The Weekly Wrap – The EUR and Yen Come Out on Top as the Equity Markets Hit Corrective Territory

The Stats

It was a relatively busy week on the economic calendar, in the week ending 28th February.

A total of 56 stats were monitored, following the 72 stats in the week prior.

Of the 56 stats,  26 came in ahead forecasts, with 21 economic indicators coming up short of forecast. 9 stats were in line with forecasts in the week.

Looking at the numbers, 25 of the stats reflected an upward trend from previous figures. Of the remaining 31, 25 stats reflected a deterioration from previous.

For the Greenback, it was a particularly bearish week, as the markets reversed bets that the U.S economy would be unscathed from the spread of the coronavirus.

Not only did economic data continue to disappoint, but the markets also raised the probability of multiple rate cuts by the FED.

When gold takes a tumble as investors look for liquidity to meet margin calls, it’s never a good thing…

The Dollar Spot Index fell by 1.21% to end the week at 98.132.

Out of the U.S

It was a quiet first half of the week, with economic data limited to February consumer confidence figures.

A slight uptick in consumer confidence had a muted impact on the dollar on Tuesday.

Market risk aversion and updates from the U.S on the coronavirus pinned the Dollar back early in the week.

In the 2nd half of the week, durable goods orders on Thursday also failed to impress ahead of a busy Friday.

While core durable goods orders rose by 0.90% in January, durable goods orders fell by 0.2%, sending mixed signals to the market.

At the end of the week, the annual rate of inflation continued to fall short of the FED’s 2% objective.

Personal spending rose by just 0.2% in January, which was softer than a 0.4% rise in December.

Chicago PMI numbers were somewhat better than anticipated, however, with the PMI rising from 42.9 to 49.0.

The February numbers suggested that next week’s ISM numbers may not be as dire as the Markit PMI numbers.

It wasn’t enough to support the U.S equity markets or the Dollar, however.

Housing sector numbers and 2nd estimate GDP numbers for the 4th quarter had a muted impact in the week.

In the equity markets, the Dow slumped by 12.36%, with the S&P500 and NASDAQ tumbling by 11.49% and by 10.54% respectively.

Out of the UK

It was a particularly quiet week on the economic calendar.

There were no material stats to provide the Pound with direction.

The lack of stats left the Pound in the hands of Brexit chatter as the EU and Britain prepare to return to the negotiating table.

A visit to $1.30 levels early in the week was brief, with the British Prime Minister spooking the markets once more.

Johnson spoke on Thursday, stating that Britain would walk away from negotiations should there be a lack of progress by the end of June.

With so much to iron out and the 2-sides worlds apart, hopes of having a framework in place by June are slim…

In the week, the Pound fell by 1.09% to $1.2823, with the FTSE100 ending the week down by 11.12%.

Out of the Eurozone

It was a relatively quiet start to the week economic data front.

Germany was in focus, with February IFO Business Climate Index figures and 2nd estimate GDP numbers in focus.

On the positive side for the EUR was a slight pickup in the Business Climate Index. This came off the back of a rise in optimism, as the current assessment index eased back.

Ultimately, however, March numbers will give a better indication of whether the coronavirus has affected business sentiment.

With GDP numbers in line with 1st estimates, the focus then shifted to a busy Friday.

Key stats included French consumer spending and German unemployment numbers.

While Germany’s unemployment rate held steady, French consumer spending took a hit in January. The slide came ahead of the coronavirus news, which suggests that a further pullback in spending could be on the cards.

The stats failed to influence, however, as the markets punished the Dollar through much of the week.

Prelim inflation figures out of Spain and France, French GDP numbers and finalized consumer confidence figures out of the Eurozone also failed to move the dial…

On the monetary policy front, ECB President Lagarde spoke late in the week. She was of the view that the virus had yet to impact inflation to the point where the ECB needs to step in…

That is in stark contrast to the outlook towards FED monetary policy…

For the week, the EUR rose by 1.65% to $1.1026.

For the European major indexes, it was a particularly bearish week. The DAX30 tumbled by 12.44%, with the CAC40 and the EuroStoxx600 ending the week down by 11.94% and 12.25% respectively.

Elsewhere

It was a particularly bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 28th February, the Aussie Dollar slid by 1.69% to $0.6515, with the Kiwi Dollar down by 1.62% to $0.6246.

For the Aussie Dollar

It was a relatively quiet week for the Aussie Dollar on the economic data front.

Key stats included 4th quarter construction work done and private new CAPEX figures on Wednesday and Thursday.

Both sets of figures disappointed, though a 2.8% slide in new CAPEX in the 4th quarter was more alarming.

RBA monetary policy has not only been in favor of consumer spending but also business investment. The slide suggests a lack of confidence and raised the prospects of a near-term rate cut.

On Friday, the private sector credit figure also failed to impress, with total credit rising by just 0.3% month-on-month.

With the numbers skewed to the negative, risk aversion added to the downside in the week.

Negative sentiment towards the economic outlook led to a slide in commodities and commodity currencies.

For the markets, uncertainly over when the spread of the coronavirus will abate also influenced.

For the Kiwi Dollar

It was a relatively quiet start to the week on the economic colander.

4th quarter retail sales figures failed to impress at the start of the week, with sales rising by 0.7%. In the 3rd quarter, retail sales had risen by 1.7%.

