USD/CHF Daily Forecast – Strength In The U.S. Dollar Continues

The U.S. Dollar experienced material strength yesterday as investors rushed into safe haven assets, and the U.S. Dollar Index breached the 100 level. However, the Swiss frank is also considered as safe haven, so USD/CHF had a more modest move compared to many other pairs.

Currently, USD/CHF settled above the support at the 50 EMA at 0.9650 but things may change quickly. Today, the Swiss National Bank will announce its rate decision. The current rates stands at -0.75%, and the analyst consensus is that the rate will remain unchanged.

Indeed, the Swiss National Bank does not have the room to cut rate further since it is already at a seriously negative level. However, the Swiss National Bank may announce additional support measures, just like the European Central Bank did yesterday.

Last night, the ECB had an emergency meeting and announced a new bond purchase program worth 750 billion euros in order to stop the panic on the financial markets.

It remains to be seen whether such efforts will be successful since the reason of the panic is the real damange done by coronavirus containment measures rather than some original problems in the financial markets.

For the U.S. dollar, the key question is whether investors will continue to view it as the main safe haven asset since the U.S. begins to implement serious virus containment measures that will lead to a material hit on the economy.

Forecasts about the size of such a hit are revised to the downside almost every day. For example, Deutche Bank analysts have recently stated that U.S. GDP may drop as much as 13% on an annualized basis in the second quarter.

Technical Analysis

usd chf march 19 2020

Yesterday, I wrote that further upside in USD/CHF will require the U.S. Dollar Index to stay above 100. This happened, and the U.S. Dollar Index is currently above 101.

The upside channel in USD/CHF remains intact, and now the key catalyst for further upside in the pair is the ability to stay above the 50 EMA at 0.9650. If this level is breached to the downside, 20 EMA will serve as the next support level at 0.9560. The continuation of the current upside trend will lead the pair to the next resistance level at 0.9750.

Desperate Measures – The Moves that the Markets Don’t Appreciate

The global financial market turmoil has continued through this week, following on from last week’s sell-off.

As the spread of the coronavirus gathers pace across the West, the alarm bells ring that little bit louder.

Interestingly, however, there is no coordinated effort to combat the spread of the virus, with an array of strategies in place at present.

These strategies have been concocted by some to minimize the economic fallout, while other governments look to limit the spread and fatalities.

We have seen the EU shut its borders, with member states shutting down to contain the spread of the virus.

This excludes the UK, however, where the UK government has an altogether different strategy in combatting the virus.

For now, the only apparent way to go about limiting the spread of the virus is by adopting China’s measures.

We have seen Italy embrace the approach but have yet to see any impact as the number of deaths continue to surge.

In France, Germany and beyond, the number of cases are also surging, with the U.S officially recording cases in each of the 50 states.

Based on the latest news, it suggests that the only way to end the spread of the virus is through containment and isolation.

Demographics is not on the side of the statistics, with aging populations contributing heavily to the death toll.

Government Action and Inaction

While the global equity markets continue to take a hammering, they are not alone, with the FX markets also seeing moves not seen even during the global financial crisis.

Through the first half of the week, we saw the Pound plummet by 6.33% through to a Wednesday closing $1.1616. The slump came off the back of a 5.89% slump from the previous week.

GBP/USD 19/03/20 Daily Chart

Granted, Dollar strength has contributed to the substantial fall but so has the British government. The British Isles should have been in a perfect position to contain the virus and even allow the Pound to vie for a safe haven status.

The Government’s apparent mistake has not only been a decision to allow the virus to spread across the younger population but also to leave the borders open for too long.

When considering the size and infrastructure, it will not take long for the virus to spread nationally. More importantly, it should have been easy to contain the virus in its infancy.

The government now faces the prospect of an economic meltdown. Coupled with a now disappointing fiscal response and lackluster support from the Bank of England, it is hardly surprising that the Pound visited $1.14 levels on Thursday.

Have the markets got it wrong though?

Across Pond, we have seen inaction rather than no action, which is distinctly different.

It took far too long for the U.S administration to decide that containment was the way forward. For this very reason, we are seeing the coronavirus sweep across the U.S. Even Canada has shut its border with its friendly neighbor…

In terms of economic fallout, the U.S may be on the cusp of a far greater meltdown. It could be even more epic than the one being experienced by China.

The numbers are yet to reflect it but expect the economy and labor market conditions to be hit hard.

With consumer spending the key contributor, how fiscal and monetary policy can drive spending to support the economy remains to be seen.

The vicious cycle could have already begun, where spending tanks, lay-offs surge, and spending slides further…

This cycle could continue well beyond the lifespan of the virus itself. No economy is so nimble as to bounce back from a quarter of doom into a quarter of prosperity.

The UK Battle Plan

When looking at the UK model, there may be some method to the madness.

An incubation period of 2-3 weeks and another 2-3 weeks of downtime as a result of the virus. This is looking purely at the younger and low-risk population.

Worst case scenario, it would translate into an economic downtime of 6-weeks, assuming the entire population segment is sick at the same time.

As long as the UK government can isolate those at greater risk, the UK could be through the coronavirus well before the summer months.

The economic impact will be significant but plausibly repairable and in a relatively short period of time.

Holding Back for a Rainier Day

We then consider the monetary and fiscal policy.

Both the UK government and the Bank of England have held back from throwing in the kitchen sink. This is in stark contrast to the FED and the U.S government across the Pond.

Neither the government nor the markets can truly say which government strategy will succeed.

