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US Dollar May Rise on Fed Speak as Global Virus Cases Top 4 Million

US Dollar May Rise on Fed Speak as Global Virus Cases Top 4 Million

2020-05-12 07:00:00
Dimitri Zabelin, Analyst
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US Dollar, Coronavirus, James Bullard, EUR/USD Technical Analysis – Talking Points

  • US Dollar could rise if Fed speak undermines investors’ sentiment
  • Topics to be discussed include economic outlook and impact of virus
  • EUR/USD could mount a third attempt at breaking inflection range

Asia-Pacific Recap

The anti-risk Japanese Yen and US Dollar rose as the growth-oriented Australian and New Zealand Dollars suffered in what appeared to be a risk-off tilt in Asia’s Tuesday trading session. One contributing factor appeared to have been China’s announcement of its ban of four Australian abattoirs. As Australia’s largest trading partner, demand from the Asian giant has enormous consequences for the outward-facing economy.

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US Dollar May Rise if Fed Speak Spooks Markets

The US Dollar may rise on risk aversion catalyzed by unexpectedly-gloomy commentary from Fed presidents James Bullard (St. Louis), Neil Kashkari (Minneapolis) and Patrick Harker (Philadelphia). The topics are broadly overlapping, with the primary ones being the economic outlook, the current state of affairs during the coronavirus, and its impact so far. It appears officials are taking a “past, present and future” form of analysis.

Mr. Bullard has warned that the unemployment rate could hit 20 percent or higher in 2020 and warned of a “depression scenario” if the shutdown policy is prolonged. However, officials also have to balance keeping a low infection rate and addressing the economic necessity of returning to normal. For this, Mr. Kashkari has said that a “targeted reopening” will be needed.

However, he warned that on the job front “the worst is yet to come”. Last week’s employment statisticscertainly underscored the severity of the situation. Mr. Harker echoed a similar outlook, warning that the economy will likely continue to underperform until the coronavirus is under control.

There were some questions about the use of negative interest rates, but it appears official favor using other unconventional tools. The irony, of course, is these unorthodox policy measures – like quantitative easing (QE) – are becoming increasingly mainstream.

EUR/USD Analysis

EUR/USD has tried and failed twice so far to break above an inflection range between 1.0981 and 1.0989 (white-dotted lines). The pair is now hovering near familiar support at 1.0783 where alleviated selling pressure combined with an influx of buyers managed to keep the pair from breaking below it with follow-through. If support there is invalidated, it could lead to a retest of the multi-year swing low at 1.0654.

EUR/USD BEARISH
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 16% -17% -5%
Weekly 16% 1% 7%
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EUR/USD – Daily Chart

Chart showing EUR/USD

EUR/USD chart created using TradingView

--- Written by Dimitri Zabelin, Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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