· The euro held firm on Wednesday, basking in the afterglow of a Franco-German proposal for a common fund that could move Europe closer to fiscal union while the yen languished near five-week lows amid mildly positive risk sentiment.
The euro inched up 0.15% to $1.0940 EUR=, near a two-week peak of $1.09755 reached the previous day, a break of which could open the way for a test of its May 1 high of $1.1019.
· France and Germany proposed on Monday a 500 billion euro ($543 billion) Recovery Fund to offer grants to regions and sectors hit hardest by the coronavirus pandemic and to allow borrowing by the European Commission on behalf of the whole EU.
But they could face opposition from some wealthy and fiscally conservative nations and some analysts cautioned it is too early to tell whether an agreement can be reached soon.
The U.S. dollar tacked on 0.1% against the yen to 107.78 yen, near a five-week high of 108.085 hit in U.S. trade on Tuesday.
The dollar index =USD stood at 99.571, essentially stuck in its well-worn range since early April.
Sterling traded at $1.2251 GBP=D4, flat so far on the day while the Australian dollar fetched $0.65385 AUD=D4, after having hit a two-month high of $0.6585 overnight.
· EUR/USD Price Analysis: 100-day average again caps upside
EUR/USD is trading near 1.0930 at press time, having failed to keep gains above the 100-day average at 1.0968 on Tuesday.
The widely-tracked technical line was last put to test on May 1. On that day, buyers failed to absorb the selling pressure above the long-term average and the rejection proved costly. In the following four days, the spot reversed a major portion of the 1.0727 to 1.10 seen in the six trading days to May 1.
The latest rejection has so far failed to invite stronger selling pressure, leaving the pair mildly bid above the former resistance-turned-support at 1.0896 (May 13 high). That, alongside the bullish or above-50 reading on the 14-day relative strength index, suggests scop for a re-test of the average hurdle. A close higher could cause more buyers to join the market, leading to stronger gains, possibly to levels above the 200-day average at 1.1014.
However, if the pair drops below 1.0896, the buyer exhaustion signaled by Tuesday's candle with long upper wick would gain credence. In that case, stronger selling pressure may emerge, pushing the spot back to 1.08.
· EUR/USD Forecast: Sustained break through 1.0975 supply zone needed to confirm bullish bias
Short-term technical outlook
From a technical perspective, the pair on Tuesday was rejected near the top end of a near eight-week-old trading range. The mentioned barrier, around the 1.0975 region, should now act as a key pivotal point for short-term traders, which if cleared might be seen as a fresh trigger for bullish traders. Bulls might then make a fresh attempt to cleared the very important 200-day SMA barrier, currently near the 1.1015 region, before eventually aiming to reclaim the 1.1100 round-figure mark.
On the flip side, sustained weakness below the 1.0900 mark might accelerate the fall towards the 1.0845 horizontal support. Some follow-through selling has the potential to drag the pair back towards the 1.0800 mark ahead of the trading range support near the 1.0775 region. Failure to defend the mentioned support levels might now turn the pair vulnerable to break below the 1.0700 mark and slide further to retest YTD lows, around the 1.0635 region.
· Analysts at JP Morgan offer their technical outlook on trading EUR/USD in the near-term, with a bullish shift in the view.
“The move above 1.0900/10 was a technical break. Although 1.1010/30 is the bigger level on the topside.
Earlier this year, JP Morgan Analysts, EUR/USD was likely to end-2020 at 1.11 vs. 1.14 previous estimate.
Investor confidence in Europe especially susceptible to coronavirus impacts.”
· Treasury yields slide with coronavirus vaccine efforts, reopening in focus
U.S. government debt prices were higher on Wednesday morning amid a volatile week on Wall Street, with investors monitoring progress on a coronavirus vaccine and economic reopening efforts.
At around 2:10 a.m. ET, the yield on the benchmark 10-year Treasury note dipped to 0.6931% and the yield on the 30-year Treasury bond was down at 1.4181%. Yields move inversely to prices.
