Market Cycles : An Interview with Andrew Pancholi 

Can you tell us about how you initially became interested in the world of cycles?

As a student of economics I was introduced when the Kondratiev wave and the concept of 60 year cycles was brought up. I went on to discover other cycles and noticed that events were recurring at regular intervals. I looked at things like World War I taking place between 1914-1918 and going back 100 years and seeing the Battle of Waterloo (1815).

Many religious and philosophical texts allude to repetition in cycles, you can see it in both Hinduism and Christianity. A clear example is in the Bible, Ecclesiastes 1:9: “The thing that hath been, it is that which shall be; and that which is done is that which shall be done: and there is no new thing under the sun.”

As you look at every culture you can see that everybody follows cycles, either openly or discretely. People are not necessarily aware of them, but we have a birthday every year and of course we also have the four seasons of the year; the planting season of spring, growing season of summer, autumn harvest and then winter where everything resets for the next rotation.

When we look at markets we see similar patterns unfold in Elliott Wave, where we get the five waves up and three waves down and this really piqued my interest. Many people are familiar with the decennial cycle that was first written about in 1939 by Edgar Lawrence Smith, in his book Tides in the Affairs of Men. He basically identified that typically years ending in 5 were very bullish, years ending in 7 tended to have pullbacks, years ending in 0 and 1 tended to be bearish and that’s pretty much what we’ve been seeing.

Just as we look at the cycles from the 10 year cycle, we find that there’s a 100 year cycle – this is a fractal pattern of the 10 year cycle. 100 years on from the 1907 Rich Man’s Panic we saw the Global Financial Crisis of 2007/2008. If you were to go back to 1907 and back another 100 years, we can see the Embargo Act of 1807, which precipitated a huge crash. So basically we can see that these cycles are there and that’s really how I got into it – seeing that there is a degree of predictive capability, which is quite obvious, but few people choose to see or recognize it.

Can you describe the proprietary cycles analysis software that is used to generate the Market Timing Report?

As I continued the research of longer term cycles, it seemed obvious that there were some other smaller cycles at play. The more I looked into this, the more confusing it became so I stripped them down into different layers. The idea is that if you have a long term cycle and it coincides with a medium term cycle and also a short term or a daily cycle, then where all those three align is where we get big events coming together. So we programmed all these short term and medium term cycles in, gave them a weighting and created histograms. These histograms are predictive.

We can anticipate some of the monthly and weekly cycles several years into the future. This can be up to 10 years for some of the monthly cycles and certainly five years for the weekly cycles. This gives us an idea of where a market is likely to change trend, they are like momentum points or energy points. That was the purpose of developing the software because these calculations were far too complex to carry out by hand.

What role does seasonality and Commitments of Traders data play when combined with cycles analysis?

What we found was that we can generate tipping points in markets and 90% of the time we’d see a reversal. For me it was fairly obvious that as the market unfolded into the forthcoming time point there would be a reversal of trend. However, every now and then we saw an acceleration so we thought about how else we can get the odds on our side. What else can give us clues? Seasonality is a fairly obvious one. Most people will have heard sayings like sell in May and go away for the stock market or the Santa Claus rally.

Equally, gold has a very strong seasonal profile. In September it is generally very bullish. The more we look across different commodities, especially things that grow out of the ground we can see that they have very clear patterns because they are directly related to the seasonal growing patterns. Using seasonality helps us get the odds on our side.

Then, with the Commitment of Traders (CoT) data we can see what the smart money is doing and what the dumb money is doing. CoT data can often get to extremes, but we can be at those extremes for several weeks or even months. We know that the market is about to turn up or turn down, but we’re not sure when. The window can often be several weeks. This is where our histograms are incredibly powerful and very important because they can help accurately time things, certainly down to a week and often down to a day.

You studied extensively the work of WD Gann, Edward Dewey and Ralph Nelson Elliott. Who among these pioneers in cycles, economics and market analysis had the greatest influence on you?

Without any doubt, WD Gann is the man that has influenced me the most. Probably infuriatingly, because he writes in a very veiled way and doesn’t reveal things very clearly! You do have to be a bit of a detective. But equally it was clear that he was able to forecast future turning points as well as future price levels and he had a tremendous understanding of these things. Dewey’s work is phenomenal as too is Elliott’s, but I think Gann was probably the most important. While a lot of Gann’s life remains a mystery, it is clear that he had made the money that he had alleged to have made. He did have a wonderful mini airliner as well as a fantastic steamship yacht, that was crewed by several people. He had the trappings of a very wealthy man. His reports were very accurate. He certainly had something, I’m not sure if he had it all.

You assisted in cataloging the official WD Gann material. Can you share any interesting insights into the mysterious man that you may have discovered during the process?

Most people know that he was a meticulous curator of market material. He hand wrote and updated every single chart for every contract across a huge range of commodities and stocks. He was looking at sunspot cycles. We found a very rare chart on sunspot cycles that hasn’t gone into the public domain. There was a lot of information there on weather and clearly he would use weather forecasting to have a view on crops. Those were some of the more interesting things. He was a great student of the esoteric as well. He was involved in Freemasonry, although he was demitted from the lodge at one point.

“Andrew is prescient. I follow him.”

– Bradley Rotter, Venture Capitalist, Investor and Entrepreneur.

Which major events have you been able to accurately predict using advanced cycles analysis?

The China/India crisis is a recent example. I wrote about the polarization of America four years ago and again in the March edition of the Market Timing Report (MTR). I forecast the 2020 equity market top – we gave the date of the high in the February 2020 MTR. This was based on the 90 year cycle from 1929 and also the 180 year cycle from the 1837-42 crash and depression – this was the story of the Zero Hour book written along with Harry Dent. I was also talking about it all through the 2019 reports.

Numerous other accurate predictions include the gold market this year, the 2007/8 global financial crisis – an easy one based on the 100 year cycle from the 1907 Rich Man’s Panic – and the commodity bull runs of 2008 and 2010. The 2010 commodity bull run was 90 years on from the 1920 bull run, another 90 year cycle there. I forecast the end of the tech boom in 2000-2001, based on a 72 year cycle. A lot of the geopolitical predictions have been accurate, notably events involving Iran and South Korea. We are fortunate to have been able to create a system that does give a high degree of predictive capability.