Later in the week, trade data and business confidence figures delivered mixed results that added pressure on the Kiwi.

While trade exports to China rose further, January’s trade was not impacted by China’s shut down.

Business confidence figures, however, suggested some doom and gloom ahead.

With exports to China accounting for 27% of total New Zealand exports in January, it could be quite dire reading next month…

For the Loonie

It was a busy week on the economic calendar. Key stats included wholesale sales figures on Monday and RMPI and GDP numbers on Friday.

A rise in wholesale sales in December failed to provide support at the start of the week, as crude oil prices got hammered.

Market fears of a marked slowdown in the global economy, stemming from the spread of the coronavirus, weighed.

At the end of the week, with the Loonie already under the cosh, GDP numbers also failed to support.

While the economy fared better in December, there was a marked slowdown in the 4th quarter. When considering the economic disruption anticipated in the 1st quarter and beyond, it doesn’t look good.

RMPI numbers also failed to impress, with the RMPI falling by 2.2% in January, reversing most of a 2.7% rise in December.

With the BoC in action next week, the chances of a rate cut certainly jumped in the week…

The Loonie slid by 1.38% to end the week at C$1.3407 against the Greenback.

For the Japanese Yen

It was a relatively quiet week on the data front.

The markets had to wait until Friday for key stats that had little to no influence on the Japanese Yen.

For the Government, the impact of the coronavirus on consumer spending is a blow following last year’s sales tax hike. That suggests that government support is likely to come.

In the meantime, however, retail sales fell by 0.4% in January, following a 2.6% slide in December.

The annual rate of core inflation also eased, with the Ku-area seeing core inflation easing from 0.7% to 0.5% in February.

With the jobs/applications ratio falling from 1.57 to 1.49, the only bright data set was industrial production.

A 0.8% rise in production in January was of little consolation, however, when considering the anticipated drop in demand.

Risk aversion ultimately drove demand for the Yen in the week, with concerns over the U.S economy restoring the Yen’s position as the “go-to” currency.

The Japanese Yen surged by 3.33% to end the week at ¥107.89 against the U.S Dollar. Risk aversion in the week weighed heavily on the Nikkei, which slumped by 9.59%, leaving the index down by 8.89% for February.

Out of China

There were no material stats to provide direction ahead of private sector PMIs on the weekend.

A lack of stats left updates on the coronavirus to provide direction that was ultimately positive for the Yuan.

In contrast, the sell-off across the global stock markets weighed on the CSI300 and Hang Seng, though they did fare better than the pack.

The CSI300 fell by 5.05%, with the Hang Seng falling by 4.32% in the week.

In the week ending 28th February, the Yuan rose by 0.50% to CNY6.9920 against the Greenback.

The Dollar Takes a Hit as Economic Data Continues to Play 2nd Fiddle to the Coronavirus

Earlier in the Day:

It was a relatively busy day on the Asian economic calendar this morning. The Japanese Yen and Aussie Dollar were in action.

For the Japanese Yen

Economic data included, February inflation figures and January’s job to applications ratio, industrial production, and retail sales figures.

According to consumer price figures released by the Ministry of Internal Affairs and Communication. The Ku-area of Tokyo saw the annual core rate of inflation ease from 0.7% to 0.5%, falling beyond a forecasted 0.6%.

  • Prices for Education slid by 6%, with prices for fuel, light and water charges falling by 2.8%.
  • There were solid increases in prices for clothes & footwear (+2.4%) and furniture and household utensils (+2.0%), however.
  • Prices for medical care (+1.3%), transportation and communication (+1.0%), culture and recreation (+0.9%) also provided support.
  • Prices for housing rose by just 0.5%, however.

With inflationary pressures easing in February, jobs available also eased, as the jobs/applications ratio fell from 1.57 to 1.49. The ratio last stood at sub-1.50 levels back in May 2017, when the ratio had also stood at 1.49.

The Japanese Yen moved from ¥109.638 to ¥109.616 upon release of the figures that preceded the industrial production and retail sales figures.

Retail Sales and Industrial Production

According to the Ministry of Economy, Trade, and Industry, retail sales fell by 0.4% in January, year-on-year, following a 2.6% slide in December. Economists had forecasted a 1.1% decline.

Industrial production increased by 0.8% in January, according to prelim figures, following a 1.2% rise in December. Economists had forecast a 0.2% rise.

According to the Ministry of Economy, Trade, and Industry,

Industries that mainly contributed to the increase were:

  • Motor vehicles, transport equipment (excl. motor vehicles), and other manufacturing.

Industries that mainly contributed to a decrease were

  • Production machinery, general-purpose and business orientated machinery, and electrical machinery, and information, and communication electronics equipment.

The Japanese Yen moved from ¥109.652 to ¥109.571 upon release of the figures. At the time of writing, the Japanese Yen was up by 0.06% to ¥109.52 against the U.S Dollar.

For the Aussie Dollar

According to figures released by RBA, total credit increased by 0.3%, month-on-month, in January. In December, credit had risen by 0.2%.

  • Business credit jumped by 0.5%, following a 0.2% rise in December, supporting the marginal uptick.
  • Personal credit fell at a sharper pace, however. Following a 0.4% decline in December, personal credit fell by 0.6% in January.
  • Housing credit rose by 0.3%, following a 0.3% increase in December.

