Major currencies showed a decline heading into the weekend. The steepest drop against the US dollar was shown by the Australian dollar (+3.13%) and the New Zealand dollar (+3.08%). A smaller decline was recorded by the Japanese yen (-0.95%), the British pound (-1.34%), the Canadian dollar (-1.39%), the euro (-1.77%) and the Swiss franc (-1.87%).
The euro was on a downward trajectory for the most part on Friday, September 25. The euro shed 0.34% against the dollar to close at 1.1627. Stock indices came under pressure during the European session. A second wave of the coronavirus pandemic has swept across Europe and continues to adversely impact economies across the globe. Amid deterioration of the epidemiological situation, countries are stepping up lockdown measures. In the upshot, investors are fearful that the new restrictive measures will slow down the pace of global economic recovery.
Spanish authorities face hard times ahead as the total number of confirmed Covid-19 cases in the country has exceeded 700,000. In Spain, from 10,000 to 30,000 people fall ill with the virus every day. This is five times more than during the first wave.
France has also reported a record number of coronavirus cases, with the number of confirmed cases exceeding 500,000. The daily increase in the number of new patients stands at approximately 10,000.
The EURUSD pair fell from 1.1685 to 1.1612 (-73). The key driver behind the decline continued to be heightened dollar demand. The DXY rose to its highest level since July above 94.74 and remains bullish despite a rebound in US stock indices and declining Treasury yields.
Today’s macro agenda (GMT+3)
Friday's expectations fell short with a price recovery to 1.1715. Sellers got back at all buyers who bought euros on the pullback. The price action quickly dropped by 61.8% of the rise from 1.1627 to 1.1687, and then continued to sink to 1.1612. Selling activity picked up ahead of the weekend amid COVID-19-related news.
Asian trading in Asia opened on a relatively subdued note on Monday, September 28. A 0.7% rise in equity futures pushed the dollar index into a correction.
At the time of writing, the euro was trading at 1.1626. We abstain from making a forecast, since ECB President Christine Lagarde is scheduled to deliver a speech today at 13:45 GMT. She will speak both on Monday and Wednesday. No surprises are expected, but given the second wave, we can expect the ECB to come out with statements about how to deal with the pandemic going forward.
EU authorities reminded the UK government that it is time to make up its mind on the key issues and obligations of the future trade agreement, Bloomberg reported. This week, the focus will be on COVID-19, Brexit and Friday's nonfarm payrolls.
The price action is currently hovering near the balance line. A new bullish divergence has formed between the AO indicator and the price. Covid-19 offsets them easily, so it makes no sense to count on this signal alone. Notably, the 45th degree of the Gann angle stands at 1.1665. Buyers can calmly retrace before it is reached and the bearish trend on the hourly timeframe will not be affected. In order to correct to the 1.1770 area, they will need to reset the high of 1.1687 (seen on September 24) as quickly as possible.
If on Monday the price remains below 1.1660, then we should expect retracement to a new low. In this regard, Lagarde's speech may well come into play.