While Gemany seeks an emergency fiscal stimulus of EUR 350 billion, White House Economic Adviser Larry Kudlow said that the economic stimulus package under negotiation in the US will total more than $2 trillion (tln).

His comments came ahead of the start of the negotiations on the coronavirus relief response. The said amount equates to about 10% of the US GDP.

Meanwhile, another White House official later said the 2 tln number included the impact of Fed actions, the package Kudlow is referring to is around $1.5 tln. 

On Friday, Illinois joined New York and New Jersey with the lockdowns. Illinois announced 163 new cases and stay-at-home order for Saturday.

  • S&P500 Price Analysis: US stock index grinds down further, hits lowest since February 2017

Citing unnamed government sources on Saturday, Reuters reported that the German Finance Minister Olaf Scholz reportedly said the debt ceiling will be raised to include a supplementary government budget of EUR156 billion (bln).

The sources said that the government’s stimulus package will include EUR100 bln for economic stability fund, EUR 100 bln in credit to the development bank, KFW, for loans to businesses.

Further, there will be EUR400bn in loan guarantees, totaling up the package toEUR750 bln.

With the new stimulus package, Germany will defy its fiscal rulebook, as the government seeks to support and stabilize the market in fighting the coronavirus pandemic.

EUR/USD reaction

The shared currency could be offered some reprieve by the fiscal stimulus measures likely to be announced, reviving the recovery in EUR/USD from the lowest levels since April 2017 reached on Friday at 1.0638.

Meanwhile, the greenback could meet further supply across its main competitors, as the Fed continues with its operation to ensure enough liquidity in the system. The funding stress in the market sent the US dollar index to over three-year highs of 102.99 last week.

In a surprise move late Friday, the Mexican central bank (Banxico) delivered an emergency rate cut of 50bps to 6.50% amid risks of recession fuelled by the recent oil-price collapse and coronavirus outbreak.

The decision was announced in an unscheduled meeting that took placed for the first time in four years.

Summary of the statement

“Global and domestic financial markets have been subject to high volatility over the last weeks due to the uncertainty regarding the impact of COVID-19 on world economic activity, and to the recent fall in international oil prices.”

“In this context, foreign exchange and fixed income markets in Mexico have undergone significant adjustments, lower liquidity, and a deterioration of trading conditions.”

USD/MXN eased-off record highs

On the emergency rate cut announcement, the Mexican peso reversed slightly from a record low of 24.565 reached against the US dollar. The USD/MXN pair still settled the week close to the all time high, up 10% on the week.

The renewed weakness in oil prices triggered the latest declines in the Mexican peso.

  • USD/MXN back above 24.00, up 10% over the week
  • S&P500 is resuming down after a few days of consolidation.
  • S&P500 is trading in 37-month lows as coronavirus crisis is taking its toll.
  • The level to beat for bears is the 2300 support.
 

S&P500 daily chart

 
The market is resuming to the downside after a few days of consolidation. The S&P500 is now in a bear market as it dropped more than 20% from the recent record high while trading in 37-month lows. The drop below the 2300 level can lead to more declines towards the 2200 and 2000 price levels in the medium term. The 2400, 2500 and 2600 price levels should act as resistance. 
  
 

Additional key levels 

 

  • XAU/USD is in consolidation mode after suffering its worst weekly decline since 1983 the week before. 
  • Sideways price action can be expected in the short term. 
 

XAU/USD weekly chart

 
Last week, gold registered the worst weekly decline since 1983, erasing the early 2020 spike up while now challenging the 50 WMA (weekly simple moving average) on the weekly chart. XAU/USD keeps consolidating losses near $1500 per troy ounce.
 

XAU/USD four-hour chart

 
A consolidation is taking place following the selloff as the metal is trading well below its main SMAs suggesting an overall bearish momentum in the medium term. The metal remains vulnerable to the downside to the1488, 1477 and 1460 levels which bulls might attempt to defend. On the flip side, bullish attempts could lose steam near 1505, 1520 and 1540 price levels. 
 
 
Resistance: 1505, 1520, 1540
Support: 1488, 1477, 1460
 

Additional key levels

 

Analysts at MUFG Bank, still hold the idea that the pound will drop further against the Japanese yen. They have a limit target for GBP/JPY at 127.00. 

Key Quotes:

“We still favour a short GBP/JPY trade idea to reflect building downside risk for the global economy from the broadening shutdowns of major economies and sharp tightening of financial conditions. Similar to during the Global financial Crisis, the GBP has started to weaken sharply alongside other high beta currencies.”

“London’s role as a global financial centre and the UK’s sizeable current account deficit eaves it vulnerable to global financial market instability. The BoE has also been aggressively easing policy undermining support for the pound. It has resulted in the GBP becoming more deeply undervalued but it can still become even cheaper in a crisis.”

“The low yielding JPY should continue to outperform. While looking at USD/JPY gives the impression that the yen is performing poorly, it remains close to unchanged versus the dollar since the COVID-19 crisis began. So it’s been as good as the dollar in this crisis.”

“After recent JPY gains, we have lowered the S/L and target to 133.00 and 127.00 respectively.”