Happy Friday, traders! Are you ready to trade at the end of the week? Here’s what you need to know before you start:
Coronavirus vs Forex: status update
As of now, the number of deaths due to Coronavirus has exceeded 2000 people and the total number of infections is more than 75000 people across the continents. Most of these, obviously, are in China, where authorities are trying to counter the economic consequences of this disaster through direct financing and control. So far these measures have had limited effect and certain sectors of the Chinese economy were reported to operate at 50% capacity. With most of the countries in the world having China as a top trading partner, that will bring dire consequences.
Gold left the pulling power of $1,550 which has been holding it since the beginning of the year. Currently, a Troy ounce trades at $1,605, which, first, is above the strategic $1,600 long waited by many to be crossed, and, second, is at a 7-year high. Therefore, from the XAU/USD standpoint, Coronavirus is no little thing. Of course, $1,800 is still too early to be aimed at, but let’s remember: just a couple of months ago, in Autumn-2019 was at $1,450 – almost as far away from the current level as the latter is from the all-time highs. It will be fair to say that gold will have full ground to as high as that if the Coronavirus is not contained in the nearest future.
In general, the US dollar is as great now against other currencies as EUR is unwell. In summary, the USD has both internal and external factors now supporting it, while EUR has almost all the factors against it. Currently, EUR/USD is traded at 1.0787 – that’s where it has been last in Spring-2017. 3-year low – that’s a serious case. Lower ahead, there are only supports of 1.0560 and 1.0350, left from Autumn-2016. And the facts say these are not far away.
The Japanese yen finally lost its ground against the USD. That’s due to a notable economic contraction in Japan and the Coronavirus indirect impact on the Japanese economy, while the US dollar rises on strong domestic indicators and increasing flight-to-safety demand for it as a reserve currency. The sluggish uptrend market in the chart has been broken recently by an aggressive leap up. Currently, USD/JPY trades at 111.70, looking at the resistance of 112.40, which is a 1-year high. Very likely, it will be there quite soon.
Against the Chinese yuan, the US dollar trades at 7.022. That’s above the critical level of 7.000, but since the last week of January that doesn’t alarm anyone more than it has already. If the crisis develops the same manner it has been during this week, do not be surprised to see the resistance of 7.0400 be broken in the nearest future.
The fact that people die because of the Coronavirus is a tragedy. The direct global economic damage because of the production, supply and service shortages in China is an obvious problem. But the tricky part is that the more Coronavirus is raging out there, the larger its long-term impact is going to be. So it is the accumulation effect that is hiding behind the frontlines of quarantined families in Wuhan and canceled flights to China. It will come to light, however, once the crisis is over and the victory over this disaster is announced.
The first week of November promises to be eventful, as we have the Fed meeting, the BOE update, and the NFP release. Read more details here.
Last week several important economic updates influenced the Forex market. US preliminary GDP fell less than expected (0.6% actual vs. 0.7% forecast). Below you will find the key events to trade on during the week from August 29 to September 2.
This week may be the most important since the year started as the Fed assess the economic outlook and the US presents fresh NFP readings.
S&P Global, a private banking company, will release a monthly change in British Flash Manufacturing Purchasing Managers Index (PMI) on January 24, 11:30 GMT+2. The index is a leading indicator of economic health as businesses react quickly to market conditions, and purchasing managers hold the most current and relevant insight into the company's view of the economy.
The United States Bureau of Labor Statistics will publish the US Consumer Price Index (CPI) m/m on January 12 at 15:30 GMT+2. The index measures a change in the price of goods and services purchased by consumers.