Market sentiment is changing rapidly. Just yesterday morning, traders showed a strong interest in risky assets, but in the afternoon changed dramatically as investors became nervous again and went back to safe-haven assets, particularly the US dollar. As a result, the USD index, which initially slowed down, turned 180 degrees and regained all its lost positions in just a few hours. In addition, the increasing demand for safe-haven assets was reflected in all currency pairs especially in dollar ones, so the USD index fluctuated in a range of 96.5-97.5, the same as it has been for the second week. However, despite yesterday's trading ending in favor of the dollar, the overall situation with the currency is still uncertain.
The demand for safe-haven assets increased for two reasons: first is the recent coronavirus outbreaks, and the second, is the possibility of a trade war between the US and the EU. Such fundamental factors set the tone for yesterday's trading, and continue to influence the mood of investors today.
If the trade war between the US and the EU does not intensify (WTO will decide on the imposition of retaliatory duties in July. Brussels, on the other hand, may not use this resolution), the problem on coronavirus will be the primary issue.
Over the past two weeks, traders have changed their attitude towards the daily increase of new infections both in the US and in the whole world. The panic initially subsided after authorities assured everyone that a second wave of the pandemic is unlikely to occur in the US, and that local outbreaks were recorded only in certain states of the country. In addition, US Secretary of Treasury Steven Mnuchin and White House adviser Kevin Hassett said that a re-lockdown is very unlikely despite recent trends, so investors became reassured on the issue. However, the epidemiological situation continues to deteriorate every day (both in the US and in several other countries around the world), so panic arose again in the market.
The recent increase of infected people in the US is scary. Today, it became known that the daily increase of COVID-19 infections in the country exceeded the records in April, when the epidemic was at its peak. The increase was recorded in 20 states, with the highest being in Florida (5,508 new cases per day), followed by Texas (more than 5 thousand cases per day) and Arizona (almost 4 thousand). New infections also resumed in Washington, which in early March was one of the first states to be hit by the virus. All in all, 38,386 infections were recorded in the United States in just 24 hours, which is the highest daily rate since April, and the third for the entire pandemic.
The market is currently ignoring such anti-records. But if the situation continues to deteriorate further, an appropriate reaction of the authorities will follow, and the consequences of repeated lockdown are even harder to imagine. Negative dynamics are also observed on a global scale, as over the past day, 172,383 new cases of COVID-19 were recorded worldwide. According to the forecasts of the WHO, the total number of coronavirus patients next week may exceed 10 million. WHO representatives also announced the worsening situation in Europe, as the rate of new infections amounts to around 17-20 thousand new cases per day on average.
The issue on the coronavirus will continue to put pressure on the forex market until a vaccine is formulated. At the moment, more than a dozen possible vaccines are being tested worldwide, but so far none of them have been brought to the third stage. For such a phase of testing, thousands of participants are required, and the study should be conducted in a country where the virus is widespread and is in a natural environment. Two days before, Chinese company CNBG came close to this stage, and in July, they are set to conduct final tests of the coronavirus vaccine in the UAE.
Such factors gave the US dollar another reason to recover. However, it's scale is still uncertain as after all, if the number of new infections in the US declines over the next few days, the issue of a re-lockdown will be abolished, and panic will subside again. The USD index will turn down again accordingly, so traders should pay attention not only to macroeconomic reports but also to statistics on the coronavirus both in the US and around the world.
As for the EUR/USD pair, the quotes are at a crossroads, being stuck in the area of support level 1.1260. The middle line of the Bollinger Bands coincided with the Tenkan-sen line at this price point on the daily chart, so bulls need to consolidate the quotes above this target before they can consider long positions. Such action will allow the Ichimoku indicator to generate a bullish signal, to which a movement up to the resistance level of 1.1400 may be expected. However, if the bears drag the quotes below 1.1260, the next destination will be the level of 1.1150, which is the three-week low.