The Aussie Dollar moved from $0.65811 to $0.65832 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.20% to $0.6582.

Elsewhere

At the time of writing, the Kiwi Dollar was up by 0.03% to $0.6309.

The Day Ahead:

For the EUR

It’s a relatively busy day ahead on the economic calendar. Key stats include German unemployment and French consumer spending figures.

Barring material deviation from 1st estimate numbers, 2nd estimate GDP figures out of France will likely have a muted impact on the EUR.

Later in the European session, prelim Italian and German inflation figures for February will also likely have a muted impact on the EUR.

Outside of the numbers expect news updates on the coronavirus to also provide direction. We’ve seen the Dollar take a hit as the coronavirus spreads across the U.S, leaving the U.S economy at risk of a slowdown.

At the time of writing, the EUR was down by 0.03% at $1.0998.

For the Pound

It’s another quiet day ahead on the economic calendar, with no material stats to provide the Pound with direction.

We can expect the Pound to be under pressure as the markets shift attention to negotiations that commence next week.

At the time of writing, the Pound was up by 0.04% to $1.2892.

Across the Pond

It’s a busy day ahead on the U.S economic calendar.

Key stats include Chicago PMI, personal spending, inflation and trade data. With the markets now beginning to expect monetary policy easing, today’s stats will have a material influence.

We expect finalized consumer sentiment figures for February to have a muted impact on the day.

Outside of the numbers, news updates on the coronavirus will also influence.

The Dollar Spot Index slid by 0.49% to 98.508 on Thursday.

For the Loonie

It’s a busy day ahead on the economic calendar, with key stats including GDP and RMPI numbers.

With the Bank of Canada in action next week, any soft numbers and expect the markets to price in a rate cut.

The BoC had previously talked of a willingness to make a move should economic indicators support a cut. With the coronavirus spreading globally and weighing on global trade and consumption, expect the numbers to do the talking.

The Loonie was down by 0.02% at C$1.3393 against the U.S Dollar, at the time of writing.

Is This A Repeat of February 2018 Market Crash?

Back in early 2018, after a dramatic rally in early January 2018, the US stock market collapsed suddenly and violently – falling nearly 12% in a matter of just 9 trading days.  Our researchers asked the question, is the current collapse similar to this type of move and could we expect a sudden market bottom to setup?

Although there are similarities between the setups of these two events, our researchers believe there are two unique differences between the selloff in 2018 and the current selloff.  We’ll attempt to cover these components and setups in detail.

First, the similarities:

_  The contraction in market price just before the end of the year in 2017 was indicative of a market that had rallied to extended valuation levels, then stalled in December as the year-end selling took over.

_  The renewed rally in early January was a process of capital re-engaging in the market as future expectations continued to drive and exuberant investor confidence in the markets.

These two similarities between 2018 and 2020 seem fundamental.

Yet, there are differences that may drive a further price contraction event – beyond what we saw in 2018.

_  The US/China trade deal disrupted market fundamentals over the past 6+ months and established a more diminished function of global economics as the trade tensions continued

_  The foreign market capital shift process, where foreign capital poured into the US stock market over the past 12+ months and supported the US Dollar was a process of avoiding foreign market risks.  This process trapped a large portion of foreign capital in the US markets prior to the 2020 collapse.

_  Global geopolitical functions are far more fragile than they were in 2018.  After BREXIT was completed and prior to the signing of the US/China trade deal, a number of concerns existed throughout the world and are still valid.

_  The Wuhan Corona Virus has changed what global investors expect and how both supply and demand economic functions are being addressed world-wide.

The potential of an early price bottom setting up after this 2020 price collapse is very real.  Yet, the ultimate bottom in the markets may be much lower than the 11% or 12% price decline that happened in 2018.  The scale and scope of the Corona Virus event, should it continue beyond April 2020 (and possibility well into June or July 2020), could extend the price decline even further.  Ultimately, this extended risk function may push the US and global markets to deeper lows before a bottom sets up – yet the outcome may be very similar.

After the double bottom in 2018 setup, a slow and stead price advance continued until the SPY price rallied to new highs in September 2018.  A very similar type of price activity may take place in 2020 after the ultimate bottom in price sets up.

Our researchers believe the ultimate bottom in the SPY will likely happen near $251 – near the middle of the 2018 price range.  Ideally, the event that takes place to create this price decline will likely happen in a “waterfall” event structure.  This means we may see a series of 3 to 9+ day selloffs culminating in a major market bottom near $251.

If our research team is correct in this analysis, a bottom will likely form in the SPY and near $251 to $265 where and extended bottom pattern may setup.  We may see a double-bottom type of pattern as we saw in 2018.  Ultimately, we believe the bottom will setup sometime in mid-2020 and the remainder of the year will continue to support an extended price rally into the end of 2020.

Are we looking at a similar type of price event like we saw in early 2018?  Ideally, yes.  Although, we believe this downside price move will be deeper in terms of the total price decline (likely 18% to 25%) and will end when price valuation levels reach a point where global investors feel opportunity exists beyond risk.

Right now, we believe an incredible opportunity for skilled investors is present and that incredible market sector price rotations are taking place.  We believe the devaluation process will move the markets lower by at least 15% to 20% or more.  That suggests the bottom in the SPY is likely near $251 before we see any real opportunity for price to form a support base and begin to rally higher.

