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29.06.2020 08:20 AM
New wave of panic threatens to cover financial markets; Overview of EUR and GBP

Due to a new rise in cases of coronavirus infection, the authorities of Texas and Florida returned some of the previously removed quarantine measures, which led to a negative reaction on the stock market. The S&P 500 fell by 2.4% on Friday, Asian indices are trading in the red zone on Monday, Nikkei is losing 2.23% at 5.00 Universal time, which may indicate a new wave of panic in the very near future.

EUR/USD

The euro continues to gain points in the eyes of investors. Mizuho Bank does not hold back its compliments - in its opinion, the euro, which is on the rise, "is no longer an ugly duckling, doomed to failure, instead it will become a reliable currency of stability and trust."

The EU recovery fund is likely to precede the fiscal union in the coming economic cycles, a new form of banking union is also likely, and Mizuho is convinced that the Euro will attract significant flows as a safe haven currency in the coming quarters.

Meanwhile, other banks publish a similar assessment. Scotiabank notes the growing concern of the ECB on disinfection processes and suggests that the measures taken will contribute to improving the financial conditions in the eurozone. Danske Bank expects a cyclical rise in Europe in the second half of the year, increases the assessment of the EUR/USD rate and sees a fair value of 1.20. Nordea, in turn, draws attention to the fact that speculative positioning for the Euro clearly indicates the upcoming growth of EUR/USD.

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In fact, it is speculative positioning that most reflects the position of banks in relation to a particular currency, since the hedging mechanism of trade and production risks involves a kind of "fiscal taxation" of the income of companies that are forced to insure part of their profits against currency risks. Banks provide risk hedging services and thus, reflect changes in financial flows, which is what we see in the CFTC reports.

According to the CFTC, strong demand for the euro suggests that demand for the European currency will increase. The latest report released on Friday confirmed the growth of this demand. The estimated fair price of the euro is still up.

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Today, the results of studies of the European Commission on the business climate in the eurozone will be published. The forecasts are generally favorable for the euro after positive reports from Markit last week, but the market will most likely focus on the results of the meeting between Macron and Merkel. The two leading leaders of the eurozone will discuss which strategy to use to manage the recovery fund, the euro may receive a positive impulse at the end of the meeting.

The 1.1165 / 72 base, formed a week ago, looks confident, with support slightly higher at 1.1190. The euro resumes growth, the nearest target is the resistance zone 1.1340/50 and further 1.1420. It is recommended to buy from the current ones in the expectation of updating the maximum, stop below the support line 1.1190.

GBP/USD

The CBI's monthly retail survey, conducted between may 27 and June 12, showed that retail expects not only a further decline in sales, but also an acceleration in the pace of this decline. The main problem retailers call the lack of demand, this was noticed by 62% of respondents. It should be noted that the results of the survey take into account the fact that shops and shopping centers are already open throughout England, that is, a negative result cannot be explained only by quarantine measures.

The pressure on the pound, traditional for recent years, due to the weak prospects of trade negotiations with the EU and the threat of a tough Brexit remains, the prospects for improving the situation are assessed as unlikely.

The CFTC report gives hope that the pound has found a basis and will try to take advantage of the weakness of the dollar.

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The estimated fair price has turned up. We can expect testing the strength of the trend downward trend, the resistance zone is at the level of 1.2410/20. A successful testing of resistance will increase the chances of moving to 1.2530/40, but we must proceed from the fact that the likely growth will be corrective and based only on the weakness of the dollar, so the most likely scenario is to move to the side range. The pound does not have its own impulse that can ensure long-term growth of the GBP/USD.

Kuvat Raharjo,
Analytical expert of InstaForex
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