One can say, however, that one government and central bank, in particular, have ammunition left in case their strategy fails…

It was very clear from the reaction to the FED move on Sunday that reactive measures are not appreciated. Ironically, the U.S administration has followed suit. Even the talk of buying up stocks has failed to support ahead of the U.S open. The Dow Mini is down 655 points at the time of writing…

The Dollar may be king, and it is always a dangerous game to bet against it, but the Pound may not be down and out just yet…

At the time of writing, The Dollar Spot Index was up by 0.11% to 101.27.

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

USD/CAD Daily Forecast – Panic Selling Pushes Canadian Dollar To New Lows

There’s panic in the markets today, and USD/CAD is no exception. As the U.S. Dollar Index raced through the important 100 level, the U.S. dollar gained a lot of ground against many currencies.

Yesterday, I wrote that USD/CAD breached two resistance levels and that the pair had no material resistance levels left as the previous moves at these highs date back to the end of 2015 – beginning of 2016. The absence of any resistance surely facilitated the major move in USD/CAD.

Even more importantly, the Canadian dollar suffered a fundamental blow due to the panic sell-off in oil. The coronavirus situation gets tougher day by day, and various countries implement tough measures to stop the spread of the disease.

As a result, forecasts for oil demand get worse on a daily basis. Goldman Sachs now estimates that the hit to demand could reach as much as 8 million bbl/day in late March. WTI oil currently trades below $24 per barrel, and my bet is that today the Canadian oil companies won’t bother to check quotes for Canadian oil benchmarks which trade at a substantial discount to WTI.

Adding fuel to the fire, U.S. President Trump has announced that the United States will temporarily close border with Canada to “non-essential traffic”. At this point, the fundamental outlook for the Canadian economy is rather grim, which contributes to the weakness of the Canadian dollar.

However, the biggest driver for the move in USD/CAD is the massive flight to safety that is happening in all world markets right now. The U.S. dollar is the primary recipient of investor money – other safe haven currencies like Swiss frank or Japanese yen are losing ground against the dollar.

Technical Analysis

usd cad march 18 2020

USD/CAD is currently racing towards 1.4690, the high level that was reached back at the beginning of 2016 when the Canadian dollar suffered from a major oil price decline. As oil is currently trading at lows not seen since 2003 and coronavirus poses serious problems for the world economy, these highs for USD/CAD are certainly within reach.

However, it remains to be seen whether USD/CAD can try to test these levels without any pullback. The size of the move is very material, and RSI has already settled firmly above 80.

Oil Gets Slaughtered On Demand Worries

Today is a historic day – oil prices have reached lows last seen in 2003. WTI oil trades close to $24 per barrel, while Brent oil is near $27 per barrel.

Concerns about demand are the main reason for the current downside. Goldman Sachs expects that demand for oil may fall by 8 million bbl/day by late March due to coronavirus containment measures. The firm also expects that the annual demand will ultimately fall by 1.1 million bbl/day.

In comparison, the recent OPEC Monthly Oil Market Report, which was published in early March, predicted that oil demand growth will be close to zero in 2020. That’s how fast the oil market expectations change nowadays.

Goldman Sachs stated that it expected to see Brent oil at $20 in the second quarter of this year. That’s not that far from current prices given the pace of the oil price decline. Should this prediction turn into reality, the WTI oil will likely trade even lower as it mostly trades at a discount to Brent.

It remains to be seen whether sharp declines in oil prices will bring Russia and Saudi Arabia back to the negotiation table. At this point, both countries are expected to increase production in April as the current OPEC deal ends while the negotiations about the new OPEC deal have collapsed, initially causing oil price to fall below $50 per barrel.

Russia can mitigate the impact of the falling oil prices by letting the Russian ruble fall, but no weakness of ruble can offset the oil price decline from the $50 level to the $20 level. In addition, the Russian Urals trades at a discount to Brent so the situation for Russia will be even more challenging.

As always nowadays, investors and traders should watch the virus containment measures announced by various countries to get a feel of where the oil demand is heading (U.S. President Trump will hold a press conference today). Currently, the situation on the coronavirus front gets worse day by day, and it is hard to predict how many days of lockdown will be required to stabilize the spread of the virus.

For example, Italy has recently stated that it may need to extend the current lockdown if the number of new coronavirus cases does not decrease. Other European countries may follow Italy’s example, putting even more pressure on the demand for energy.

In short, the fundamental situation in the oil market remains very challenging, and the ongoing panic is justified as supply is set to overwhelm demand in the coming months.

Silver Price Daily Forecast – Silver Tries To Find Support Below $12.00

Yesterday, I wrote that upcoming trading sessions will be very volatile for silver as there are no established technical levels after a rapid sell-off. However, it looks like silver has finally found its first support below $12.00 per ounce.

While silver (together with gold) should theoretically benefit from the ongoing turmoil in the world markets, the thirst for cash is so strong that investors continue to sell silver. As the world markets are having another challenging day, it’s hard to imagine that the pressure on silver will evaporate in the near term.

In my opinion, silver traders should monitor gold closely as gold will likely serve as a leading indicator for silver. At first signs of stabilization of the situation, investors and traders will likely rush to gold which has suffered due to coronavirus crisis . After this, the market’s attention will turn to the heavily discounted silver.

I’d also note that the major strength in the U.S. dollar is another obstacle for silver upside – U.S. Dollar Index has just passed the important 100 level – so the jU.S. dollar must also be monitored closely.

Technical Analysis

silver march 18 2020

In recent days, silver made two attempts to get below $12.00. During the first attempt, silver reached the low of $11.80 per ounce, while the second attempt met buyers’ support close to $11.70 per ounce. At this point, it looks like it will be crucial to hold the $11.70 – $12.00 range for silver to have a chance for the near-term rebound.

