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PMI: The economic decline slowed down in May

Preliminary PMI indices for May published today indicate a slowdown in the economies of Japan, Australia, the Eurozone and the UK (US data will be published in the second half of the day).
The indices showed a friendly growth since April historical lows, but at the same time they are still at levels corresponding to a deep recession.
Since the process of quarantine removal is smooth and limited, and consumer activity remains suppressed, it is unlikely that economies will return to growth earlier than the 3rd quarter.
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Trump accused China of "massacres around the world"

The United States continues to tighten the rhetoric nuts against China.
On Wednesday, US President Donald Trump, accused Beijing of "massacre":
“Someone crazy in China has just issued a statement blaming everyone except China for the virus that killed hundreds of thousands of people. Please explain to this dunce that only the incompetence of China, and nothing more, has caused the massacre of people on a global scale, ” Trump wrote on twitter.
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Trump's remarks are nothing but a political move ahead of the election. The classic political play is to divert the anger of the masses from itself and direct it towards a new common enemy, whom he will defeat right a week before the election (having driven into a white house on a white horse and the imprint of light fatigue in the process of seizing the evil hydra).
That is why you should not take these statements as drivers for the stock and foreign exchange markets.
However, there are still drivers here, but they are in a slightly different plane:
The US Senate passed a law on the delisting of shares of Chinese companies on US exchanges. Currently, securities of more than 150 Chinese companies with a total value of more than $1.2 trillion are traded on United States exchanges. Their possible delisting will be a sensitive blow for China.
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Market Watch
May is even worse than April


I'll start with the bad news - Incoming statistics for May shows the situation has deteriorated in comparison with April. Let me remind you that in May several European countries began to mitigate quarantine measures, and in Italy a large number of small shops reopened. Nevertheless, the incoming statistics indicate a further decline in business activity in the services and manufacturing sectors across Europe.

The business activity indices published on Thursday for the currency block and Britain came in below 50 points, indicating that in May the level of business activity was below the level in April. All European countries showed less growth in May compared to April which means the outlook for European currencies is pessimistic.

Let’s take a look at the GBP/USD currency pair, which continues to lose ground, on the back of declining retail sales and an increase in borrowed funds from the government. As a result, the risk of the currency pair returning to the psychological mark of 1.2100 continues to increase.

Now let's move on to the oil market. The collapse in oil prices is due to some changes in policies from China, which could lead to a significant decrease in oil demand. Nevertheless, don’t count on further weakness as shale oil production in the USA continues to decline. In addition, participants in the OPEC + transaction, which entered into force on May 1, continue to fulfill their obligations and this will contribute to a moderate increase in oil prices.
Due to the lack of statistics during the American trading session, trader’s attention will focus on incoming information about the conflict between the United States and China. An escalation of the conflict will contribute to higher gold prices.

I will complete the review with a deal to buy a USD/CAD currency pair. A long position was opened at the price of 1.3940 by two lots. A take Profit order is set at the next technical resistance level of 1.4020. At the time of writing the review, quotes of the pair reached the marked resistance level. Profit on this transaction amounted to $1,140.

The above review is not a direct guide to trading, and can only be classed as a recommendation.
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Coronavirus "infected" Brexit

The coronavirus pandemic calls into question the implementation of the plan to complete the exit of the UK. Of course, even in “precovid19” times, no one expected that in 11 months (counting from January 31), it would be possible to agree without problems on the future of trade relations between Britain and the EU - taking into account how the negotiations went on all these years ... the coronavirus pandemic in the economy and health care system makes even more doubt that Brexit will be able to be completed according to the plan without causing even more damage to the already badly worn economy.
Mass quarantine will give an occasion to both sides of the conflict to continue pulling the already stretched strap in the middle of 2021.
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Bank of Tokyo-Mitsubishi UFJ recommended selling the pound and buying the yen

Japanese retail investors have formed a large long position in the pound. Speculation on negative rates could undermine the British currency.