As a technical analysis and trader since 1997, I have been through a few bull/bear market cycles. I believe I have a good pulse on the market and timing key turning points for both short-term swing trading and long-term investment capital. The opportunities are massive/life-changing if handled properly.

I urge you visit my ETF Wealth Building Newsletter and if you like what I offer, join me with the 1-year subscription to lock in the lowest rate possible and ride my coattails as I navigate these financial market and build wealth while others lose nearly everything they own during the next financial crisis. Join Now and Get a Free 1oz Silver Bar!

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The Mid-Week Wrap – Asian Markets and Stocks

The last week of the month usually is pretty quiet. Is it also the case this week?

For the U.S Dollar

It was a quiet start to the week on the economic data front. The markets needed until Tuesday for consumer confidence figures that failed to impress.

We saw the Dollar under pressure at the start of the week, with last week’s PMI numbers raising the chances of a FED rate hike in the 1st half of the year.

The shift in sentiment saw demand for the Dollar ease early in the week. Following FED Chair Powell’s testimony, the markets had anticipated a resilient U.S economy. Recent economic indicators suggested otherwise, with the U.S private sector contracting in February.

Throw in the rising number of cases of the coronavirus and the CDC’s outlook and the U.S economy also faces headwinds.

Through the remainder of the week, inflation and personal spending figures on Friday will garner plenty of attention. Personal spending figures will be of particular interest as it will indicate any consumer concerns over the virus.

Ahead of the numbers, 2nd estimate GDP numbers for the 4th quarter are due out along with durable goods orders on Thursday.

Expect the durable goods orders to have a greater impact, as the markets look for coronavirus impact on demand.

For the EUR

It was also a relatively quiet start to the week. Germany’s business confidence 2nd estimate GDP numbers were in focus.

While 2nd estimate GDP figures were in line with 1st estimate, there was an improvement in business sentiment.

February’s IFO survey came ahead of the spread of the coronavirus through Europe, however, limiting any upside for the EUR.

Over the remainder of the week, the focus will shift to consumer spending and 4th quarter GDP numbers out of France. There are also unemployment numbers out of Germany to also consider.

For now, we’ve seen the EUR find support as the sentiment shifts towards the U.S economy. Ultimately, however, the Eurozone economy remains more at risk to a marked slowdown that that of the U.S, which suggests the upside to be limited.

A more material spread of the virus across the U.S, however, would alter that outlook.

For the Pound

It’s a particularly quiet week on the economic data front and there have been no material stats to provide support.

We saw the Pound bounce back to $1.30 levels on Tuesday following the EU member states desire to form an ambitious trade agreement with Britain.

That comes with strings attached, however, which Britain is unwilling to agree to.

On Thursday, the British government is due to announce its starting terms, which will give an idea of just how far apart the 2-sides are.

Expect reaction to influence the Pound over the remainder of the week.

Stocks go down due to the virus in an environment of no macroeconomic data releases. In the meantime, how have the commodity currencies reacted to the recent developments in the markets?

We saw the commodity currencies fair better in the early part of the week, in spite of the risk aversion.

This was largely due to the shift in sentiment towards the U.S economy and monetary policy

That being said, it’s still been a bearish week for the commodity currencies.

For the Aussie Dollar, new CAPEX figures for the 4th quarter failed to impress this morning.

With business investment on the slide, any slide in consumer spending would add further pressure on the RBA to make a move.

In the last meeting, the RBA had raised some concerns over the likely impact of the coronavirus on the global economy. Since then, we can expect that concern to have spiked as the virus reaches new countries.

It certainly looks set for a particularly dovish RBA next week, which should limit any upside for the Aussie Dollar.

Things are not much better for the Kiwi Dollar.

Retail sales rose by just 0.7% in the 4th quarter, following a 1.7% rise in the 3rd, with the numbers coming ahead of key stats on Thursday.

While January trade data delivered support, with exports to China on the rise once more in January, it was business confidence that weighed.

The trade figures failed to capture the effects of the extended Chinese New Year and quarantines across the country. February’s figures are expected to be quite dire, however, if business confidence numbers are anything to go by.

That leaves the Kiwi under immense pressure, with economic disruption expected to continue beyond the 1st quarter.

A slight decline in all of the commodity currency charts. Meanwhile, how have the major Asian countries fared during this period? I assume they have been hit the most by the coronavirus.

For the Japanese Yen

We saw the Japanese Yen find renewed interest this week, at the expense of the Greenback. With risk aversion continuing to plague the markets, the rise in the number of cases in the U.S and weak data provided the upside.

The markets had previously moved away from the Yen over concerns that the region would be harder hit by the virus.

This is likely to be the case, however, which should limit any return to ¥107 – 108 levels against the Greenback.

On the economic data front, retail sales and industrial production figures due out on Friday will unlikely reflect the effects of the virus.

Dire numbers, however, would suggest that the BoJ will need to make a move of some sort…

For the rest of the Asian Majors

Unsurprisingly, the rest of the Asian majors have struggled in the week.

We’ve seen the Taiwanese Dollar, Singapore Dollar, Korean Won, and Chinese Yuan struggle as disruption to trade is expected to hurt the respective economies.

Monetary and fiscal policy support has been delivered by a number of central banks in the region.