You recently stated that we are at ‘the most critical financial time period of our generation, if not this century’ and that multiple cycles such as stock market cycles and virus cycles are now coming together. Do you think that the recent recovery in the stock market may be short lived?

I think it is the most critical time, because you very rarely see so many big different cycles coming together at the same time. Based on the previous 90 year cycles and their half cycles – which include the 45 year cycle that takes us straight back to the OPEC oil crisis in 1974, I do think we are going to get a further downturn. We’re certainly going to get a huge economic downturn. I think it’s only just starting.

The American markets have been boosted by fiscal policy but if we look at European and other markets they haven’t made anywhere near as big a recovery as those of the United States. I also believe that the way that America is intervening creates what’s called a ‘translation of the cycle’ – which moves the inevitable cycle further down the road. I do expect that we can see more to the downside. I also do think that there are going to be some curveballs in the form of global conflict coming up.

What is your outlook for gold?

I did have a significant turning point in April and we haven’t taken the April highs out yet. In the longer term I’m bullish on gold but in the shorter term I’m expecting a pullback. Our system is highlighting a significant turn point for the third week of July 2020 and within this frame we have daily cycles for the 22nd July. I am looking for a reversal then.

Can you take us deeper into your analysis of war cycles?

There are several cycles that are coming together over the next year or two. If we take the shorter term cycles, I’ve found that years ending in 1 typically tie up with conflicts. Let’s start out with 2001, which is a very clear anchor point. We’ve got 9/11 taking place on September the 11th 2001. If we head back 10 years before that to 1991, that’s when Operation Desert Storm was taking place in response to Saddam’s invasion of Kuwait in August 1990.

Go back to 1981 and there were various things going on, notably Britain had become involved in the Falklands Crisis, which was a significant international war. America had interventions going on. Go back to 1971 and again various things are taking place. American involvement in Vietnam escalates and we see various degrees of instability in the Middle East. Go back to 1961, and we see the Bay of Pigs and the heightening of the Cold War. Go back to 1951, and we see that America is involved in the Korean War. I’m just going to take it one more cycle back to 1941, the 7th of December 1941, which sees Pearl Harbour attacked by the Japanese – so you can see how this carries on.

What’s interesting is that the 60 year cycle which is the equivalent of the Kondratiev wave, is the interval between December 1941 and September 2001 – the only two times that America’s been attacked on its own soil. In between this 60 year cycle, we’ve got these increments of 10 years. As we started in 2001 let’s update this sequence. In 2011, Britain and America were involved in Libya and hunted down Gaddafi. So you can see how this ties up with the possibility of war coming in 2021.

We’ve seen an oil crisis and the price of oil collapsing earlier this year. Geopolitical tensions may escalate very shortly, over the next few months. We know that creating a war can stimulate economies and it can also divert attention away from domestic problems – and let’s face it, America has plenty of those at the moment. There is another cycle we haven’t talked about that I refer to as the Revolutionary Cycle, which is around about 82 to 84 years. 2021 will see an 82 year cycle from 1939, the outbreak of the Second World War. So I anticipate that there will be some significant conflict breaking out within the next few months to the next year and a half and I think this is going to be a game changer for the world economies.

You have talked about the 144 year cycle (1720 South Sea Bubble – 1864 Civil War Cotton boom – 2008 commodity boom). Is there any significance that 144 is a number in the Fibonacci sequence?

I’m sure there is some significance because I never say anything is coincidence any more – there is some co-incidence but not by randomness. More importantly, 144 is 8 cycles of 18 and 18 year cycles are very prevalent, they constitute a generational influence. If we go back 18 years from the outbreak of Covid-19, we find that we had SARS breaking out.

We also had 9/11 and everybody was living in fear and, of course, airline stocks were affected in both of these cases. In fact the virus cycles do follow 18 year cycles as well . 144 is 8 cycles of 18 – I’m sure there is some importance of the Fibonacci sequence there. In terms of the 144 year cycle from the South Sea Bubble to the commodity boom of the Civil War, they are linear, 144 years each time. 144 is also 12×12 so we can reference the Bible with the 12 tribes of Israel there as well. When Gann said he learned things from the Bible, I’m pretty sure this is something he was alluding to – because he only ever alluded – he never told us directly.

The importance of the 50% level was recognized by Gann in his work. In my own trading experience, it was often uncanny how price would reverse precisely at 50% retracement levels. Can you elaborate at all on the significance of this?

If only I knew why that happens – I certainly agree with you. It’s obviously a tipping point or a pivotal point. If we delve deeper into this, the 50% point is the distinction between as above so below in my opinion.

What books or study material that you can recommend for beginners?

As a board member of The Foundation for the Study of Cycles we’ve now made the archives available very cheaply online and there’s a lot of good information there. So as well as supporting the foundation as a non-profit 501(c)(3), all the back issues of the cycles magazine are now available online to read and study. They explain many of the different cycles, not just in financial markets but also in weather patterns, earthquakes and all sorts of phenomena.

Thank you very much Andrew for participating in this interview.

Visit Andrew Pancholi’s websites:

Markettimingreport.com A monthly publication that provides traders and investors with time windows of when markets are likely to reverse or change trend.

Andrewpancholi.com Andrew’s personal website.

Find Andrew on Twitter: @AndrewPancholi

By Dan Blystone, Scandinavian Capital Markets

Risk Assets Rally Amid Pandemic Recovery Optimism

Positive coronavirus vaccine news and indications that global economies are slowly reopening helped to buoy investor mood.

American biotech company Novavax Inc. (NVAX) announced on Monday that it has started the first human trials of its experimental coronavirus vaccine. Results of the clinical trial are anticipated in July 2020.