At the same time, I’d note that silver remains very oversold with RSI at levels below 15. There are two possible ways out of this situation. The first scenario is that the current sell-off may pause, and silver will continue to trade in the $11.70 – $13.30 range so that the oversold condition eases.

The second option is a significant rebound, which will be likely preceeded by a corresponding move in gold which continues to serve as one of the primary safe haven assets for investors in current times, although it is not in such demand as the U.S. dollar and the U.S. Treasuries, which have turned into ultimate safe haven assets during the ongoing coronavirus crisis.

Scared Markets Crash Again, Volatility At Record High, Airlines Need Bailout Or Disaster Looms

Equity Futures Trigger Limit-Down Circuit-Breaker

The U.S. equity markets rebound from the lowest levels in over a year Tuesday but the gains did not hold. Efforts to prop up the economy were not enough to satisfy investors running scared from uncertainty. The Dow Jones Industrial Average, S&P 500, and NASDAQ Composite all shed -5.0% in overnight electronic trading to trip the limit-down circuit-breaker once again. The trading in the S&P 500 ETF SPY is down about -6.0% and indicated a pause is likely at the open of today’s session.

Treasury Secretary Steven Mnuchin asked Congress for over $1 trillion aid on Tuesday. The money is intended to aid small businesses, individuals, and industries hurt worst by the viral-induced shutdown.  Part of the package will likely include checks mailed directly to U.S. citizens to help them navigate these troubled times. Mnuchin says that unemployment could hit 20% if Congress doesn’t act fast because many small businesses are already on the brink of collapse.

Virus Threat Still Spreading

The number of infected persons topped 200,000 on Wednesday. The good news is that China only reported 13 new cases showing that containment efforts can work. Italy is the hotbed of infection outside of Asia with over 2,500 infected. The U.S. has over 6,400 cases and 100+ dead from the illness.

Economists are estimated GDP growth could fall to only 3.0% for the Asia-Pacific region this year. The outlook includes a short, sharp contraction in the first and second quarters of the year followed by a rebound in the second half.

Energy prices are in freefall because of the viral threat and its impact on demand. WTI shed more than 6.25% in the early hours of the morning and is trading at a 20-year low. Energy companies around the world are scrambling to hoard cash and many of them will fail if prices don’t rebound soon.

Volatility At Record Highs, No Sign Of Recession In The Housing Data

The VIX retreat a bit in early morning trading but is still trading at the highest levels since 2008. At current levels, without some mind-bending good news, it will be weeks if not months before the market is fully calm again. Traders should expect the broad equities market to continue making large, wild swings in day to day trading action.

The economic data is still good and shows fundamental strength in the core U.S. economy. Housing Starts and Permits both fell from the previous month but there are mitigating factors. Both starts and permits for the previous month were revised higher to 13 or near-13 year highs. This month’s retreat leaves housing activities at the highest level since before the housing bubble burst. This activity will underpin the economy in 2020 and likely get a boost from the low-interest environment.

U.S. Stock Market Set To Open Sharply Lower

Sizable Losses Are Expected At The Opening

Yesterday, the market’s attempt to rebound was successful, and S&P 500 closed with a 6% gain. However, the ongoing problems on the coronavirus front have once again put pressure on the stock market.

S&P 500 futures have quickly reached their loss limit in pre-market trade so their trading was halted. Trading of the S&P 500 ETF (SPY) was not halted, so investors and traders can quickly check where the market is set to open. At this time, SPY is losing more than 6%.

Thus, the stock market is set to open close to lows near the 2360 level on the S&P 500. This opening will come as a major test for the market’s near-term ability to hold at current levels.

President Trump Will Discuss Important News From FDA In A Press Conference Today

U.S. President Donald Trump has published a tweet in which he stated that he will have a press conference today and share some very important news from FDA concerning the coronavirus. This press conference adds another layer of uncertainty since it is possible that new virus containment measures will be announced.

Meanwhile, the updates on coronavirus are alarming. Australian Prime Minister Scott Morrison has warned that the current situation can last six months or even more. Israel’s coronavirus cases have increased by 40% in the past twenty four hours. Other countries are also reporting increases in coronavirus cases.

Currently, it looks like the continued upside in coronavirus cases around the world will persist, especially as many countries are starting to implement mass virus tests for their citizens. In this light, the market players expect that further containment measures will be implemented, hurting the economy.

Oil Stocks In Focus As Oil Reaches Lows Not Seen From 2003

Oil prices continue to fall as projections for the decline in oil demand get worse day by day. The collapse of the OPEC deal does not help either. As a result of these two blows, oil prices have fallen to levels last seen 17 years ago.

The first hours of trading are set to be difficult for all oil-related stocks. While major oil companies may start to get more support from investors due to their diversified nature, shale companies and oil services companies like Schlumberger or Baker Hughes are almost guaranteed to have a tough day.

GBP/USD Daily Forecast – 1.2000 Support Tested for First Time in Six Months

Fears over the Coronavirus continue to dominate the markets with investors taking their cash out of the equity markets and buying up US dollars. The pound to dollar exchange has been weighed by a strong dollar and trades at levels not seen in six months.

Equities saw a brief reprieve yesterday when the US announced intentions of implementing fiscal easing measures that could be as large as $1 trillion. The plan still needs to go through Congress but if passed, it could put cash directly into the hands of US citizens either by direct payment or through tax cuts.

The recovery in equities, however, was brief with renewed pressure in early trading today that has led to a nearly 5% decline in the FTSE 100 while US futures have reached their limit down.

The US Dollar has dominated the major currencies, and GBP/USD is down about 9% from the high posted last week. The US dollar index (DXY) was last seen battling the same resistance that held it lower in February. A break higher from here would have the index trading at highs not seen in nearly three years.

