ECB is very seriously looking at a digital Europe.”

The pair could suffer as the US treasury yields are expected to rise on the US fiscal generosity and boost the dollar’s appeal.

Elsewhere, negative news also pops up in US, Johnson & Johnson – The pharma giant said late Monday that it had paused all trials of its coronavirus vaccine after a participant experienced an unexplained illness.

German Zew Survey’s Economic Sentiment and Current Situation indices for October better estimates may change the negative sentiment for Euro. Later in the day, the focus would shift to the US Consumer Price Index for September.

EUR/USD 4 Hour Chart:

Support: 1.1789 (S1), 1.1768 (S2), 1.1750 (S3).

Resistance: 1.1829 (R1), 1.1848 (R2), 1.1869 (R3).

The second wave of corona virus in Europe weighs on Euro and we expect a bearish trend for EUR/USD.

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Pound is strong despite Brexit and COVID – 19

Boris Johnson and the German chancellor spoke earlier about the proposals he had put forward to the EU – but the source said she made clear a deal based on them was “overwhelmingly unlikely”. The European Union (EU) negotiators returned to Brussels after an intense round of departure talks, held in London, without any results on Friday. The British government has set October 15 as the deadline for the deal, failing to which a no-deal Brexit scenario will effect the Pound. Though, the latest updates suggest that the UK PM Johnson is also open to the Australia-style departure deal with the bloc.

Apart from the Brexit, the COVID – 19 also is a tough battle for the Borish Johnson to fight. Even if the reproduction number (R-value) recently being between 1.2 and 1.5, a tad lower from last week’s range of 1.3 and 1.6, total cases have surged to 590,00. Even worrisome is the fact that more than 50 people, 65 recently, died in the UK after testing the corona virus-positive during the first 28 days. He is not in idea to impose of lockdown as an aim to win the battle. A second COVID-19 relief package is an additional weapon used to combat the virus.

On the other hand, US President Trump’s U-turn on stimulus couldn’t impress the Democrats as they still reject the $1.8 trillion proposals. Hence, the battle for the much-awaited American aid package is likely to continue and may stretch beyond the next month’s US presidential election, which in turn weighs on the risks and stops the US dollar from further declines.

But the odds are growing that Democrat Joe Biden will be the next president, and elections would result in a blue sweep – Democrats controlling both Congress’ chambers, i.e., House of Representatives and the Senate.

Biden’s spending plan would boost the US debt by $5.6 trillion, while President Trump’s plan would increase the debt by $4.95 trillion, the Committee for a Responsible Federal Budget (CRFB).  As such, with polls showing a higher probability of Biden victory, bond markets are factoring in higher inflation expectations by pushing longer duration yields higher.

Elsewhere, S&P 500 Futures print mild gains whereas stocks in China benefit from the People’s Bank of China’s (PBOC) weekend moves. Further, Asia-Pacific shares also print small gains following equities in Beijing.

Moving ahead, the UK PM Johnson is about to speak with the regional leaders of the north about the stricter COVID-19 rules. The investors will be keen on the announcement to knowing the threat to the national lockdown. Further, BOE’s Bailey will also be closely followed to reconfirm his recent cautious optimism. It should be noted that the absence of the US traders will restrict today’s market moves until any major update.

GBP/USD 4 Hour Chart:

Support: 1.2958 (S1), 1.2867 (S2), 1.2822 (S3).

Resistance: 1.3094 (R1), 1.3140 (R2), 1.3231 (R3).

As today is US Bank holiday, we expect the Cable to show a bullish trend.

AUD/USD Weekly Forecast (12th October 2020 – 16th October 2020)

Fundamental view:

The Australian dollar initially fell during the course of the week but seems as if it found a way to go higher towards the end of the week. Earlier in the week, the RBA announced that it left its policy rate unchanged at 0.25% as expected. In its policy statement, the Australian central bank noted that it will not increase its policy rate until convincing progress is made towards full employment and that it’s confident inflation will be sustainably within the 2–3% band. The RBA further acknowledged that it continues to consider how additional monetary easing could support jobs as the economy opens up further. These updates added to the strength of the AUD.

US ISM Services PMI on 5th October and Australia Trade Balance on 6th October favored bearish trend for the pair whereas RBA Cash Rate on 8th October and Unemployment Claims on 8th October created bullish trend for the pair.

The major economic events deciding the movement of the pair in the next week are Federal Budget Balance, US Core PPI monthly report at Oct 13, RBA Governor Lowe Speech Oct 14, Australia Employment Change, US Initial Jobless Claims at Oct 15, and US Retail Sales monthly report at Oct 16.

AUD/USD Weekly outlook:

Technical View:

Last week’s high was 0.48% higher than the previous week. Maintaining high at 0.7243 and low at 0.7095 showed a movement of 147 pips.

In the upcoming week we expect AUD/USD to show a bullish trend.  The currency pair is trading above the 200 Simple Moving Average and the MACD trades to the upside. A solid breakout above 0.7290 may open a clean path towards 0.7340 and may take a way up to 0.7438. Should 0.7143 prove to be unreliable support, the AUDUSD may sink downwards 0.7045 and 0.6996 respectively. In H4 chart bullish butterfly pattern formation favors prospects of a bullish trend. Also to be noted three white soldiers formation exerts the expectation of uptrend for the pair.

Preference
Buy:  0.7235 target at 0.7339 and stop loss at 0.7138

 

Alternate Scenario
Sell: 0.7138 target at 0.6997 and stop loss at 0.7235