Novavax CEO Stanley C. Erck stated: “Administering our vaccine in the first participants of this clinical trial is a significant achievement, bringing us one step closer toward addressing the fundamental need for a vaccine in the fight against the global Covid‑19 pandemic”. Last week, biotech Moderna announced that its experimental vaccine appears to be safe and able to stimulate an immune response against COVID-19.

Data from Johns Hopkins University indicates that coronavirus COVID-19 global cases have risen to 5,499,535 with 346,326 fatalities. In the hard hit United States over 98,000 people have lost their lives due to the coronavirus and more than 1.6 million have been infected. Nevertheless, all 50 states are beginning to reopen in some way.

Meanwhile, US/China tensions simmer and continue to dampen risk appetite. White House national security adviser Robert O’Brien warned on Sunday that the United States will likely sanction China if plans for new national security laws in Hong Kong are carried out.

Speaking on NBC’s Meet the Press, O’Brien stated: “It looks like, with this national security law, they’re going to basically take over Hong Kong and if they do … Secretary (of State Mike) Pompeo will likely be unable to certify that Hong Kong maintains a high degree of autonomy and if that happens there will be sanctions that will be imposed on Hong Kong and China.”

Looking at the AUD/USD daily chart we can see that the pair has reached its highest levels since March 9th. Resistance sits overhead at the 200 period simple moving average (SMA), while rising trendline support lies beneath.

For a look at all of today’s economic events, check out our economic calendar.

Dan Blystone, Scandinavian Capital Markets

Dollar Slips Amid Risk-On Mood

The greenback had rallied sharply since March 9th as fears spiked over the economic consequences of lockdowns across the globe. However, signs of a slowdown in the spread of coronavirus prompted flows into risk-sensitive currencies such as the Australian dollar, while safe havens such as gold and the US dollar traded lower.

Data from Johns Hopkins University shows that coronavirus COVID-19 global cases have risen to 1,350,841, with 74,870 fatalities. Hopes were lifted after hard hit Italy reported its lowest daily COVID-19 death toll for more than two weeks on Sunday. Italy’s ISS national health institute director Silvio Brusaferro told reporters, “The curve has started its descent and the number of deaths has started to drop”. He added “If these data are confirmed (in the coming days), we will have to start thinking about phase two”, suggesting that authorities are beginning to think about easing lockdowns.

Meanwhile, the United Kingdom is on edge after Boris Johnson spent the night in intensive care at a central London hospital after his coronavirus symptoms worsened. Numerous world leaders expressed their well wishes, with French President Emmanuel Macron tweeting Monday: “I send all my support to Boris Johnson, to his family and to the British people at this difficult moment. I wish him a speedy recovery at this testing time.”

Global equity markets traded higher in early trading on Tuesday, lifted by signs of the pandemic slowing and also by rising hope that the world’s biggest producers of crude oil will agree to cut output. The euro snapped a six day losing streak against the dollar, rallying over 100 pips as confidence over Eurozone prospects increased. Looking at the EUR/USD daily chart we can see resistance overhead at the 50 period SMA currently at 1.0973, while support lies below in the area of 1.0776.

Dan Blystone, Scandinavian Capital Markets

Death Cross Forming in GBP/USD

GBP/USD slipped in early trading on Friday, after UK Final Services PMI missed analyst expectations, coming in at 34.5. The pound fell sharply against the dollar from March 10th as investors sought the greenback for its liquidity and safe haven status amid the coronavirus pandemic. Sterling rebounded on March 20th, after the Federal Reserve had cut interest rates to a range of 0.00% to 0.25% and restarted quantitative easing with the purchase of $500 billion in treasuries and $200 billion in mortgage-backed securities on March 15th.

The market remains focused on the relentless coronavirus and its economic impact, with risk-off sentiment prevailing. According to data from Johns Hopkins University, coronavirus COVID-19 global cases have risen to 1,018,948 with 53,211 fatalities.

On Thursday, the US jobless claims figure came in at 6.6 million for the week ending March 28, missing analyst expectations of 3.5 million and rising from 3.3 million in the prior week. Nobel laureate Paul Krugman did not mince his words in a New York Times opinion piece: “Over a normal two-week period we’d expect around half a million U.S. workers to file claims for unemployment insurance. Over the past two weeks we’ve seen almost 10 million filings. We’re facing an incredible economic catastrophe.”

The US dollar would normally be pressured by such negative news on the domestic economy. However, in these unprecedented times investors again sought the greenback for its haven appeal. The market now looks to Friday’s US employment report. Analysts are expecting a drop of just 100K in nonfarm payrolls, but this is because the data only runs up to March 14th.

Looking at the GBP/USD daily chart we can see that a bearish ‘death cross’ (50 period simple moving average crossing below the 200 period moving average) is poised to form. The 200 period SMA represents resistance above, currently at 1.2650. Potential support lies below at the 38% retracement level of 1.2066 and the 50% retracement level of 1.1940.

Dan Blystone, Scandinavian Capital Markets

 

Comdolls Reach Higher Amid Stimulus Hopes

The ‘comdolls’ were lifted as fresh stimulus hopes boosted risk appetite and global equity markets rebounded.

After US lawmakers reached a $2 trillion aid deal on Tuesday, the Dow rallied by 11%, marking its largest gain since 1933. The massive relief package aims to provide financial support to businesses, hospitals and American families left in need as a result of the coronavirus pandemic.

However, upcoming economic data is expected to reflect the profound damage to the economy caused by the fallout from the coronavirus. Federal Reserve Bank of St. Louis President James Bullard told Bloomberg on Sunday that unemployment could rise as high as 30% and gross domestic product could plunge by 50%.

According to data from Johns Hopkins University, at the time of this writing Coronavirus COVID-19 global cases have risen to 435,006, with 19,625 fatalities. On Tuesday, the death toll in Italy from the pandemic increased by 743 in one day to 6,820. Meanwhile, WHO spokeswoman Margaret Harris told reporters that the US has the “potential” to overtake Europe as the new epicenter of the coronavirus.

