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The Eurogroup will meet today to make another attempt to find an agreement with regards to the allocation of necessary assistance to countries that are on the verge of economic crisis. Recall that at the last meeting, they were not able to settle their contradictions and disagreements. Nevertheless, many still believe that EU leaders will agree on another package of effective anti-crisis measures that will lead to the recovery of the euro.
The lack of reaction to the data on the US labor market suggests that traders are more likely to buy risky assets than safe haven assets. However, if Italy and other weaker countries do not increase their fiscal response aggressively enough (by completely cutting off proposed measures), it is likely that the pressure on euro will return, as there's no more support to wait for.
Anyhow, the Eurogroup's meeting will discuss common debt securities, which will be issued in order to protect the EU economy from the consequences of the coronavirus pandemic. Some experts even call it "coronabond". However, as ridiculous as it sounds, such measures are necessary, because unlike US, EU can not afford to expand the bond repurchase program. Moreover, other member countries are unlikely to agree to such measures.
Meanwhile, the unprecedented fiscal measures of the US Congress, which are a response to the coronavirus outbreak, may lead to disastrous consequences. Moody's conclude that at a minimum, the total debt of the Fed will exceed 100% of the GDP in the next couple of years. The sharp increase in the Federal deficit from 4.6% last year to 15% in 2020 was due to the $ 2 trillion aid package that was adopted, and will begin to shrink only next year, as the economy recovers.
Many economic agencies have already revised their forecasts downward because of the coronavirus pandemic. Fitch Ratings stated that in 2020, the world economy will face a serious recession, expecting that the US economy will fall by 3.35%, EU economy by 4.2%, and global GDP to shrink by 1.9% in 2020.
As for yesterday's fundamental data, the Federal Statistical Office (Destatis) reported that orders in the German manufacturing sector fell by 1.4% in February 2020, after rising by 5.5% in January. Economists had expected the index to drop by 3.0%. If compared to the same period of the previous year, orders increased by 1.5%. Anyhow, today, data on industrial production in Germany for the month of February will be released, where a decline is also expected.
Meanwhile, the construction sector of the Eurozone received a strong blow in March amid the spread of the coronavirus. According to the data, the PMI for the construction sector of the Eurozone fell to 33.5 points in March, from 52.5 points in February. The largest drop was seen in Italy, where the index fell from 50.5 points to 15.9 points, which is equal to a decrease of about 25%.
As for the employment trends in the US, the Conference Board reported that the index fell from 108.96 points in February, to 60.38 points in March 2020. Compared to March 2019, the index fell by 45%. This is once again due to the coronavirus epidemic.
As for the technical picture of EUR / USD, the bulls of the pair will continue fighting for the resistance level of 1.0840, as the buyers of risky assets will focus on this area, because its breakout will ensure the pair's rapid growth to the highs of 1.0900 and 1.0970. The large support of 1.0770, on the other hand, keeps the pair from resuming the bear market, and is actively protected by buyers, which is clearly visible on the hourly chart.
AUD / USD
Today's decision of the Reserve Bank of Australia to leave its rates unchanged supported the aussie, and led to its strengthening against the US dollar and a number of other world currencies. According to the data, the RBA left the key interest rate unchanged at 0.25%, saying that the Board will not raise rates until inflation returns to the target level. The RBA noted that they strictly monitor the liquidity support in the financial system, and that the fiscal measures taken must necessarily mitigate the economic downturn, as a very strong reduction in GDP is expected in the 2nd quarter. The RBA also confirmed the target 3-year bond yield of 0.25%.
As for the technical picture of AUD/USD, this week, the bulls of the pair will aim to overcome the resistance area of 0.6205, which will provide support to larger buyers who are counting on the test of the highs around 0.6320 and 0.6450. However, if the pair falls again, traders can return to purchases only after updating the low of 0.6020.
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