Uncertainty over the time frame involved, however, and how bad it could get continues to pressure the majors. This will likely continue near-term or at least until the pace of the global spread abates.

Will U.S Durable Goods Orders Give the Markets More Angst as the Number of U.S Cases Rise?

Earlier in the Day:

It was a relatively busy day on the Asian economic calendar this morning. The Kiwi Dollar and Aussie Dollar were in action.

For the Kiwi Dollar

New Zealand’s trade deficit narrowed from NZ$4,460m to NZ$3,870 year-on-year in January. Month-on-month, the trade balance fell from an NZ$384m surplus to an NZ$340m deficit.

According to NZ Stats,

  • Total exports rose by NZ$382m (8.8%) from January 2019 to hit NZ$4.7bn.
    • Exports to China jumped by NZ$302m (31%) to NZ$1.3bn in January, compared with January 2019.
    • A jump in dairy, meat, and log exports led the way.
    • The rise in exports to China meant that China accounted for 27% of total exports, all of which came before the extended CNY holidays and quarantines across the country.
  • Total imports fell by NZ$212m (4.0%) to NZ$5.1bn in January 2020.
    • A slide in the import of vehicles, parts, and accessories (NZ$116m) weighed on imports. Motor car imports were the main driver.
    • Imports from China stood at NZ$1.1bn in January 2020, which accounted for 22% of total monthly imports. On an annual basis, 20% of total imports were from China.

The New Zealand Dollar moved from $0.62898 to $0.62900 upon release of the figures that preceded January business confidence figures.

In January, the ANZ Business Confidence Index fell from -13.2 to -19.4. Economists had forecast a rise to -7.9.

According to the latest ANZ Report,

  • A net 12% of firms expect stronger activity ahead for their own business, falling by 5.
  • Agriculture sector own activity tumbled from +16 to -30, with manufacturing own activity down from +24 to +4.
  • Expected profitability, investment and employment intentions were all in decline.
  • The downward trend was attributed to the spread of the coronavirus. ANZ noted that survey responses received after the COVID-19 outbreak hit the headlines were more negative. These accounted for one-third of the total respondents.
  • On the bright side, the construction sector saw a rosier outlook, with retail sector pricing intentions jumping to the highest level since 2008.

The Kiwi Dollar moved from $0.62866 to $0.62900 upon release of the numbers. At the time of writing, the Kiwi Dollar down by 0.05% to $0.6290.

For the Aussie Dollar

Private new capital expenditure slid by 2.8% in the 4th quarter, following on from a revised 0.4% decline in the 3rd quarter. Economists had forecast a 0.4% rise.

According to the ABS,

  • Building and structures saw a 5.9% slide, while new CAPEX expenditure on equipment, plant, and machinery rose by 0.8%.
  • In the 3rd quarter, investments in building and structures had risen by 2.5%, while expenditure on equipment, plant, and machinery had fallen by 3.6%.

The Aussie Dollar moved from $0.65511 to $0.65535 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.18% to $0.6556.

While the Aussie Dollar was up in the early hours, the slump in new CAPEX expenditure gives the RBA further reason to cut rates. The low-interest-rate environment was not only meant to support consumers but also fuel business spending.

Elsewhere

At the time of writing, the Japanese Yen was up by 0.16% to ¥110.25 against the U.S Dollar.

The Day Ahead:

For the EUR

It’s a relatively busy day ahead on the economic calendar. Key stats include prelim February inflation figures out of Spain and finalized Eurozone consumer confidence figures.

Barring a material pullback in inflation, however, we would expect the numbers to have a muted impact on the EUR.

Expect any revision to Eurozone consumer confidence figures to influence, however, as the markets search for sentiment towards the spread of the coronavirus.

Outside of the numbers, expect market risk sentiment to continue to provide direction. For the EUR, early support kicked in as the markets reacted to news of a rise in new coronavirus cases in the U.S. The upward swing has come as the markets reverse bets on the U.S economy being unscathed from the spread of the virus.

At the time of writing, the EUR was up by 0.26% at $1.0909.

For the Pound

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

While there are no stats to consider, the British Government is due to release its terms for trade negotiations with the EU.

It will all come down to how far apart the 2-sides are from the get-go and how the EU responds and Boris Johnson and David Foster react in return.

Expectations are for a difficult road ahead, which should peg the Pound back at $1.29 levels and bring $1.28 levels back into play.

On the monetary policy front, BoE MPC member Cunliffe is scheduled to speak in the early afternoon. Following Cunliffe’s concerns over the negative effects of prolonged monetary policy easing, expect any dovish chatter to weigh on the Pound.

We’ve yet to hear of central banks wanting to step in as the coronavirus continues to spread. This may well change in the coming weeks…

At the time of writing, the Pound was up by 0.12% to $1.2921.

Across the Pond

It’s a relatively busy day ahead on the U.S economic calendar. January durable goods orders and 2nd estimate GDP numbers for the 4th quarter are due out.

Barring deviation from 1st estimate numbers, expect the core durable goods and durable goods orders to have the greatest impact.

Following last week’s particularly disappointing PMI numbers, any slide in orders will pressure the Greenback further.

Initial weekly jobless claims and pending home sales figures for January are also due out. We will also expect the numbers to have a muted impact on the Dollar, however.

Outside of the numbers, market risk sentiment will continue to influence.