Currency strategists at the Bank of Tokyo-Mitsubishi UFJ forecast a stronger yen against the pound, as talk of negative rates in the UK encourages traders to sell British currency.

Retail investors from Japan could trigger sales because they have accumulated a significant amount of long positions in the pound, said Derek Halpeni, head of market research at MUFG.

Reduced profitability in foreign markets is a key factor in supporting the yen, pricing will more confidently begin to lay rates in the UK in the foreseeable future below zero, this will strengthen the tendency to buy yen.

Bank experts recommended selling the pound against the yen at 131.25 with a target of 126.60 and a stop order to buy at 134.10.

The yen has weakened in recent weeks, but MUFG experts are still confident in the potential of its strengthening.
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Market Watch
New sanctions and rising oil prices


Tensions between the US and China are growing. On Friday, the US Department of Commerce announced the blacklisting of 33 Chinese companies and government organizations, thereby putting additional pressure on the Chinese economy. In addition, the media reported that the White House administration of Donald Trump contemplated testing nuclear weapons which has not been confirmed. It is a known fact that China and Russia are already testing nuclear weapons.

Despite all this, the demand for Safe haven assets remains virtually unchanged. Gold prices remain subdued and safe haven currencies such as the JPY and CHF remain stable. This may be due to long weekends in the USA and Britain so on Tuesday there may be a surge in trading activity.

And now let's move on to the published report for changes in the business environment, as well as assessing the current situation and economic expectations from Germany. The data came in mixed and the current economic situation turned out to be worse than analysts’ expectations.

As a result, the activity of EUR buyers remains restrained. At the same time, a marked improvement in economic expectations eased the pressure on the EUR/USD currency pair. Despite this buying activity for this currency pair remains in the risk zone, until the pair returns above the technical resistance level of 1.0910.

Now let's move on to the black gold market. After a short-term, but rather deep correction, the oil price has bounced back. There are two reasons to be optimistic, and we have already discussed them several times. The first is the reduction of quarantine restriction measures, which leads to an increase in demand for oil and oil products and caused a decrease in US oil reserves.

The second, but just as important factor is the OPEC+ agreement for a cut in production. As a result, we are seeing a moderate increase in oil prices. To break through the strong technical area of resistance of $35–$36 per barrel, an additional and sufficiently strong bullish fundamental factor is needed such as an easing of lockdown measures in the USA regarding the coronavirus which will increase demand as the US is the world’s biggest consumer of oil.

The above review is not a direct guide to trading, and can only be classed as a recommendation.
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Economic calendar for the week

Trump accuses China of all mortal sins. The world continues to drop quarantine bonds, and in Japan the emergency mode is being canceled and the liquidity gun is being charged.
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Weekly calendar:
05/25/2020, Monday
- Non-working day in the USA;
- Non-working day in the UK.
05/27/2020, Wednesday
- The European Commission will publish a proposal for an anti-crisis fund for 500 billion euros;
- Speech by ECB Chairman Christine Lagarde.
05/28/2020, Thursday
- US #GDP for the first quarter;
- US crude oil reserves.
05/29/2020, Friday
- European Union #inflation. Consumer Price Index (CPI) for May.
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Global oil demand has yet to peak, says IEA head

During the press conference, the head of the International Energy Agency (IEA) gave a very encouraging comment on the recovery of the oil market:
- “Low oil prices and a gradual economic recovery will lead to the fact that the demand for oil will not only return to the pre-crisis level, but also exceed it.”
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The global level of oil demand has not yet reached a peak, and we see that prices are steadily rising. On the one hand, Saudi Arabia stimulates this process, on the other hand, a wave of bankruptcies of companies producing shale oil has begun in the USA:
- The Financial Times reported that 17 shale oil companies have already begun bankruptcy proceedings this year.
- According to Baker Hughes Co, more than two-thirds of the total number of oil rigs in the United States has been stopped since mid-March. The number of operating towers has fallen to its lowest level since July 2009. All this only confirms that production in the USA will soon fall, even if companies re-launch existing wells earlier than expected.
- According to the Commodity Futures Trading Commission (CFTC), speculators have increased the volume of net long positions on WTI American light oil for the week ending May 19.
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EU Antivirus Fund