China is the largest trading partner for both Australia and New Zealand and consequently their currencies have been particularly hard hit during the crisis. The Canadian dollar, which has a close positive correlation with crude oil, has also suffered due to the oil price war between Saudi Arabia and Russia.

These three currencies (AUD, NZD and CAD) are known as ‘comdolls’ because their respective economies are highly dependent on exporting commodities. They are viewed as risk sensitive currencies and tend to perform better during periods of stability and confidence.

Looking at the AUD/USD daily chart we can see that price nearly reached the 50% retracement of the down move that began on March 9th. The recent low of 0.5503 marks the lowest the pair has been since 2002.

Dan Blystone, Scandinavian Capital Markets

Silver Surges Despite Death Cross Pattern

The move came after the US Federal Reserve effectively pledged to do whatever it takes to prop up the US economy. The unprecedented Fed action slowed down the scramble for cash that has been driven by panic and the liquidation of positions due to margin calls.

The historic new program from the Fed includes a commitment to unlimited bond purchases, billions in corporate loans backstopped and the extension of credit to small and medium-sized businesses.

The Fed stated: “The coronavirus pandemic is causing tremendous hardship across the United States and around the world” adding that “aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes to promote a swift recovery once the disruptions abate.”

The Fed news was not sufficient to lead to gains in US stock indices on Monday, but Asian and European markets are trading higher early on Tuesday.

According to data from Johns Hopkins University, at the time of this writing the total number of confirmed Coronavirus COVID-19 global cases has risen to 383,944 and 16,595 deaths.

The World Health Organization (WHO) has warned that the coronavirus disease pandemic is accelerating. At a press conference on Monday, WHO Director-General Tedros Adhanom Ghebreyesus said: “It took 67 days from the first reported case to reach 100,000 cases, 11 days for second 100,000 cases, and just four days for the third 100,000 cases.”

Curiously, a bearish death cross pattern (50 period MA crossing below the 200 period MA) has formed on the daily chart after silver bounced from the lows made on March 18th. Support lies at the prior low of 11.60, while the 38% Fibonacci retracement of the recent swing at 14.41 represents potential resistance above. Normally safe havens in times of crisis, both gold and silver sold off during the financial crisis of 2008, before entering multi-year uptrends.

Dan Blystone, Scandinavian Capital Markets

Coronavirus Chronicle: How the Pandemic Impacted the Forex Market

Markets have been roiled amid record volatility, with the VIX exceeding the levels during the financial crisis of 2008. In this article we’ll explore how the pandemic has affected the global foreign exchange market so far.

To understand how the news has influenced the market it’s important to review the major coronavirus headlines that emerged since the beginning of the year.

January 11th: Wuhan health authorities reported the first known death caused by the virus.

January 20th: The first confirmed cases of the coronavirus outside mainland China in Japan, South Korea and Thailand are reported.

January 23rd: Wuhan is cut off by Chinese authorities as all air, road and train links out of the city are suspended.

January 26th: China’s health commission minister warns that Coronavirus’s ability to spread is getting stronger.

January 30th: The World Health Organization (WHO) declares a global health emergency, as the outbreak continues to spread outside China.

February 7th: Li Wenliang, a Chinese doctor who tried to warn others about the deadly outbreak, dies from the coronavirus.

February 9th: The death toll in China surpasses the number killed worldwide by the 2002-3 SARS epidemic.

February 13th: Death toll spikes higher in China’s Hubei province with 242 fatalities while new infections rise by over 14,000.

February 14th: 80-year-old Chinese tourist dies in Paris, marking the first death from COVID-19 in Europe.

February 20th: Iran confirms three more coronavirus cases and authorities close schools in the city of Qom.

February 23rd: Coronavirus cases soar in Italy and strict emergency measures are introduced.

February 29th: The United States reports its first coronavirus death and President Trump announces travel restrictions.

March 11th: President Trump announces a restriction of travel from 26 European countries to the United States.

March 12th: WHO declares the novel coronavirus outbreak a pandemic.

March 13th: President Trump declares a national emergency.

March 16th: Dow records largest point drop in history.

EUR/USD

At the March 12th meeting, the European Central Bank (ECB) announced further stimulus to fight the economic impact of the coronavirus but disappointed markets by refraining from lowering interest rates.

ECB president Christine Lagarde was criticised after refusing to assume the ‘whatever it takes’ stance of her predecessor Mario Draghi. The greenback has been favoured by investors due to its status as the world’s most liquid currency and its safe haven appeal. This demand for dollars is reflected in the sharp recent losses in EUR/USD.

GBP/USD

On Wednesday, GBP/USD entered its seventh consecutive day of losses and crashed as low as $1.1757 – its weakest level since 1985. The drop began last Wednesday, when the Bank of England slashed the base interest rate to 0.25%. Fears over the economic impact of the coronavirus are driving the selloff, while other factors such as by the UK’s current account deficit and Brexit uncertainties also weigh on sterling.

AUD/USD

AUD/USD fell to 17-year lows on Wednesday as the probability of a recession in Australia rises and commodity prices fall. China is Australia’s largest trading partner and news relating to the Chinese economy has a major impact on the Australian dollar.

Since the Chinese renminbi is restricted to trading within a designated range, investors often use the Aussie dollar as a proxy for China. More broadly, the Australian dollar is viewed as a ‘risk currency’ that investors tend to avoid in periods of instability. Further negative news about the coronavirus will likely pressure the beleaguered Australian dollar, while signs of containing it will provide support.

USD/JPY

The Japanese yen is a leading financial safe haven, in part due to Japan’s status as the world’s largest creditor nation. Other safe haven assets include the Swiss franc, the US dollar and gold. Investors flocked to the yen as the severity of the coronavirus globally became apparent in late February. However, amid the recent savage selloff in equities the USD/JPY has since rebounded.

USD/CAD

USD/CAD reached its highest levels since January of 2016 in Wednesday trading. The risk sensitive Canadian dollar plunged as crude oil prices cratered to below $24 – reaching the lowest levels since 2002.

Oil prices suffered a historic collapse on March 9th, after Saudi Arabia pledged to aggressively boost production and cut prices, following Russia’s refusal to join an OPEC-led production cut.