At the time of writing, the Dollar Spot Index was down by 0.06% to 98.939.

For the Loonie

It’s a quiet day ahead on the economic calendar, with key stats limited to 4th quarter current account figures out of Canada.

We can expect the numbers to have a muted impact on the Loonie, however.

Focus through the day will be on the economic outlook and demand for crude oil, which remains Loonie negative.

The Loonie was down by 0.06% at C$1.3341 against the U.S Dollar, at the time of writing.

Democrats vs. Republicans: Who is Better for the USD?

The analysts expected the smooth victory of Democrats, and the Trump’s plans on “Making America great again” were seen as quite uncertain. Several months after, one November night shook not only the minds of the fellow Americans but the US dollar as well.

Sourced by: BBC News

The US working class liked Trump’s straightforward promises more than the words of Hillary Clinton. As a result, the Republican nominee secured his victory with 306 Electoral College votes versus 232 votes for the Democrats.  This victory was seen as dramatic for the stock market and the US currency. What were the chances that the scandalous millionaire would strengthen the markets?

But here we are four years after the grass is still green, the sun shines, and S&P is trading at the all-time highs above $3,300. As for the US dollar, its index has experienced ups and downs since 2016, but the overall performance is still strong.

Now, as we are heading towards the next US Presidential election, let’s have a look at the current candidates and see how their promises may affect the USD after the election. Will the “Trump effect” continue to strengthen the markets?

Republicans: it’s either Trump or… Trump

How many times have you heard of Trump’s complaints about the US dollar’s strength? We guess, quite a lot.  The US President judges the Fed policy almost every month, calling for more rate cuts and even asking the Fed Chair Jerome Powell to leave.  Surprisingly, despite Trump’s rhetoric, the US dollar has been performing pretty well during the period of Trump’s presidency.

The report by Bloomberg even notes a noticeable correlation between the US dollar and the approval rating of Donald Trump.

Well, the charts indeed look similar, and this fact may be discussed from many points of view. Wall Street truly likes Donald Trump’s opinion on lower tax rates and deregulation. As the US and China finally found some common grounds, businessmen will certainly like the US president to go for a second term.

Being the leading Republican candidate after the acquittal in the Senate impeachment deal, Donald Trump enjoys his strengthening approval rating, which has reached 49% in February, according to Gallup poll.

What positive factors drive the approval of the US president so high? The campaign of the current president gives hints on another round of tax cuts and focuses on a large amount of infrastructure package. Trump also announced an incredible trade deal with India – the countries plan to start selling military helicopter deals.  We hope to hear more details of his campaign soon.

Democrats: who is better for the markets?

As for the Republicans’ main rival, the competition for a leadership position keeps being tough. For now, we are waiting for more primaries and caucuses. Until then, the national polling averages show Senator Bernie Sanders taking the lead, followed by the former Vice President Joe Biden and the former New York City mayor Michael Bloomberg.

What do all of them have in common? All of the candidates propose raising taxes on wealthy Americans and businesses. These tax reforms are aimed to form the new government spending in health care, education, housing, climate change, and other socially important spheres.   The biggest plans for raising taxes belong to Bernie Sanders, who is famous for his social-democratic views.

Some analysts doubt the positive effect of these tax measures. According to their views, it will be easier for wealthy people to avoid taxes. At the same time, the bigger taxes may hit average Americans as well, those who invest their money in long-lasting plans.

And what about the financial markets?  No matter who takes the lead in the Democratic Party, the switch of the ruling party will weaken the US currency amid the expected uncertainties. In particular, the progressive ideas of Bernie Sanders may cause more risks to businesses, than the ideas of Michael Bloomberg. As a result, the stock market and the USD may weaken in the short term.

Though, its further direction will depend on the next comments and disclosure of details in the nominees’ election programs. As for the tax reform, we may refer here to the words by the US economist Hans Sennholz, who said that implementation of the higher taxes on rich people and businesses causes expropriation of capital investments that helps to create jobs and improve production levels. Let’s not forget that the raise of taxes may result in more capital outflows into the offshore zones and selling of the USD. So, it is a factor for the US dollar weakness.

Below we listed the main Democratic Party’s candidates and their potential impact on businesses.

Sourced by Stifel

It’s still too early

With more than 8 months until the US election, the things may change pretty fast. Back in 2016, only a small number of analysts predicted the victory of Donald Trump. Others forecast low chances of the USD strength during Trump’s presidency. We recommend waiting for the Democratic leader to be elected at first to see whether his/her views may provide a challenge to the Republican ones or not. After that, judging by the details of their election program, we may suggest about the possible impact on the US economy.


Note for investors

All the information above is signaling the change in the way we determine the strength of the domestic currency. If before the rate cut signaled the weakness of the currency, it’s more likely that in 2020, investors will look at other easing measures. In this case, the economic calendar is not the major way to predict the currency moves. Check the news with FBS to get the recent updates on the monetary policy.  

Asian Selloff Continues As Pandemic Fears Rise

South Korea now has more than 1,100 cases, adding to the worldwide tally that has exceeded 80,000, with more confirmed cases in Europe and the Middle East. Pandemic fears are stoking the risk-off mode in the markets, with the MSCI Asia Pacific index in the red in 9 out of the last 10 sessions, while the South Korean Won is leading Asian currencies’ decline against the US Dollar.