The path to the euro's recovery is likely to be bumpy. Four European Union countries already nicknamed the "mean four" in the media are to blame. They categorically refused to support the plan of Berlin and Paris to create a fund to help countries that were most affected by the coronavirus.
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Austria, the Netherlands, Denmark and Sweden decided to openly confront the difficult times of the pandemic because for the generosity of France and the Federal Republic of Germany they will have to pay first of all. However, in the current situation, the regulator (ECB) has no particular choice. And an antivirus fund will be established soon.
We believe that it's institution will give rise to signs of a recovery in the global and European economies, which in the end will create an opportunity for levels of the #EURUSD pair above 1.10.
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To preserve the chances of survival, Europe must prove that it is solidary and capable. On Wednesday, various options for supporting the economy will be considered. So tomorrow is a responsible trading day in all currencies associated with the Euro.
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Market Watch
Discovering the vaccine


One of the main topics in the past few weeks remains a phased plan for most countries to exit the quarantine measures. But as we can see now, business activity is still very weak. Nevertheless, investors are optimistic, because a number of large companies have announced some positive results regarding vaccine testing. As a result, the US stock market has returned into positive territory, and we are also seeing a general strengthening of risky currencies such as AUD and NZD.

Let me remind you that yesterday the US published consumer confidence figures, which, unfortunately, came in under expectations, thereby once again confirming that the recovery process will take a lot of time. As a result, we observed a moderate weakening of the USD along with most currencies.

I also draw your attention to the escalation of the conflict between the United States and China. Protests in Hong Kong reduce investor interest in this financial Hub which in turn contributes to the flow of capital to the United States, thereby supporting the US stock market.

Despite all this, the risk of the second phase of the crisis remains elevated, as indicated by the demand for gold, which is still trading above the psychological level of $1,700 per ounce.

And now we turn to the comments from the head of the ECB. She stated that the “soft” scenario of the ECB is now outdated. The economic downturn is now seen somewhere between the “medium” and the “serious” scenario. The point is that, according to the latest results for this year, the economy of the currency block will shrink from 8 to 12% but even so the market reacted very calmly to this statement. The Euro currency pairs trading volatility remained within the average indicators, indicating that traders understand this and have taken this into account.

Also, Christina Lagarde said that after the pandemic there will be no new debt crisis, thereby providing moderate support for EUR.

I will complete today's review with the “black gold” market. The price of American grade WTI returned to the technical resistance level at $34.5 per barrel. Further growth will require a strong bullish fundamental factor. Therefore, there is a risk of a moderate decline in oil prices.

The above review is not a direct guide to trading, and can only be classed as a recommendation.
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Repair and Prepare: EU unveils 750 bln euro plan for coronavirus recovery

On Wednesday the European Commission announced an anti-crisis plan, under which it will pay the EU countries €750 billion (instead of €500 billion) in the form of grants and loans.
Most of the money will go to Italy and Spain, as the countries most affected by the pandemic. Together, these 2 countries will receive grants and loans in the amount of €313 billion.
Altogether, this European recovery plan will provide 1.85 trillion euros to help launch the economy and ensure further development of Europe.
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#EURUSD reacted with growth to such a statement and reached our previously announced target at 1.10. Against the background of a wider volume of incentives (750 billion instead of 500 billion), further growth of #EURUSD is quite natural.
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Swiss Bank sells off CHF