Market volatility is largely being driven by uncertainty over the likelihood of a coronavirus vaccine and concern over whether the reopening of state economies could open the door to a second wave of infections, as warned by public health experts.
· China held its benchmark lending rate steady on Wednesday, though analysts believe the widely expected decision signals just a brief pause in the central bank’s efforts to support an economy ravaged by the coronavirus pandemic.
The one-year loan prime rate (LPR) CNYLPR1Y=CFXS remained at 3.85% from last month’s fixing, while the five-year LPR CNYLPR5Y=CFXS was also kept at 4.65%.
Some analysts expect more aggressive monetary and fiscal stimulus could be rolled out soon to help companies and consumers, possibly at China’s annual National People’s Congress (NPC) session starting on May 22.
· Britain's Rolls-Royce to cut 9,000 jobs amid air travel slump
Britain’s Rolls-Royce (RR.L) said on Wednesday it would cut at least 9,000 jobs from its global staff of 52,000 and could shut factories to adapt to the much smaller aviation market that will emerge from the coronavirus pandemic.
· Japan's Deputy Head of the coronavirus panel, Shigeru Omi, warned in a statement on Wednesday, it is possible to see a new infection wave before winter.
This comes as the Japanese government is considering lifting the State of Emergency for Osaka and surrounding areas on Thursday. The easing of the restrictions in Tokyo doesn’t seem in the near future. As on Tuesday, Tokyo reported just five new cases of coronavirus.
· The Korea Development Institute (KDI) - a South Korean state-run think-tank, said in a report on Wednesday, Bank of Korea (BOK) is needed to cut its benchmark interest rates to near-zero to stimulate the economy hit by the coronavirus pandemic.
The South Korean central bank announced a 50bps rate cut in March, bringing its key rate down to a record low of 0.75%. The BOK left doors open for further rate cuts, with the May 28 policy meeting now in focus.
· A recent study by researchers at the National Institutes of Health has found that particles of the coronavirus released by talking can remain in the air for 8 to 14 minutes, a warning sign that airborne transmission may be even more widespread than previously thought.
· Unemployment jumps in Netherlands as pandemic hits young workers
Unemployment rose at its fastest pace on record in the Netherlands in April as lockdown measures began to hit the economy with young workers hit hardest, Statistics Netherlands said on Wednesday.
The unemployment rate rose to 3.4% in April from a near record low of 2.9% in March, the CBS said in a statement.
The number of applicants for unemployment benefits in April rose nearly 17% versus March and was up 13% year on year, the CBS said.
“The number of people with paid work in April fell by 160,000 to 8.9 million,” it said.
· Oil steady as economic worries offset signs of firmer demand
Oil prices held steady on Wednesday despite signs of improving demand and a drawdown in U.S. crude inventories, as worries over the economic fallout from the coronavirus pandemic capped gains.
Brent crude futures for July delivery LCoc1 were up 10 cents, or 0.3%, at $34.75 per barrel at 0626 GMT.
U.S. West Texas Intermediate (WTI) crude futures for July CLc1 were down 2 cents at $31.94 a barrel after closing up 1% in the previous session.
· WTI Price Analysis: Oil charts descending triangle
West Texas Intermediate's front-month contract is trading near $32 at press time. The black gold has been largely restricted to a narrow range of $31 to $33 since Monday.
The consolidation has taken the shape of a descending triangle on the hourly chart. A move above the triangle resistance at $32.20 would confirm the descending triangle breakout and signal a continuation of the rally from lows below $27 observed on May 14. The immediate resistance is located at $33.10.
However, a bearish reversal would be confirmed if prices break below $31.24, confirming a triangle breakdown. That could cause more buyers to take profits, leading to a deeper decline to levels below $30.
With prices currently stuck in the triangle pattern, the immediate outlook is neutral. However, the broader outlook looks constructive with the 50-, 100- and 200-hour averages trending north and stacked one above the other.
Reference: CNBC, Reuters, Worldometers, FX Street
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