The rout in stock markets suggests that the divergence between valuations and fundamentals need to be reconciled, especially in light of the uncertainties surrounding Covid-19’s eventual toll on the global economy and the efficacy of incoming stimulus measures. Equity investors have deemed that the gains so far this year have run its course for the time being and need stronger conviction to etch out new record highs. The pullback in risk-taking activities however should bode well for safe haven assets, creating a supportive environment for the likes of Gold and US Treasuries in the interim.

Dollar could drop further on Fed easing bets

The Dollar index (DXY) has seen a technical pullback from overbought territory, falling by about one percent since breaching the 99.9 mark last week. If the U.S. Centers for Disease Control and Prevention’s warning of a potential outbreak stateside indeed materialises, that could prompt the Greenback to surrender more of its gains of late.

Should the incoming data on consumer spending, home sales and ISMs come in below market expectations, that could prompt investors to ramp up bets that the Federal Reserve may have to lower US interest rates sooner than expected. Such dovish expectations could also lead to more Dollar softness.

Still, the DXY is expected to remain at relatively elevated levels, with other G10 currencies offering little threat to King Dollar’s throne at present, considering that the US economy is currently in a better place compared to other major, developed economies.

Gold moderates to $1640s, upside bias to remain

Despite shedding over three percent since breaching the $1689 level earlier this week, Gold is expected to remain supported above $1580 as investors continue to cling to safety while assessing the coronavirus’ impact on global economic conditions. Bullion could yet make another run towards the psychological $1700 mark, especially if the negative virus impact shows up in the hard data out of major economies over the coming months.

Demand-side risks still primary driver for Oil

Oil’s sensitivity to coronavirus-linked concerns has made for a tumultuous 2020 so far for Brent futures. Brent futures could see another sharp drop towards $50/bbl, especially if the CDC’s warning of an outbreak stateside materialises. Should OPEC+ decide to trigger more supply cuts at next week’s meeting, that may only have a limited effect on Oil prices, as demand-side concerns are expected to continue having a major sway on the commodities complex.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Risk Aversion Likely to Linger, with Economic Data on the Lighter Side Today

Earlier in the Day:

It was another quiet day on the Asian economic calendar this morning. The Aussie Dollar was in action, with housing sector data in focus.

For the Aussie Dollar

Construction work done slid by 3% in the 4th quarter, following a 0.4% fall in the 3rd quarter. Economists had forecast a decline of 1%.

According to the ABS,

  • Total building work done fell by 4.1%, while total engineering work down fell by 1.5%

The Aussie Dollar moved from $0.65979 to $0.65989 upon release of the figures. At the time of writing, the Aussie Dollar was down by 0.17% to $0.6593.

Elsewhere

At the time of writing, the Japanese Yen was down by 0.01% to ¥110.21 against the U.S Dollar, with the Kiwi Dollar down by 0.14% to $0.6312.

Outside of the numbers, the markets reacted to the overnight slide in the U.S majors and news updates on the spread of the coronavirus.

The risk aversion weighed on the Aussie Dollar and Kiwi Dollar and the Asian equity markets, with the Nikkei down by 1.96% at the time of writing. The ASX200 led the way down, however, tumbling by 2.12%.

The Day Ahead:

For the EUR

It’s another quiet day ahead on the economic calendar. Key stats include French jobseeker figures. Barring a marked increase, the numbers are unlikely to have a material impact on the EUR, however.

Outside of the numbers, risk sentiment will continue to pressure the EUR. Economic disruption stemming from the spread of the coronavirus is expected to materially affect the Eurozone economy.

ECB President Lagarde, due to speak later today, could raise the prospects of further support. She may, however, also call on member states to deliver fiscal policy support. Such calls from the ECB have fallen on deaf ears until now.

At the time of writing, the EUR was down by 0.09% at $1.0872.

For the Pound

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

We saw the Pound find strong support on Tuesday as EU ministers talked of a substantial, ambitious and wide-ranging partnership with the UK.

With talks scheduled to commence next week, the British government is due to release its terms of negotiations tomorrow. The markets will get an idea of just how far apart the two sides are…

At the time of writing, the Pound was down by 0.02% to $1.3003.

Across the Pond

It’s a relatively quiet day ahead on the U.S economic calendar. January’s new home sales figures are due out later today.

With a lack of stats for the markets to consider, expect some Dollar sensitivity to today’s numbers. Mortgage rates and labor market conditions are all supportive of the housing sector. Any weakness in sales may test risk sentiment.

Ultimately, however, the Dollar will be wedged between sentiment towards monetary policy and safe-haven demand.

Last week’s private sector PMIs and the continued spread of the coronavirus has raised the probability of the FED cutting rates.

At the time of writing, the Dollar Spot Index was up by 0.07% to 99.035.

For the Loonie

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

The lack of stats will continue to leave the Loonie in the hands of market risk appetite and crude oil prices.

A steadying of crude oil prices early in the day eased pressure on the Loonie.

The Loonie was down by 0.02% at C$1.3281 against the U.S Dollar, at the time of writing.

U.S. Dollar Index (DX) Futures Technical Analysis – Trader Reaction to 99.200 Pivot Sets the Tone

The U.S. Dollar is edging lower against a basket of major currencies on Tuesday while trading inside yesterday’s range. The price action suggests investor indecision and impending volatility.