The Loonie has a positive correlation with crude oil because Canada is one of the largest oil producing countries in the world. A global economic slowdown due to the coronavirus naturally impacts demand for crude oil, pressuring prices and in turn weighing on the Canadian dollar.

The Bottom Line

Global equities have fallen into a bear market. On Monday, the Dow Jones Industrial Average and S&P 500 posted their largest percentage drops since the October 1987 crash. As the level of anxiety in the market reaches a fever pitch, investors are currently flocking to the US dollar, despite a series of actions from the Federal Reserve that would normally weaken the currency.

By Dan Blystone, Scandinavian Capital Markets

Gold Spirals into 7th Day of Losses

Although gold typically benefits from its safe haven status in times of unrest, investors have been selling in order to meet margin calls and reduce their risk exposure by holding cash.

On Monday the Dow Jones Industrial Average plummeted by almost 3,000 points, marking its largest point drop in history. The selloff came on the heels of the Federal Reserve’s surprise move on Sunday to cut interest rates to near zero, the Fed’s second emergency rate cut in less than two weeks.

According to Johns Hopkins University, over 182,400 people have been infected by the coronavirus and over 7,100 have lost their lives. For the first time, the number of deaths outside China have now surpassed those inside. Multiple countries have announced emergency border closures, restricted movement and banned gatherings in an attempt to slow the spread of the pandemic.

The safe-haven Swiss franc and Japanese yen traded higher on Monday, while risk-sensitive currencies such as the Australian dollar, New Zealand dollar and Canadian dollar fell to multi-year lows. Bitcoin continued its plunge downward on Monday, further dispelling any notion of it serving as a safe haven.

US stock index futures pointed to a higher open on Tuesday after US President Donald Trump tweeted: “The United States will be powerfully supporting those industries, like Airlines and others, that are particularly affected by the Chinese Virus. We will be stronger than ever before!”

Looking at the gold monthly chart we can see that price fell to the 38% retracement level of the up move that began in December of 2015. Gold managed to close above the 200-period moving average on the daily chart on Monday, but a close below it on Tuesday would further energize the bears.

By Dan Blystone, Scandinavian Capital Markets

Gold Lifted Amid Skepticism Over US Economic Stimulus

Investors were unimpressed so far by a stimulus package proposed by US President Donald Trump to address the economic fallout from the rapidly spreading coronavirus outbreak.

On Tuesday, the White House and Congress negotiated measures to support the US economy. President Trump proposed a temporary elimination of payroll taxes that could cost nearly $700 billion.

Critics of the idea point out that payroll tax suspension would not help unemployed people and would not provide substantial relief for workers. On Tuesday, speaking at the White House during a meeting with insurance executives, Trump said the administration will provide assistance to cruise lines and airlines.

The CME Fedwatch tool is currently showing a 90.8% chance of a 75 basis point rate cut at the March 18th Federal Reserve meeting. Markets are also expecting an easing of monetary policy from the European Central Bank (ECB) at its meeting this Thursday. Earlier on Wednesday, the Bank of England (BOE) cut UK interest rates from 0.75% to 0.25% at an unscheduled meeting.

Data from Johns Hopkins University showed that as of Tuesday evening, there were at least 1,020 cases in the US. Earlier in March the university indicated that the number of coronavirus cases worldwide has passed 100,000. News on Monday that the entire country of Italy has been put on lockdown sent shockwaves through the markets. Reports on Wednesday indicate a worsening situation in Italy and Japan.

Looking at the gold daily chart we can see that the 50 period moving average formed support below. Bulls now eye the recent high of $1,703 reached on Monday, which marks the highest price level since December of 2012.

By Dan Blystone, Scandinavian Capital Markets

Aussie Extends Gains After Fed Rate Cut, Upbeat GDP

The Australian dollar rallied in early trading on Wednesday, after receiving a boost from the Federal Reserve decision to cut interest rates and Australia’s positive Q4 Gross Domestic Product (GDP) report. The rebound comes after falling last Friday to its lowest levels since March of 2009 against the US dollar.

The US dollar fell sharply against its major counterparts on Tuesday, after the Federal Reserve cut interest rates two weeks ahead of their March policy meeting. The cut of a half percentage point to a target range of 1.00% to 1.25% was announced after a meeting with finance ministers and central bankers of Group of Seven (G-7) countries.

The Fed statement was explicit in citing the economic danger of the coronavirus: “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate.”

Also on Tuesday, the Reserve Bank of Australia (RBA) cut interest rates to new record low of 0.5% to counter the impact of the coronavirus on the Australian economy. RBA governor Philip Lowe stated: “The global outbreak of the coronavirus is expected to delay progress in Australia towards full employment and the inflation target.”

On Wednesday, the Australian Bureau of Statistics reported that Australia’s economy grew by 0.5% in the December quarter and 2.2% over the past year. The figures beat analyst expectations of quarterly economic growth of 0.4% and annual growth of 2%, giving the Aussie a lift higher.

Looking at the AUD/USD chart we can see that price has entered a third day of gains, after sinking to the lowest levels in over a decade last week. During the outbreak of the coronavirus, the Australian dollar was particularly hard hit due to Australia’s close economic relations with China. Potential resistance in AUD/USD lies overhead at the 38% Fibonacci retracement level of 0.6661.

By Dan Blystone, Scandinavian Capital Markets

EUR/USD Rallies to Test 200-Day MA as Fed Rate Cut Expectations Rise

EUR/USD soared to its highest levels in over one month in Monday trading. The move came as part of an extended series of gains, after falling to multi-year lows on February 20th. The pair was lifted amid rising expectations of a rate cut from the Federal Reserve at the March 17-18 meeting.

The US stock market suffered heavy losses last week, as fears increased over the global economic impact of the coronavirus. On Friday, Federal Reserve Chair Jerome Powell addressed the issue and hinted at a rate cut, saying: “the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy.”