Technical Analysis

GBPUSD Daily Chart

GBP/USD is testing major support at 1.2014 that served to hold the pair higher in the third quarter of 2019. The level is considered to be significant and the pair could see a bounce from here if value buyers decide to step in.

In the event of a recovery, upside resistance for the pair is found at 1.2200.

GBP/USD is currently in oversold territory and a bounce appears probable, although there have not been any technical signs of a turn as of yet.

There are likely some stops below the September low, roughly around 1.1958. A decline to trigger stops below this price point cannot be ruled out.

The US Dollar index(DXY) is facing resistance at 99.61 with a further hurdle at the 100 level. Similar to GBP/USD, the index is overbought and there is some potential for a pullback.

Bottom Line

  • GBP/USD has declined in seven out of the past eight sessions and is testing support from the psychological 1.2000 handle.
  • The US dollar faces the same resistance level that triggered a turn lower in February, with further resistance from the psychological 100.00 level.

EUR/USD Daily Forecast – US Dollar Index (DXY) on Verge of Breaking to Nearly 3-Year High

Investors are flocking to the US dollar as the Coronavirus scare continues to push investors out of risky assets such as equities and into trusted currencies such as the dollar.

As a result, the greenback has gained against all of its major counterparts in the week thus far except for the Japanese yen which trades on par with the dollar. The commodity currencies have taken the brunt of the blow with all three showing losses above 3% against the dollar in the week thus far.

In it it’s latest efforts to combat the Coronavirus, the United States is pushing for a fiscal stimulus plan worth between $850 billion to $1 trillion to aid individuals and small businesses as well as industries that are hit economically by the virus.

Treasury Secretary Mnuchin said the stimulus efforts could put cash directly in the hands of Americans either via tax cuts or by directly paying citizens. The proposed stimulus plan will need to go to Congress for approval.

Equities initially rallied on the stimulus plan announcement on Tuesday but have come under pressure once again in early trading today with US futures hitting their lower limit.

Technical Analysis

EURUSD Daily Chart

The dollar index is testing resistance that triggered a turn lower in the middle of February. At the same time, it’s important to recognize the flow into the greenback and the drivers in place which could override technical levels.

While the dollar is at resistance, EUR/USD trades near important support. The pair is currently battling the 1.1000 handle which has been an important and well-respected level over the past few months. Granted, the pair is currently trading below it, but it might be too soon to call a sustained break.

A sustained break of 1.1000 targets 1.0926 while a recovery from here could lead to a rally to 1.1078 resistance.

Bottom Line

  • The dollar is dominating the majors, triggering a notable drop in EUR/USD since early last week.
  • Support at 1.1000 is considered significant, there has not been enough evidence of a sustained break at this stage.

USD/CHF Daily Forecast – U.S. Dollar Corrects After Previous Upside Move

Yesterday, USD/CHF breached the resistance level at 0.9520 and moved to test the next resistance level at 0.9620, just like I outlined in my previous article. The pair was not able to stay above 0.9620 and entered into a correction mode.

This is not surprising since yesterday the U.S. Dollar Index reached 100, a notable resistance level. Now, the U.S. dollar is set to pullback following broad-based upside against many currencies.

On the fundamental front, the focus shifts to government policy as countries implement measures to battle against coronavirus. U.S. President Donald Trump is seeking as much as $1 billion in stimulus package to help the U.S. deal with the consequences of the disease.

According to early reports, this package can even include a payment of $1,000 to individual Americans to help them during the tough times. At this point, there are more than 6,400 coronavirus cases in the U.S., and the current pace of contagion means that the country will soon have more cases than France or Germany.

It remains to be seen whether the U.S. dollar will be able to maintain its safe haven status if the U.S. authorities will have to implement a nationwide lockdown to contain the virus. There are few safe haven alternatives though since the virus is a global problem.

Tomorrow, the Swiss National Bank will announce its rate decision. Currently, the Swiss National Bank policy rate stands at -0.75%. Since the interest rate is in the negative territory, there’s little room for further easing of the monetary policy. Thus, the markets will focus on the Bank’s comments and any additional measures that it can take during the current crisis.

Technical Analysis

usd chf march 18 2020

USD/CHF is currently trying to settle in the new range between 20 EMA and 50 EMA. The previous resistance level at 0.9520 has become a support level, while the pair’s failure to sustain gains above 0.9620 means that this resistance level is intact.

Further upside in USD/CHF will most likely demand that U.S. Dollar Index moves above 100. The upcoming Swiss National Bank monetary assessment is also very important for the pair.

At this point, the upside trend in USD/CHF is intact but the easy part of the rebound is over and the pair will need more stimulus to settle above 0.9620.

Economic Data to Take a Back Seat Once More As Governments Step Up to Combat COVID-19

Earlier in the Day:

It was a relatively quiet start to the day on the economic calendar this morning. The Kiwi Dollar and Japanese Yen were in action through the early part of the day, with economic data in focus.

While economic data was in focus, the markets also reacted to the overnight moves in the U.S and the U.S administration’s plans to combat the impact of the virus.

For the Kiwi Dollar

Economic data was limited to 4th quarter current account figures that had a muted impact on the Kiwi.

The current account deficit narrowed from NZ$10.28bn to NZ$9.23bn, year-on-year, with the deficit narrowing from NZ$6.35bn to NZA$2.66bn quarter-on-quarter.

The Kiwi Dollar moved from $0.59552 to $0.59598 upon release of the figures. At the time of writing, the Kiwi Dollar was up by 0.02% to $0.5947.

