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July 5, 2020

First, a review of last week’s events:

  • EUR/USD.  The latest US employment data is not just optimistic, but over-optimistic: approximately 4.8 million people returned to work in June. The unemployment rate fell from 13.3% to 11.1% - the best increase in employment outside the agricultural sector since records began in 1939.
    So what? Nothing! The market has almost stopped responding to macroeconomic indicators as it has new, outperforming indicators: the number of newly infected COVID-19 and the number of dead from this virus. And here the United States far surpassed both Europe and China. As a result, the American economy is in a vicious circle: the more employment, the more newly opened businesses, the more people went to work, began to visit restaurants, travel by bus and subway, the more ... newly infected with the coronavirus. The number of such only on Thursday July 2 was 57 thousand - an increase of almost twice as much as at its peak in April.
    Things are significantly better in China and Europe, and so they can relaunch their economies more actively. The United States, on the contrary, will be forced to slow down this process. Positive statistics for July may be the peak, followed by a new fall. But the US will need, according to the congressional Budget office, at least ten years in order to return to the level of unemployment that was before the pandemic (3.5%).
    In the absence of other drivers for decision-making, the market is at a crossroads, expecting how the situation with COVID-19 will develop further and what measures the US leadership can take to deal with the new wave of the pandemic. This inability of investors to take any direction was reflected in expert forecasts. Recall that last week their opinions were divided almost equally: 30% voted for the pair's growth, 40% for its fall and 30% for the side trend. At the same time, the boundaries of the channel on which it moved the whole second half of June — 1.1170 and 1.1350 were named as the main levels of support and resistance. In reality, volatility was even lower, the pair did not go beyond 1.1185-1.1300, and ended the week at 1.1245 - almost at the same Pivot Point 1.1240 along which it moved back in March 2019;
  • GBP/USD. Was it a temporary correction or a reversal of the June 20-day downtrend? Negotiations on the post-Brexit period are, according to a number of experts, going well and it looks like the EU is ready to make concessions on the jurisdiction of the European Court of Justice. This inspires investors with a certain optimism about the future of the British currency, which is reflected in its quotes: the pound is growing in relation to the euro and the dollar. The GBP/USD pair found a local bottom at 1.2250 on Monday, June 29, after which it steadily went up, reaching a high of 1.2530 on Thursday, July 2. The final chord sounded at around 1.2480, which allowed the pound to win back 145 points from the American currency in a week;
  • USD/JPY. Japan's State Pension Fund (GPIF), the world's largest management company in this sphere, announced record losses for the first quarter of 2020, which amounted to ¥17.7 trillion ($165) billion). The structure of its losses allows us to draw some analytical conclusions. So, GPIF lost 22% (¥10.2 trillion) on investments in shares of foreign companies, 18% (¥7.4 trillion) on investments in the Japanese stock market and only 0.5% (¥185 billion) on investments in Japanese government securities. Due of the pandemic, the American S&P500 index fell by 20%, the Japanese Topix slightly less — by 18%, the yield of ten-year US Treasuries over this period fell by 125 basis points, and here the yield of similar government securities in Japan increased by 3 bps. The yen also strengthened in the first quarter – by 1% against the dollar, and by 3% against the Euro. These figures are quite eloquent about which Japanese assets can be considered a real haven.
    As for the behavior of the pair USD/JPY in the past week, there were no special events: the yen and the dollar continue to struggle with varying success for the funds of investors who do not want to risk, as a result, the pair continues its movement along the Pivot Point in the 107.50 zone. That's where it ended the trading session;

As for the forecast for the coming week, summarizing the views of a number of experts, as well as forecasts made on the basis of a variety of methods of technical and graphical analysis, we can say the following:

  • EUR/USD. No particularly important economic events are expected in the coming week. The number of new applications for unemployment benefits in the United States, as well as some data on ISM business activity in the services sector in this country, and industrial production in Germany will become known. However, most likely, they will not be able to shake the market much. Due to the fact that all interest rates are about zero, the spreads of bond yields have almost nothing to react to either. And, as has already been said, the reaction of investors to the news about COVID-19 will most likely be affecting the behavior of the EUR/USD pair.
    There is another interesting factor that can affect the dollar, it is the results of the US presidential election, which will determine the further economic policy of the country. But it is still four months away, and a serious recovery should be expected only when autumn starts. Although Donald Trump is known for his ability to present the most unexpected surprises at any moment. However, this "parameter" is almost impossible to predict.
    It is not worth focusing on the indicator readings with this behavior of the EUR/USD pair in recent weeks, and it is almost impossible, since their main color on both H4 and D1 has become neutral gray. Graphical analysis refuses any constructions as well. But among analysts, the belief in the dollar still dominates. So, 45% of them voted for its growth and reduction of the EUR/USD pair, first to the lower border of the channel 1.1170, and in case of its breakdown - another 70-100 points below. 25% of experts expect to see the pair at a height of 1.1400, and the remaining 30% predict the continuation of its consolidation in the region of Pivot Point 1.1240;

  • GBP/USD. So, let's repeat the question asked in the first part of the review: "Was it a temporary correction or a reversal of the June downtrend?» Graphical analysis on H4 confidently answers: “A reversal” and draws a further rise of the pair to the high of June 10 at 1.2810. On D1, the forecast is somewhat different - first, a decline to support 1.2245, then a return to the level of 1.2480.
    The vast majority of trend indicators (90%) and oscillators (85%) on H4 are painted green. On D1 there is no such solidarity: here priority is given to gray neutral, and 15% of oscillators signal the pair is overbought.
    As for analysts, they will first of all wait for the results of the next round of negotiations on the terms of the UK's exit from the EU. In the meantime, 30% of them believe that the pair will move within the lateral corridor 1.2245-1.2680, in the central zone of which it completed the previous week. Another 20% expect it to rise to a height of 1.2810, and 50% of experts expect the pair to decline to support 1.2160, and then 100 points lower;
  • USD/JPY. Here, the expert votes were distributed as follows: for the pair’s growth - 40%, for its fall - 40%, for the sideways trend - 20%. On H4, the indicator readings are indistinct, and the only reference point can be their readings on D1. Among the trend indicators on this timeframe, 70% point to the north, and 85% among the oscillators. Support levels are 107.30, 106.60 and the lower border of the side channel is 106.00. Resistance levels are 108.10, 109.30 and 109.85;


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