On Sunday, Goldman Sachs economists stated that the Fed will likely announce a 50 basis point cut at its March meeting, or possibly even earlier. The CME Fedwatch tool currently shows a 100% probability that the Fed will cut rates by 50 basis points at the meeting later this month.

Meanwhile, the European Central Bank (ECB) has limited room to cut rates. However, on Monday Euro zone money markets still priced in a 10 basis point rate cut at the April European Central Bank (ECB) meeting. On Thursday, ECB president Christine Lagarde told the Financial Times that policy makers are monitoring the coronavirus outbreak “very carefully” but said it was not yet viewed to be at a level where it would have a lasting impact on inflation.

Looking at the EUR/USD daily chart we can see that price rose to test the ‘line in the sand’ 200-period moving average. Bulls now eye the prior highs of 1.1173 which represent potential resistance above. Potential support lies below at 1.0991. Investors look ahead to Friday’s US employment report, where analysts expect the unemployment rate to hold steady at 3.6% and that 175K new jobs were created in February.

 

How the Coronavirus Impacted the Forex Market

The novel coronavirus (COVID-19 ) which emerged in December 2019 has now killed more than 2,100 people and infected more than 75,000 people. In this article we’ll explore how the epidemic has affected the global foreign exchange market so far.

To understand how the news influenced the market it’s important to review the major coronavirus headlines that emerged since the beginning of the year.

January 11th: Wuhan health authorities reported the first known death caused by the virus.

January 20th: The first confirmed cases of the coronavirus outside mainland China in Japan, South Korea and Thailand are reported.

January 23rd: Wuhan is cut off by Chinese authorities as all air, road and train links out of the city are suspended.

January 26th: China’s health commission minister warns that Coronavirus’s ability to spread is getting stronger.

January 30th: The World Health Organization (WHO) declares a global health emergency, as the outbreak continues to spread outside China.

February 7th: Li Wenliang, a Chinese doctor who tried to warn others about the deadly outbreak, dies from the coronavirus.

February 9th: The death toll in China surpasses the number killed worldwide by the 2002-3 SARS epidemic.

EUR/USD

EUR/USD has taken a beating in 2020 so far. The euro has been under pressure due to disappointing economic releases, most recently the German ZEW survey which showed a decrease in investor confidence. Meanwhile, the US dollar has been boosted by its safe haven appeal amid the coronavirus epidemic. The greenback has also been underpinned by positive US economic data, increasing the odds that the Federal Reserve will keep interest rates on hold. Ongoing negative news about the coronavirus and its impact on the global economy will likely weigh on the euro.

AUD/USD

China is Australia’s largest trading partner and news relating to the Chinese economy has a major impact on the Australian dollar. Since the Chinese renminbi is restricted to trading within a designated range, investors often use the Aussie dollar as a proxy for China. More broadly, the Australian dollar is viewed as a ‘risk currency’ that investors tend to avoid in periods of instability. Further negative news about the coronavirus will likely pressure the beleaguered Australian dollar, while signs of containing it will provide support.

USD/JPY

The Japanese yen is a leading financial safe haven, in part due to Japan’s status as the world’s largest creditor nation. Other safe haven assets include the Swiss franc, the US dollar and gold. We can see the yen strengthening against the dollar during the period when the most unsettling coronavirus headlines were being published. However, the dollar has since rebounded to make fresh highs against the yen, undermining the yen’s safe haven status. Investors have preferred gold over the yen as a safe haven due to Japan’s proximity to and dependence on China. Gold prices rallied this week to their highest levels since 2013. Elsewhere, Bitcoin rebounded sharply while the coronavirus spread and the case is building for it to be viewed as a legitimate safe haven asset alongside gold.

USD/CAD

The risk sensitive Canadian dollar weakened as fears mounted over the coronavirus and crude oil prices fell. However, oil prices rose last week as a slowdown in new coronavirus cases began to ease fears over its global economic impact and the Canadian dollar in turn received a boost from the uptick. The Loonie has a positive correlation with crude oil because Canada is one of the largest oil producing countries in the world.

The Bottom Line

A Reuters poll of economists predicted that China’s annual economic growth in the first quarter of 2020 will slow to 4.5% from 6.0% in the previous quarter, illustrating the drastic toll of the coronavirus. The knock-on effect globally was starkly visible earlier this week as Apple’s (AAPL) stock price fell sharply after cutting its quarterly revenue forecast due to the outbreak. Recent reports that the number of confirmed new cases in China appear to be slowing has inspired some optimism in the markets. However, experts have also warned that the crisis may have not yet reached its peak.

By Dan Blystone, Scandinavian Capital Markets

 

Gold Supported After Warning from WHO Chief

Dr. Tedros Adhanom Ghebreyesus warned on Sunday; ‘The detection of a small number of cases may indicate more widespread transmission in other countries; in short we may only be seeing the tip of the iceberg.’

He added: ‘In an evolving public health emergency, all countries must step up efforts to prepare for #2019nCoV’s possible arrival and do their utmost to contain it should it arrive. This means lab capacity for rapid diagnosis, contact tracing and other tools in the public health arsenal.’

The death toll from the epidemic has now reached over 900 people in China. Chinese health authorities said on Monday that they received reports of 3,062 new coronavirus cases and 97 deaths on Sunday. Recent cases were also reported in Japan, South Korea, Vietnam, Malaysia, the United Kingdom and Spain. Fatalities from the coronavirus in China have now exceeded those of the SARS epidemic, 17 years ago.

Gold is getting closer to the high of $1,611 it reached on January 8th, which was its highest level since 2013. Meanwhile, Bitcoin traded over the major psychological level of $10,000 for the first time since September of 2019 on Sunday and the safe haven Japanese Yen traded higher on Monday.

Investors now look to the Congressional testimony of Federal Reserve Chairman Jerome Powell, set to take place on Tuesday and Wednesday. A Federal Reserve report on Friday said that the coronavirus is a new risk to the U.S. outlook: “The recent emergence of the coronavirus could lead to disruptions in China that spill over to the rest of the global economy.”