For the Japanese Yen

The trade balance jumped from a ¥1,313.2bn deficit to a ¥1,109.8bn surplus in February, year-on-year. Economists had forecast a surplus of ¥917.2bn.

According to figures released by the  Ministry of Finance,

  • Exports fell by 1%, following a 2.6% decline in January. Economists had forecast a 4.3% slide.
    • Exports to China fell by just 0.4%, with exports to Taiwan and Singapore surging by 11% and 13.1% respectively.
    • There were notable declines in exports to Europe, however, with exports to Germany and the UK sliding by 6.6% and by 7.6% respectively. Switzerland was, in fact, the only Western European trade partner to increase imports from Japan (+32.2%).
    • Exports to the U.S fell by 2.6%.
  • Imports tumbled by 14% in February, following a 3.5% decline in January. Economists had forecast a 14.4% slide.
    • Imports from China tumbled by 47.1%, resulting in a 24% slide in imports from Asia.
    • There were also notable declines in imports from the U.S (-5.9%) and Western Europe (-7.8%).

The Japanese Yen moved from ¥107.354 to ¥107.505 upon release of the figures. At the time of writing, the Japanese Yen was up by 0.32% to ¥107.36 against the U.S Dollar.

Elsewhere

At the time of writing, the Aussie Dollar was down by 0.12% to $0.5993.

The Day Ahead:

For the EUR

It’s a relatively busy day ahead on the economic calendar. The Eurozone’s finalized February inflation figures and January trade data are due out later this morning.

Barring a slide in consumer prices in February, the numbers are unlikely to have a material impact on the EUR.

We’ve seen the EU shut its borders and economic conditions deteriorate through March, pointing to a possible Eurozone recession. Any positive numbers will be of little relief, while weak numbers will have an impact when considering the likelihood of more weakness to come.

Outside of the numbers, however, expect updates from member states on fiscal policy and the spread of the virus to continue to influence.

At the time of writing, the EUR was down by 0.02% at $1.0995.

For the Pound

It’s a quiet day ahead on the economic calendar, with no material stats due out of the UK to provide the Pound with direction.

A lack of stats will leave the Pound in the hands of the British government that has yet to take more aggressive measures to curb the spread of the coronavirus.

At the time of writing, the Pound was up by 0.46% to $1.2111, with oversold conditions providing some early support.

Across the Pond

It’s a relatively busy day ahead on the U.S economic calendar. February housing starts and building approval figures are due out. With mortgage rates at record lows and confidence in the sector on the rise at the turn of the year, the February numbers are unlikely to reflect sentiment towards the coronavirus.

The focus on the day will be the Coronavirus Bill and the Senate vote. Expectations are for the Bill to pass unaltered. Any last mount hiccups could test the markets…

We will also expect updates on the spread of the virus to also influence. News hit the wires overnight that all 50 states had coronavirus cases, making it more difficult to contain the virus at the state level. An acceleration in the pace of contraction will weigh on risk appetite.

The Dollar Spot Index was down by 0.10% to 99.475 at the time of writing.

For the Loonie

It’s also a relatively busy day ahead on the economic calendar, with February inflation figures due out later today.

We would expect softer inflation figures to weigh on the Loonie, with any pickup in inflationary pressures likely to be considered short-term.

Deflationary pressures are expected to build as crude oil prices tumble and the country goes into shutdown mode.

Outside of the numbers, crude oil prices and the Canadian government’s plans to combat the virus will remain the key area of focus. As things stand, the Bank of Canada will need to deliver more and soon, though there may be some apprehension after the market’s reaction to the FED move…

The Loonie was down by 0.24% at C$1.4236 against the U.S Dollar, at the time of writing.

European Equities: The Pendulum Could Swing Once More Following Tuesday’s Late Recovery

Economic Calendar:

Wednesday, 18th March

Eurozone Core CPI (YoY) (Feb) Final

Eurozone CPI (YoY) (Feb) Final

Eurozone CPI (MoM) (Feb)

Eurozone Trade Balance (Jan)

Friday, 20th March

German PPI (MoM) (Feb)

The Majors

The European majors closed out the day in the green on Tuesday, but it wasn’t plane sailing, with the majors having tumbled into the red before a late rebound.

Negative news over the spread of the coronavirus led the early reversal, with economic data out of Germany and the Eurozone also weighing.

There was ultimately little reason for the majors to hold onto any early gains, with the continued shutdown in the EU signaling economic doom and gloom.

Volkswagen announced a suspension of production, while regulators banned short selling in a number of key markets to provide some investor protection.

Should the short-selling ban fail to ease the sell-off, market closures could be next… One issue that is being seen across the EU is differing stances on how to deal with the impact of the virus on market stability and fiscal policy.

Belgium, France, Italy, and Spain delivered bans on the short-selling of the EU’s largest companies, while Germany and the departing UK felt it more appropriate to leave the markets free from restriction.

We hadn’t seen such moves since back in the global financial crisis, which was ultimately another red flag for investors…

On the day, however, the CAC40 led the way, rallying by 2.84%, with the DAX30 and EuroStoxx600 rising by 2.25% and 2.26% respectively.

The upside came from a rise in the U.S majors, driven by U.S administration plans to counter the impact of the coronavirus on the U.S economy.

The Stats

It was a relatively busy day on the Eurozone economic calendar on Tuesday. Key stats included Eurozone wage growth figures for the 4th quarter and Eurozone and German economic sentiment figures for March.

According to Eurostat,

  • Eurozone wages grew by 2.3% in the 4th quarter, with growth slowing from 2.6% in the 3rd quarter of last year.
  • While the cost of wages & salaries per hour worked grew by 2.3%, the non-wage component grew by 2.4%.

