Although the US markets are currently facing many problems, the demand for dollar continues to strengthen. The reports on the number of applications for unemployment benefits, which will be released today, and the value of nonfarm payrolls, which will be released tomorrow, will have a significant impact on the market. Nevertheless, movement in the market will be based on the discrepancy between the forecasts and the final data of the indices.
Meanwhile, the euro is currently not in demand, not because it is a risky asset, but because of the problems that await the European economy due to the coronavirus and the problems in the financial market. Thus, do not count on the rapid recovery of this asset.
Yesterday, Donald Trump said that US is facing a very difficult two weeks, warning that the number of deaths due to the coronavirus could rise up to 240,000. In Germany, Chancellor Angela Merkel announced that quarantine is being extended until April 19, asking the citizens to avoid traveling and meeting relatives.
The attention of traders is currently focused on the US labor market, as the unemployment rate can grow above 10%, reaching the highest level since the 1930s and 1940s. Today, this data will be released, and a sharp increase of 3-4 million is expected. The surge will most probably be directly related to the increase of layoffs against the background of the suspension of work of many businesses and companies due to the spread of the coronavirus. It is worth noting though that most of the applications are related to temporary unemployment.
According to ADP, the number of jobs in the US private sector fell by 27,000 in March, and the largest losses were recorded in small enterprises, where the number of employees does not exceed 50 people. However, It is worth noting that the data covered only the period up to March 12, while the maximum impact of the pandemic occurred after March 20. Economists had expected the number of jobs to fall by 125,000.
The decline in the US manufacturing activity also indicate the problems that the economy is facing due to the coronavirus pandemic. According to IHS Markit, the purchasing managers' index (PMI) of the US manufacturing sector fell from 50.7 points in February, to 48.5 points in March 2020.
The data from ISM, on the other hand, was more optimistic. PMI fell from 50.1 points in February, to 49.1 points in March. The decline in this indicator is much better than in the Eurozone.
Yesterday's speech of Fed representative Eric Rosengren did not support the stock market, which continues to decline before the reports on the state of the US labor market. According to Rosengren, no one should be left without incentives, as even those who support the economy need support as well. Rosengren noted that the Fed and the government acted very quickly and decisively, but now, all attention must be focused on countering the growth of unemployment, as people will not return to work until the risk of contracting the coronavirus decreases. The Fed can minimize financial losses, but it can't completely neutralize the crisis in healthcare.
The Fed also temporarily relaxed the capital requirements of large banks yesterday, which will be in effect until March 2021. Such measures indicate that there are problems in the banking sector, but the steps taken will help limit the risk of bank failure, maintain public confidence, and limit government losses related to bank insurance.
As for the technical picture of EUR/USD, growth will only happen after the breakdown and consolidation above the resistance level of 1.1040. Until then, any upward correction will be considered by traders as a good new level for opening short positions. The nearest support levels of the pair will be 1.0870 and 1.0780. Anyhow, taking into account what statistics are waiting for us in the next two days, I would not recommend betting on the strengthening of the pair.
GBP/USD
Yesterday, there were rumors that the Bank of England will attempt to buy all the UK government bonds that will be issued in April this year. Let me remind you that the UK Debt Management Office intends to issue bonds worth £ 45 billion this month.
As for the technical picture of GBP/USD, a break of 1.2300 will increase the pressure on the pair, and open the way for bears to the area of 1.2140 and 1.1980. A break in the resistance of 1.2490 by the bulls, on the other hand, will trigger new purchases to the highs of 1.2600 and 1.2720.