Looking at the gold daily chart we can see that price is nearing the recent high of 1,593 while potential trendline support lies to the downside. With price trading above both the 50 and 200 period moving averages, gold bulls are on the front foot.

Aussie Powers Higher Amid Rising Risk Appetite

The two main forces behind the rebound have been the Reserve Bank of Australia (RBA) decision to leave rates on hold and waning fears over the Wuhan coronavirus.

At its first meeting of the year on Tuesday, the RBA kept interest rates unchanged at the record low of 0.75%. Despite the devastating Australian bushfires and the Wuhan coronavirus threat, the RBA kept its forecast for economic growth in 2020 at 2.75%.

In his statement, Governor Philip Lowe left the door open to rate cuts in 2020: “The Board will continue to monitor developments carefully, including in the labor market. It remains prepared to ease monetary policy further if needed to support sustainable growth in the economy.”

Meanwhile, risk-sensitive currencies such as the Australian dollar and the New Zealand dollar were lifted by news of medical progress in combating the coronavirus. Researchers at Zhejiang University reportedly found drugs to treat people afflicted with the virus. In addition, according to a report from Sky News, researchers at Imperial College London plan to begin testing a vaccine on animals as early as next week.

On Wednesday, China’s Health Commission indicated that 65 people died on Tuesday and that 3,887 more people were infected by the coronavirus. The World Health Organization (WHO) cast doubts over news of a drug breakthrough in a statement on Wednesday. WHO spokesman Tarik Jasarevic warned: “There are no known effective therapeutics against this 2019-nCoV (virus) and the WHO recommends enrolment into a randomized controlled trial to test efficacy and safety.”

Traders now turn their attention to Australia retail sales and trade balance data due for release on Thursday. In January, the Australian Bureau of Statistics reported that retail sales increased by 0.9% in November, beating expectations and marking the largest rise since November of 2017. However, analysts expect retail sales to have slipped by -0.2% in December.

GBP/AUD Rallies to Multi-Year Highs on BoE Boost, Coronavirus Fears

Sterling was lifted on Thursday, after the Bank of England (BoE) announced its decision to keep the official bank rate on hold at 0.75%. Meanwhile, the risk-sensitive Aussie has been under pressure amid rising fears over the Wuhan coronavirus.

At Mark Carney’s final meeting, the Monetary Policy Committee (MPC) were more hawkish than expected, voting 7-2 in favor of keeping interest rates steady. The UK central bank justified its decision citing a recent uptick in business activity, a reduction in Brexit uncertainties and indicators that global growth has stabilised.

However, the BoE also cut its U.K. economic growth forecasts through 2022 and made it clear that a rate cut is possible in 2020. The CME BoEWatch tool currently shows a 22% chance for a quarter point rate cut at the March meeting.

Sterling extended its gains on Friday, moving towards a positive end to the week. The United Kingdom now turns it’s attention to its official departure from the European Union, scheduled to take place at at 11PM London time, midnight in Brussels.

The China-linked Australian dollar fell to fresh lows as alarming news relating to the coronavirus dominated headlines. On Thursday, the World Health Organization (WHO) declared the virus a global health emergency and Chinese authorities reported over 40 deaths in Hubei province. On Friday, authorities confirmed over 9,700 coronavirus cases in China. The figure exceeds that of those infected globally by the 2003 severe acute respiratory syndrome (SARS) virus. On Thursday, Israel banned the entry of all flights from China and the United States warned Americans not to travel to China.

Looking at the GBP/AUD daily chart we can see a well defined trendline representing potential support to the downside. The 61.8% Fibonacci retracement level at 1.9845 stands out as potential resistance above.

By Dan Blystone, Chief Market Strategist at Scandinavian Capital Markets

Bitcoin Bulls Eye 10k Amid Global Risk-Off Sentiment

The move took place as fears mount over the economic fallout from the coronavirus outbreak in China.

Chatter over Bitcoin’s status as an emerging safe haven has increased this year. The price of the world’s largest cryptocurrency by market cap rallied along with gold and the Japanese yen as news of the Wuhan coronavirus dominated headlines. In early January, Bitcoin jumped after news broke that Iranian Major-General Qassem Soleimani was killed in a U.S. air strike.

Gold also soared as Middle East tensions boiled in the aftermath of the assassination. Additionally, the price of Bitcoin rose as stocks sold off on flaring concerns over the US/China trade war in August of 2019.

Bitcoin enthusiasts now look forward to the third ‘halving’ event expected to take place in May of 2020. Only 21 million Bitcoins can be mined, the last of which will be mined in 2140. The rate at which they are created is cut in half every four years. Historically, the halving events have been followed by major rallies in price. A debate rages over whether the halving expected in May will trigger another bull run, or if the event is already priced in. Bitcoin reached a record high of almost $20,000 in December of 2017.

Looking at the daily chart, we can see price is now trading above the 200-period moving average, suggesting that the bulls have the upper hand for this timeframe. Potential trendline support lies below and the market eyes the mega-psychological level of 10k overhead.

Investors now look to the conclusion of the all important FOMC meeting later today. The CME Fedwatch Tool currently shows an 87% probability that the federal funds target range will be kept steady at 1.50-1.75%.

By Dan Blystone, Chief Market Strategist at Scandinavian Capital Markets

Aussie Dollar Slips Amid Fears over Wuhan Coronavirus

AUD/USD fell to its lowest levels since December 11th on Wednesday, as concerns mount over the impact of the Coronavirus on China’s economy. China is Australia’s largest trading partner and negative news for China is typically negative for the Australian dollar. The safe-haven Japanese yen rallied on the initial news of the virus while the Chinese yuan sold off.

The new virus is believed to have come from a wholesale seafood market in Wuhan, China. It has now killed nine people and afflicted more than 400 others. Officials have confirmed that it is contagious between humans. To make it worse, the Chinese Lunar New Year holiday is coming up on January 25th and hundreds of millions of people are expected to travel, threatening a further spread of the virus. Cases have also emerged outside China and one instance in the United States was confirmed on Tuesday.