Unsurprisingly, the stats had a muted impact, with the markets far more interested in the March sentiment figures.

In March, Germany’s ZEW Current Conditions Index slumped from -15.7 to -43.1, with the Economic Sentiment Index tumbling from 8.7 to -49.5.

Things were no better for the Eurozone, with the economic sentiment index slumping from 10.4 to -49.5 in March.

From the U.S

Economic data certainly didn’t help the majors early on.

U.S retail sales fell by 0.5% in February, reversing a 0.3% increase in January. Economists had forecast a 0.2% increase.

While the fall in sales was not completely alarming, March and, April figures are likely to be far worst, which was the take away from the numbers.

Industrial production delivered some positive news, with U.S industrial production rising by 0.6% in February, reversing a 0.3% slide in January. The reality is, however, that production is expected to sink in March and April, which muted the impact of the positive numbers.

The Market Movers

For the DAX: it was a particularly bullish day for the auto sector. Daimler led the way, rallying by 5.64%, with Continental and Volkswagen rising by 2.88% and 3.09% respectively. BMW saw a more modest 0.91% gain on the day.

The upside came in spite of Volkswagen’s announcement that it would suspend production from Friday.

It was also a bullish day for the banks, with Commerzbank and Deutsche Bank rallying by 4.90% and 8.27% respectively.

Deutsche Lufthansa rose by 3.88%, with support coming in spite of the EU border shut down and other governments also taking containment measures.

From the CAC, it was a bullish day for the banks. Soc Gen and Credit Agricole led the way down, rallying by 7.84% and 7.31% respectively. BNP Paribas saw a more modest 6.41% gain on the day.

It was a mixed day for the auto sector, however, with Peugeot falling by 0.32%, while Renault rallied by 9.9%.

Air France-KLM joined its peers in the green, with a 1.23% gain, while Airbus SE slumped by 8.64%

On the VIX Index

The VIX fell by 8.2% on Tuesday to market only its 3rd day in the red out of 9. Partially reversing a 42.99% surge from Monday, the VIX ended the day at 75.9.

The U.S administration’s plans to combat the effects of the coronavirus on the U.S economy delivered support to the U.S majors on the day.

News of a stimulus package that could exceed US$1tn eased the pain on the day. The S&P500 rose by 6%, with Dow ending the day up by 5.2%.

U.S Treasury Secretary Mnuchin announced that the U.S President wants to give cash to the American people. This came off the back of Trump’s previous statement that the U.S could be heading towards a recession.

The President also acknowledged that the virus could continue to spread into the summer. Trump had previously stated that the spread of the virus should ease as temperatures rise.

While the support is certainly positive, with the Senate reportedly planning to seamlessly pass the Coronavirus Bill, the reality remains that the U.S and global economy are in for a hit. The only question, for now, is, whether the U.S can avoid a recession…

VIX 18/03/20 Daily Chart

The Day Ahead

It’s a relatively busy day ahead on the Eurozone economic calendar. Key stats due out later this morning include finalized Eurozone inflation figures for February and January trade data.

The stats are unlikely to have an impact on the majors, with the focus likely to remain on government steps to combat the virus.

Another factor for the markets to also consider is the prospect of regulators shutting down markets. A number of EU member states have raised the possibility of closure, which could add to the market stress near-term.

In the futures markets, at the time of writing, the DAX was down by 151.5 points, with the Dow down by 451 points.

USD/CAD Daily Forecast – U.S Dollar Breaks Through Imporant Resistance Level

There’s a lot of action in USD/CAD right now after the pair went through the 1.4000 level. Yesterday, I wrote that the successful test of this level will lead to a test of 2018 highs at 1.4135.

This level has also been reached, and right now USD/CAD trades above the 2018 highs. The U.S. dollar has been very strong today against a broad basket of currencies, and the U.S. Dollar Index is close to 100. Such levels haven’t been seen since mid-February.

While the U.S. dollar enjoys a boost from a major rush to safe haven assets, the Canadian dollar continues to suffer from the downside in the commodities markets. Oil tried to get some ground today but this attempt was unsuccessful, and the potential breach of the $28 level in oil presents an additional downside risk for the Canadian dollar.

Canada reported that manufacturing sales for January were down 0.2% while analysts estimated a larger decline of 0.5%. Meanwhile, retail sales in the U.S. were down 0.5%, a surprising decline compared to the analyst estimates which envisioned growth of 0.1%.

This portion of negative data pushed more traders into safe haven assets. Ironically, the bad data right now is positive for the U.S. dollar, even if this data comes from the U.S. economy.

Technical Analysis

usd cad march 17 2020

USD/CAD has left the 1.3750 – 1.4000 range and continues its major upside move. The main worry for those long USD/CAD is that the U.S. Dollar Index has increased from 95 to 100 in a matter of few days and is becoming stretched.

The 100 level on the U.S. Dollar Index has served as a material resistance level back in 2015 and 2016, when brief excursions above this level were followed by significant sell-offs. The situation is extraordinary right now because of the coronavirus and the related flight to safety, but the resistance at the U.S. Dollar Index is something worth keeping in mind.

Previously, USD/CAD was at current levels back in 2016, when the sell-off in oil pushed the pair closer to 1.4700. That move happened a long time ago so there are no notable resistance levels right now, and traders should watch USD/CAD closely to see where the pair will face material selling pressure.

 

Oil Balances On The Verge Of Another Sell-Off

Oil Traders Try To Evaluate Impact From Coronavirus-Related Measures And Store Oil In Tankers

The news flow is very heavy nowadays for oil traders who get updates on new measures to combat coronavirus almost every hour. There are two main uncertainties right now – the scope of the containment measures and the length of the crisis.

