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Investors returned to the dollar as a safe haven asset

April 06, 2020 10:00

Stock Market

Last week, economic data continued to deteriorate and hinted at a deepening global crisis, prompting investors to look for safe-haven instruments and buy U.S. dollars. The global economy remained stagnant as the coronavirus spread rapidly in major economies. The number of infections rose particularly sharply in the U.S., where the total number of patients exceeded 300 thousand with a record number of deaths at around 1.3 thousand on Friday. New York remained in the epicenter, with more than 100 thousand infected.

USD

Among the U.S. economic indicators, the number of jobless claims remained in the spotlight, reaching 6.6 million last week. In total, in the past 2 weeks, nearly 10 million people in the country have applied for unemployment benefits, the fastest rise in history. Understanding the outlook, there are about 150 million workers in the country, so the unemployment rate could soon reach 10%, and investment bank Goldman Sachs predicts to see as much as 15% unemployment in the coming months. This is the greatest concern, since as much as 70% of the country's economy is consumption, which will be hit particularly hard.

Euro

The major currency pair EUR/USD moved along with the U.S. dollar and depreciated to 1,080-point level. In Europe, quarantine has continued and relief has not yet been mentioned, although there has been talk of a gradually stabilizing situation in Italy and Spain, which are the largest epicenters of the virus in Europe. Among the economic data were factual PMI indices, for both industry and services, falling to historic lows or decades in the last decade, suggesting a negative impact of quarantine on the economy. EUR/USD pair ended the week depreciating -2.9%.

JPY

The major Asian pair, USD/JPY, fluctuated relatively little and traded around a 200-day moving average at 108 points. It has been announced that the Olympic Games in Tokyo will be postponed to July-August 2021. There was also talk of a rapidly growing number of people infected with the coronavirus, which has doubled to 300 new cases a day in the past week. The economy has slowed significantly, reflecting the global situation, and this trend is expected to intensify in the coming months as demand for goods in Europe and the U.S. declines. USD/JPY has ended the week appreciating +0.5%.

GBP

The British pound had a relatively small fluctuation in value. Although quarantine was introduced in Britain on March 23, the number of infections and deaths in the country continued to rise and its effect has not yet been felt. There was not much economic news and the focus was on the virus trends in the country. GBP/USD has ended the week depreciating -1.5%.

Economic Events

This week, the focus will remain on information about the virus in key economies. Many will need to make decisions on extending the quarantine, so comments will be expected on what the position is and how likely it is to continue and when the restraints will begin to ease. No important data was scheduled on Monday and Tuesday. The minutes of the U.S. Federal Reserve meeting will be awaited on Wednesday. Changes in the volume of Britain's industry and German export data will be monitored on Thursday, but both will reflect the situation in February and therefore will not show a quarantine effect. There will also be information on new job applications in the U.S. on Thursday. On Friday, Easter holiday will take place in in most countries, and inflation data will be released in the U.S.

According to Admiral Markets market sentiment data, 57% of investors have long positions in the EUR/USD pair (increased +18 percentage points compared to last week's data). In the main Asian pair USD/JPY, 46% of investors have long positions (increased +2 percentage points). In the GBP/USD pair, 36% of participants expect a rise (down -24 percentage points). Such market data is interpreted as contraindicative, therefore EUR/USD is expected to fall and USD/JPY and GBP/USD to rise. Positioning data analysis should be combined with fundamental projections and technical analysis.

Sources: bloomberg.com, reuters.com, Admiral Markets MT4 Supreme Edition, investing.com

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