Markets cheered last week’s signing of the Phase One trade agreement between the US and China. As the agreement is good for the Chinese economy, normally one would expect it to be bullish for the Australian dollar.

However, analysts have suggested that the Phase One deal could actually pressure the Aussie. The reason for this is that within the agreement, China committed to purchase as much as $200 billion more US goods and services, which could result in fewer Australian exports to China. Australia could be replaced by the US as a major supplier of liquefied natural gas to China.

Looking at the AUD/USD daily chart we can see that a Head and Shoulders pattern formed and that price has broken below a well defined neckline. Potential support lies at the prior low of 0.6800. Investors now look to the Australian jobs report scheduled for release on Thursday. Analysts expect the unemployment rate to hold steady at 5.2% and that 15.0K new jobs were created in December.

USD/JPY Breaks Through Key Resistance to 7-Month Highs

USD/JPY powered above major horizontal resistance in early Monday trading to reach its highest levels since May of 2019. Demand for the safe-haven Japanese yen fell over the past week amid fading US-Iran tensions. After a disappointing jobs report on Friday, the US dollar steadied on Monday as the anticipated signing of the phase one trade deal comes into view.

The Japanese yen, gold and crude oil all rallied on the news of the killing of Qassem Soleimani on January 3rd. The key Iranian general was eliminated by missiles shot from American drones targeting his convoy near Baghdad International Airport.

However, money flowed out of safe-haven assets after President Trump announced a de-escalation in the conflict between the US and Iran in his televised address to the nation on January 8th. Protests erupted in Iran over the weekend after Tehran admitted that it accidentally shot down a Ukrainian passenger jet on January 8th, killing 176 people.

Meanwhile, the US dollar started the week on positive footing amid optimism over US/China trade relations. The Chinese commerce ministry announced on Thursday that China’s Vice Premier Liu He will sign a phase one trade deal in Washington, DC.

The deal is expected to be signed on Wednesday and will include reductions to tariffs, increased Chinese purchases of US farm, energy and manufactured goods and changes to intellectual property rules. Movement towards a resolution of the trade war that began in January of 2018 has lifted investors hopes over reviving global economic growth. In addition to the US dollar, the Chinese yuan and Australian dollar have been supported by the upbeat trade related news.

The US dollar sold off on Friday after the Bureau of Labor Statistics reported that US nonfarm payrolls increased by just 145,000, missing analyst forecasts. Wage growth also missed expectations while the US unemployment rate held steady at 3.5%.

This article was written by Dan Blystone, Chief Market Strategist at Scandinavian Capital Markets.

Gold Soars as Middle East Tensions Boil

Soleimani was the head of Iran’s Islamic Revolutionary Guard Corps’ (IRGC’s) elite Quds Force. Iraqi militia commander Abu Mahdi al-Muhandis was also killed in the attack which took place at Baghdad airport.

Late on Thursday night, the Pentagon stated: “At the direction of the President, the U.S. military has taken decisive defensive action to protect U.S. personnel abroad by killing Qassem Soleimani.”

Iranian Foreign Minister Mohammad Javad Zarif was quick to condemn the attack, tweeting; “The US’ act of international terrorism, targeting & assassinating General Soleimani—THE most effective force fighting Daesh (ISIS), Al Nusrah, Al Qaeda et al—is extremely dangerous & a foolish escalation. The US bears responsibility for all consequences of its rogue adventurism.”

Tensions escalated on December 27th, when a U.S. civilian contractor was killed in a rocket attack on a military base near Kirkuk, Iraq. The U.S. retaliated with air strikes against Iranian-linked militia fighters in Iraq and Syria, reportedly killing 24 people. Anger over these casualties led to this week’s attacks by Iraqi militiamen on the U.S. Embassy in Baghdad.

Gold and the Japanese Yen are primary safe havens in times of geopolitical instability and both rallied sharply on the latest news. Oil prices also spiked higher with WTI crude oil reaching its highest levels since April of 2019. U.S. stock index futures currently point to a lower open.

Investors now turn their attention to the minutes of the Federal Reserve’s December policy meeting, due to be released later on Friday. In December, the Fed held the target range of the federal funds rate steady at 1.5% to 1.75% and signaled that it could continue to hold rates where they are through 2020.

Fed Chairman Jerome Powell said it would take a “material reassessment” in the outlook to warrant a shift in policy and that he would prefer to let inflation rise and hold above its 2% target before considering future interest rate hikes. Lower interest rates increase the appeal of non-yielding assets such as gold.

This article was written by Dan Blystone, Chief Market Strategist at Scandinavian Capital Markets.

Sterling Dives as Specter of No-Deal Brexit Rears its Ugly Head

 

This revision to the Withdrawal Agreement Bill would create a hard deadline in negotiations and raises the risk of a ‘no-deal’ Brexit.

ITV News reported late on Monday that Johnson will legislate to block any further Brexit delay and that the revised Withdrawal Agreement Bill is expected to be put before MPs on Friday. EU negotiators are sceptical that a comprehensive trade deal can be negotiated within the 11-month time frame between the scheduled Brexit on January 31st and December 31st 2020.

Assuming Brexit takes place at the end of January, during the transition period the UK will remain in the EU’s single market and customs union but it will not be represented in the EU’s decision-making bodies. Currently, the transition period can be extended for up to two years if both sides agree.

Last week GBP/USD rallied to 19-month highs after Boris Johnson’s Conservative Party won a decisive victory in the UK general election, gaining a majority of 80 seats. However, amid the renewed threat of an exit from the EU on World Trade Organization (WTO) terms, cable has lost all its gains since Thursday night’s exit poll indicated a majority victory for the Tories.

Looking at the GBP/USD daily chart we can see price has fallen to the 23.6% Fibonacci retracement level and that trendline support currently lies below at 1.3087. The market now looks to Thursday’s Bank of England (BoE) meeting, where the Monetary Policy Committee is expected to hold interest rates at 0.75 per cent.


This article was written by Dan Blystone, Chief Market Strategist at Scandinavian Capital Markets.