Unfortunately, the first estimates are not reassuring since even the optimistic U.S. President Donald Trump voiced an opinion that the current crisis could drag on until August.

Meanwhile, tanker rates for very large crude carriers (VLCC) have surged as oil traders try to store cheap oil in hopes that they can later sell it at a profit when the market recovers. The demand for VLCC storage is the near-term positive factor but the supply of VLCCs is not unlimited. Once traders contract all available tankers, further downside should be expected as this additional demand for oil will cease to exist.

When oil visited the sub-$30 territory back at the beginning of 2016, the crisis did not last long and oil prices rebounded in a quick fashion, allowing traders who contracted oil tankers to sell their oil at a material profit. However, the current situation looks different since the coronavirus-related measures are just being implemented and they have yet to present their full impact on the oil demand.

Theoretically, oil traders can get caught in losing positions with their tanker oil, and their pain will be exacerbated by the necessity to pay fees to the VLCC owner. In such a scenario, these traders may be forced to unload their oil during the market sell-off, making things even worse.

Oil Battles To Stay Above $28

Currently, oil prices are supported mostly by bargain hunters since the recent news suggest that oil demand will decline even further at a time when Russia and Saudi Arabia are ready to increase production in their battle for market share.

In my opinion, the fundamental situation for oil remains very challenging even at current low levels. Typically, cheap energy leads to increased energy consumption, which in turn leads to higher energy prices as demand increases and reaches balance with supply.

However, the current situation is very different from this traditional scenario because the coronavirus containment measures lead to an additional artificial decrease of demand. Current data on these measures suggests that this problem will not be resolved anytime soon.

Silver Price Daily Forecast – The Sell-Off Continues

For silver, the selling pressure that was present in the previous trading session continues today. Previously, I wrote that the market should calm down before silver will have a chance for sustainable upside and noted that traders should not blindly count on support levels to provide much help in the coming days.

This is exactly what is happening right now since silver is at lows not seen since late 2015. Gold is feeling a bit better but also suffers from a major sell-off. While the precious metals typically serve as safe haven assets, the current market panic led to a buying spree in just a handful of assets like the U.S. dollar or the U.S. Treasuries, which are perceived as the ultimate safe havens.

With no good news on the coronavirus front, it’s hard to expect that the market will be able to materially change its mood in the upcoming days. While the initial sell-off in silver was likely triggered by those investors who were raising cash to support their positions elsewhere, the current downside originates from the breach of the major technical support around the $14.00 level. It looks like many traders and investors were caught off-guard by the severity of the downturn in silver and are liquidating their positions.

Technical Analysis

silver march 17 2020

Silver has breached all previous support levels and is trying to find the level at which investors will be ready to initiate new long positions. At this point, there is some minor support around the $12.00 level. If this support is breached, silver may continue to move even lower.

The minor rebound attempt for silver was stopped at $13.30 which now serves as resistance. Silver will have to breach this resistance level to have a chance to rise up to $14.00 where it will likely meet heavy selling pressure by those investors who failed to exit their positions at the moment when silver was breaching this level for the first time.

The upcoming sessions will likely be very volatile because there are no established technical levels after such a rapid sell-off. Thus, traders will have to act fast in order not to miss any major move in silver.

 

Futures Rebound, Mnuchin To Request Spending Package, Alarming Viral Threat Continues To Grow

Futures Trading Is Volatile In The Overnight Session

The U.S. futures are indicating a positive open on Tuesday following a volatile evening of trading. The Dow Jones Industrial Average, S&P 500, and NASDAQ Composite are looking to open with gains in the range of 2.5%. Earlier in the session, trades on all three major indices hit their limit-up triggers of +5.0%. The moves come a day after the major indices posted their largest declines of the selloff. The Dow posted its third-worst decline ever while the NASDAQ set a record.

The S&P 500 is down about 30% from its most recent high and may be nearing a bottom. Another 3% or so will put the index at the lows of 2018 and what many traders consider critical support.  If the index moves below this level it could signal a much deeper decline for U.S. stocks.

Overnight, President Donald Trump tweeted the U.S. will support the industries hurt worst by the virus. This morning’s news includes rumors Treasury Secretary Steve Mnuchin will ask Congress for an aid package worth $850 billion. If passed, the bill would provide emergency funding for key industries as well as U.S. workers.

The Threat To U.S. Economy Is Spreading

The number of cases globally has risen to over 170,000. The number of cases in the U.S. now tops 4,280 with over 70 dead. All 50 states report a growing number of cases and intensifying efforts to control the spread. Businesses like McDonald’s are closing their dining rooms while ramping up take-out services. eCommerce giant Amazon says it needs to hire 100,000 new workers to meet the rising demand.

Shares of Regeneron are moving higher in early trading. The company is speeding up the timeline for its Covid-19 therapy/vaccine and sees it entering human trials by late spring. Shares of the stock, among other healthcare equities, have been holding up well during the crisis and moving higher by 10% today.

Retail In Focus This Morning

Retail sales were reported this morning and show a net-decline in sales for February. The headline figure came in at -0.5% versus an expectation for increase. At the core-level, retail sales are down but the YOY comparisons are much better. YOY, retail sales are tracking 4.3% higher than last year. Sales for the three-month period ending February 2020 are up 4.9% from last year.

In stock news, retailer Land’s End reported this morning. The seller of specialty outdoor clothing reported a 9.4% increase in revenue that beat consensus estimates. Shars of the stock are moving lower despite the beat due to the worsening outlook for discretionary spending.

