Second wave of Covid infections? – Risk-off position in play

<p>US Equity futures and European bourses are recovering from losses in Asia and are in the green, with the exception of the CAC 40. Many markets in the Asia region have seen a paring in declines during their respective afternoon sessions after China announced a new list of US imports eligible for <span><strong>tariff waivers</strong></span>. China’s state-run Global Times had earlier reported that “unidentified advisers” on the Chinese side were keen to invalidate the “Phase 1” trade deal and renegotiate it, to which President Trump responded with, “not interested. We signed a deal.”</p>
<p>Aside from the fraying in relations between the world’s two biggest economic superpowers, markets are concerned about the risk of a<span><strong> second wave of coronavirus infections</strong></span> as economies reopen from lockdowns. Wuhan in <strong>China,</strong> the origin of the virus, reported new infections yesterday, as did <strong>South Korea,</strong> and <strong>Russia</strong> reported a record daily increase in confirmed cases. <strong>GermanY</strong> has also seen its “R rate” (the reproduction rate of the virus) rise back above 1, indicating that the<em><strong> virus is spreading exponentially again</strong></em>.</p>
<p><a href="https://analysis.hotforex.com/wp-content/uploads/2020/05/2020-05-12_14-47-56.png"><img class="wp-image-130972 aligncenter" src="https://analysis.hotforex.com/wp-content/uploads/2020/05/2020-05-12_14-47-56.png" alt="" width="459" height="307" srcset="/wp-content/uploads/2020/05/2020-05-12_14-47-56.png 889w, /wp-content/uploads/2020/05/2020-05-12_14-47-56-300×201.png 300w, /wp-content/uploads/2020/05/2020-05-12_14-47-56-768×514.png 768w, /wp-content/uploads/2020/05/2020-05-12_14-47-56-696×466.png 696w, /wp-content/uploads/2020/05/2020-05-12_14-47-56-628×420.png 628w" sizes="(max-width: 459px) 100vw, 459px" /></a></p>
<p>The combo of trade and geopolitical tensions, as well as fears of a second wave of coronavirus infections, looks set to keep risk-off positioning in play, which in turn should be supportive of the <span><strong>Yen</strong></span> versus most other currencies. Meanwhile, <strong>USDJPY has been playing a narrow range</strong> just below the 19-day low seen yesterday at 107.78, but above its PP at <strong>107.30.</strong> The Yen has been losing against commodity and many developing-world currencies so far today, however <strong>EURJPY,</strong> for example, edged out a five-day high at <strong>116.70</strong> on the back of Yen weakness, breaking above yesterday’s peak, the 61.8% Fib. retracement level since the May drift and the mid of the 1-week upwards regression channel.</p>
<div>
<div>
<div>
<p>The MACD and RSI are positively configured intraday, with the MACD line posting a bullish cross while RSI is sloping northwards above 60. The fast MAs meanwhile are aligned higher. Intraday the next Resistance levels for EURJPY are set at <strong>116.80, 117.00</strong> and <strong>117.35. </strong></p>
<p>The daily/long term picture meanwhile remains on a negative outlook, with the asset having been following a downwards channel since December 2019. The momentum holds at a deep negative area, as MACD and RSI are negatively configured, suggesting that near term outperformance could be proven as another lower high in this long term decline. In the medium term the asset needs to sustain a move above the 20-day SMA but more precisely we need to see a break of the 200-day SMA at <strong>118.00,</strong> in order for the overall picture to turn positive.</p>
<p>If sellers manage to gain back the control of the asset, initial support could occur at the <strong>116.00, 115.44</strong> and <strong>115.20</strong> level ahead of a revisit of the multi-year new low of <strong>114.42.</strong></p>
</div>
</div>
</div>
<p><strong>Click </strong><a href="https://www.hotforex.com/en/trading-tools/economic-calendar.html"><strong>here</strong></a><strong> to access the HotForex Economic Calendar</strong></p>
<p><strong>Andria Pichidi</strong></p>
<p><strong>Market Analyst</strong></p>
<p><strong>Disclaimer: </strong>This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.</p>