Yesterday, the head of the Swiss National Bank (SNB), Thomas Jordan, spoke about the state of the monetary policy in Switzerland - the main message is that now it is time to more actively regulate the region's monetary policy. This is primarily due to the fact that against the background of lower rates and negative returns worldwide, the deposit rate of 0.75% and even in such a reliable currency as CHF provokes an increase in the national currency.
An increase in the value of the franc is detrimental to the entire economy, and especially to Swiss exporters.
The immediate measures voiced by the head of the SNB are:
- Key rate reduction at the next meeting;
- Balance expansion (i.e. there will be more Swiss francs).
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We are waiting for sharp pulses up on these drivers.
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Brexit: deadlock again

Recently the media reported that British Prime Minister Boris Johnson is planning to fly to Brussels in the second half of June. However, there are no special changes in the exit procedure as of today. Both sides cannot agree among themselves and continue to pull a strap.
It is unlikely that the situation will radically change in the near future. It feels like the British, under the pretext of total quarantine, decided to delay this event even further.
The statement by the Central Bank manager of England, Andrew Bailey, adds even more uncertainty: “The key rate of England could go down and this issue was relevant earlier. However, now there is no particular sense in this”.
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We believe that political factors can be completely discounted and not taken into account. And here is the rhetoric to not reduce the key rate to use as the key driver of growth #GBPUSD all June.
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Chinese gambit: US imposes sanctions on China

Washington blacklisted 33 Chinese companies, almost all specializing in computer technology and software. The pretext for these sanctions was the "oppression of the Uyghurs" in the country. However, the most likely reason is that Beijing violated the Hong Kong transfer agreement. I think from this and the next round of confrontation between the United States and China will begin after a six-month break.
It must be understood that this is not a one-goal game - the People’s Bank of China is slowly but surely devaluing the yuan, the rate of which has already reached its minimum since the 2008 crisis. For the American economy it is very painful, trade with the region is becoming unprofitable.
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America needs a weak dollar like air and they are doing everything possible to achieve this goal. In particular, today Donald Trump announced the holding of a press conference on China. We are waiting for ardent statements about "genocide" and other flashy phrases in the best traditions of Donald.
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Market Watch
Canadian GDP


The world economy is on the verge of collapse with most countries showing record declines, but the situation in the stock markets remains relatively stable. Oil prices are recovering despite the unexpected growth in stocks.

Let me remind you that yesterday the US Department of Energy recorded an increase in oil reserves of almost 8 million barrels, while analysts predicted a decrease of 2.5 million which means the forecast was missed by more than 10 million barrels. In any case the price of WTI crude oil continued to rise. All this indicates that traders and investors are extremely optimistic about the near future.

The expectation of a rapid recovery in the global economy is one of the key bull drivers for the black gold market. At the same time, it is already evident that the reduction in oil production in the framework of the OPEC+ deal, which entered into force on May 1, is not able to fully compensate for the decrease in physical demand for oil. As a result, the risk of a short-term decline in oil prices remains elevated.

I also draw your attention to the published report on inflation figures in the eurozone which came in as analysts had expected and so the market remained quiet. Therefore, only a weakening of the USD can provide the necessary support to the EUR/USD currency pair to reach the target level of 1.1145.

Now let's move on to the upcoming publication of GDP in Canada. This release is very important, as even rising oil prices can’t provide significant CAD support. Let me remind you that economists expect a decrease in GDP by 10% in March which is a strong bearish factor for CAD. Therefore, if the GDP figures come in below expectations the CAD may come under pressure at the time of release.

And we will complete today's review with an analysis of a transaction for the purchase of a EUR/USD currency pair in the amount of 2 lots from the technical support level of 1.1000. Let me remind you that this level served as a resistance for a long time. The Take Profit order was set at the next technical resistance level of 1.1075.The Stop Loss order at 1.0975. The profit on this transaction amounted to $1,500, which amounted to three times the risk.

The above review is not a direct guide to trading, and can only be classed as a recommendation.
========
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