U.S. Stock Market Tries To Rebound After Historic Sell-Off

Market Tries To Rebound Amidst Growing Number Of Coronavirus Cases

Yesterday, S&P 500 finished the day with an almost 12% loss. This was one of the worst days in the market history. Today, the U.S. stock market will try to gain some ground as bargain hunters will step in to initate positions in beaten stocks.

It remains to be seen whether such a rebound attempt would be successful since the situation on the coronavirus front continues to worsen. Currently, there are 27,980 cases in Italy, 14,991 in Iran, 9,942 in Spain, 8,320 in Korea, 7,272 in Germany, 6,633 in France and 4,667 in the U.S.

So far, only China and Korea managed to contain the spread of the virus so that the quantity of new cases in these countries is low. Others see a rapid increase in the number of new patients everyday, prompting increasingly tough restrictive measures to combat the spread of coronavirus.

Officials Do Not Hope For A Quick Resolution Of The Current Situation

Typically, government officials sound rather optimistic as they try to prevent people and markets from panic. The current situation is different. German Economy Minister Peter Altmaier expects that the coronavirus crisis may last until the end of May, while U.S. President Donald Trump stated that the crisis could last till August.

The stock market participants agree with this view as any material rebound during the current downturn has been sold. The main problem right now is the uncertainty since neither government officials nor investors have the tools to assess the true cost of coronavirus-containment measures and the duration of the crisis.

The market never likes uncertainty. In fact, bad news are better than uncertainty, so investors and traders should expect continued volatility in the coming days and weeks.

Beaten Stocks In Spotlight

Energy majors, like Exxon Mobil, BP, and Total, will attract a lot of attention today after the yesterday’s sell-off. This year, big energy companies have lost more than 50% of their market capitalization. In order for the market panic to stop, these big names need to attract investor support at their new levels.

As the coronavirus-related measures are implemeted at an increasingly larger scale, leading banks like Bank of America or Citigroup will also find themselves under investors’ lens as their portfolio could quickly deteriorate if the crisis drags on for a long time.

GBP/USD Daily Forecast – Sterling Declines to Fresh Six-Month Lows

A sharp push lower in GBP/USD over the last week shows the pair trading at lows not seen in six-months to erase a bulk of the recovery that took place in the second half of 2019.

The UK has started to take a stricter stance towards the Coronavirus although it can be argued that the UK government could do more. PM Johnson announced at a press conference yesterday that the NHS will no longer support emergency services for large gatherings and recommended citizens to avoid pubs and bars.

While the UK appears to support “social distancing” it has stopped short of banning large events or shutting down public establishments which other countries have started to do.

Johnson changed towards a more cautious stance after a report from Imperial College showed that half a million UK citizens could have died if no action was taken.

The US dollar has regained its safe-haven status as investors flock to the currency and flee from the equity markets. The US dollar index (DXY) has recovered after showing a 3.5% loss earlier this month and is currently in positive territory for March.

The UK jobs market took a hit in the three month to January after the employment rate reached a record high in the prior reading. The unemployment rate was reported to tick up to 3.9% and unemployment claims rose to 17,300 from 5,500 people claiming benefits in the prior month.

US retail sales figures will be reported later in the day although the impact is expected to be minor considering the period reported was ahead of the escalation in the Coronavirus.

Technical Analysis

GBPUSD Daily Chart

GBP/USD made a notable technical break last week after falling through 1.2751 support as well as its 200-day moving average. The momentum has largely been to the downside since.

The next area of interest falls at 1.2014 which is the level that triggered the turn higher in 2019. To the upside, near-term resistance is found at 1.2373.

Bottom Line

  • The British pound remains strongly offered as the pair heads towards 2019 lows.
  • UK unemployment came in a bit softer than expected, although the employment rate continues to remain near record levels.

EUR/USD Daily Forecast – Euro Remains Confined to a Range

After a sharp drop below 1.1225 support on the back of last week’s ECB meeting, EUR/USD has formed a range with buyers defending the 200-day moving average on the downside.

The US dollar rallied sharply last week against the major currencies to set a bullish tone. The trade-weighted dollar index (DXY) has erased the roughly 3.5% loss for the month and shows a small gain. At this stage, the index needs to rally another one and a quarter percent to trade at fresh multi-year highs.

Germany’s ZEW will release its economic sentiment figures later today. Out of the United States, retail sales figures for February will be reported. The German report is expected to decline notably as surveyed German investors and analysts are likely to change their stance following the Coronavirus escalation.

The retail sales report from the US reflects data up until the end of February. Considering that the virus scare escalated in late February to early March, the data is not likely to have much relevance. As such, a market reaction is not expected.

The markets are likely to continue focusing on actions being taken to stave off the effects of the virus. After the Fed’s emergency rate cut this week, the focus will tend to be on fiscal easing efforts both from the US and Europe.

Technical Analysis

EURUSD Daily Chart

EUR/USD declined sharply last week and there is sufficient evidence that the pair has turned. On a weekly chart, the 20-week moving average is holding the pair higher.

While the pair trades within a range, the bias remains to the downside over the near-term. It might take a rally above 1.1225 to change this view. So far, the level has capped a few rally attempts since the ECB meeting.

The 200-day moving average is in play and has been holding the exchange rate higher on a daily close basis since late last week. The combined moving average support between the weekly and daily chart points to a strong floor for the currency pair.

Nevertheless, a break lower would tend to target 1.1000 which was a well-respected level in the fourth quarter and in January.

Bottom Line

  • EUR/USD is range-bound with buyers defending the 200-day moving average while sellers are holding the pair below 1.1225.
  • The markets will continue to look to the governments for further policy action to help combat the virus.