Based on the price action since Friday, investors are trying to decide whether the dollar is strong because of its safe-haven status or overpriced due to signs of a weakening U.S. economy.

On Friday, the dollar index sold off sharply after the release of disappointing U.S. manufacturing and services reports. Yesterday it closed higher, but showed little signs of safe-haven status as U.S. equity markets plunged.

Today’s price action is likely to be influenced heavily by the Conference Board’s Consumer Confidence report, due to be released at 15:00 GMT. It is expected to come in at 132.6, up slightly from the previously reported 131.6. This report is important because the consumer has been the main driver of the economy.

Some traders may discount the results because conditions have changed drastically since the survey was taken. It’s highly likely that the CB survey was taken when all investors had to worry about was China’s containment of the coronavirus. This report may not reflect the fact that the virus has now spread beyond China’s borders and has become a major threat to the global economy.

At 11:39 GMT, March U.S. Dollar Index futures are trading 99.235, down 0.049 or -0.05%.

Daily March U.S. Dollar Index

Daily Technical Analysis

The main trend is up according to the daily swing chart. A trade through 99.815 will signal a resumption of the uptrend. The main trend will change to down on a trade through 97.165. This is highly unlikely, but there is room for a normal 50% to 61.8% correction of its last rally.

The minor trend is also up. A trade through 98.580 will change the minor trend to down and shift momentum to the downside.

The minor range is 98.580 to 99.815. The market is currently straddling its 50% level or pivot at 99.200.

The short-term range is 97.165 to 99.815. Its retracement zone at 98.490 to 98.180 is the primary downside target.

Daily Technical Forecast

Based on the early price action and the current price at 99.235, the direction of the March U.S. Dollar Index the rest of the session on Tuesday is likely to be determined by trader reaction to the pivot at 99.200.

Bullish Scenario

A sustained move over 99.200 will indicate the presence of buyers. However, given the series of Gann angles on the upside, any rally is likely to be a labored event.

The index will strengthen on the bullish side of the uptrending Gann angle at 99.290, but then buyers face potential resistance at downtrending Gann angles coming in at 99.440, 99.630 and 99.720. The latter is the last potential resistance angle before the 99.815 main top.

Bearish Scenario

A sustained move under 99.200 will signal the presence of sellers. Taking out yesterday’s low at 99.030 will indicate the selling is getting a little stronger.

The daily chart indicates there is plenty of room to the downside with targets coming in at 98.490, 98.395, 98.230 and 98.180. However, we don’t know at this time if the index will spike into these targets or plunge.

Markets Struggle to Stabilise After Brutal Global Stock Market Sell-Off

Equities in Asia and Europe flashed bright red, while Wall Street collapsed like a house of cards with the Dow Jones tumbling more than 1000 points, its third worst point drop in history. The coronavirus outbreak is certainly fuelling panic across financial markets, with negative sentiment being reflected in a surge in risk aversion, and an explosion in demand for safe haven instruments like Gold, the Japanese Yen and King Dollar.

The mood is slightly better this morning with US and European stock futures rising, but caution still lingers in the air. Asian stocks are struggling to nurse the heavy wounds inflicted from yesterday’s brutal sell-off and this negativity could impact European markets. Speculation around central banks coming to the rescue with a burst of new stimulus may cushion downside losses and rekindle appetite for riskier assets. However, with the coronavirus infecting over 80,000 people and spreading through populations far from its origin in China, uncertainty still remains a dominant theme with markets on high alert.

Dollar softens on rising rate cut expectations

Elsewhere, the Dollar slightly weakened against a basket of major currencies on Tuesday as coronavirus fears fuelled speculation around the Federal Reserve cutting interest rates.

According to the CME’s Fed Watch tool, there is a 45% probability of a US interest rate cut by April and investors are pricing in nearly three cuts over the next 12 months. The prospects of lower interest rates could impact buying sentiment towards the Dollar, despite it’s safe-haven status.

Investors will direct their attention towards the Conference Board consumer confidence report scheduled for release later in the day. A report that meets or exceed expectations could provide a boost to the Greenback which has appreciated against every G10 currency month-to-date.

Focusing on the technical picture, the Dollar Index is trading around 99.24 as of writing. A breakdown below 99.00 could encourage a decline back towards 98.70. However, if 99.00 proves to be reliable support, prices could rebound back towards 99.50.

Commodity spotlight – Gold

Gold weakened this morning after exploding to a fresh 7-year high above $1685 in the previous session, as coronavirus fears sent investors rushing to safe-haven assets.

Nevertheless, the precious metal is heavily bullish on the daily charts as there have been consistently higher highs and higher lows. A solid daily close above $1660 should seal the deal for a move towards the psychological $1700 level. If Gold bulls run of steam and prices remain below $1660, the next level of support will be around $1620.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

GDP Numbers and U.S Consumer Confidence Put the EUR and USD in Focus

Earlier in the Day:

It was a quiet day on the Asian economic calendar this morning, with no material stats to provide direction on the day.

The lack of stats left the markets to lick its wounds following Monday’s risk aversion.

For the Majors

At the time of writing, the Japanese Yen was down by 0.07% to ¥110.8 against the U.S Dollar. The Aussie Dollar was up by 0.18% to $0.6617, with the Kiwi Dollar was up by 0.13% to $0.6348.

The Day Ahead:

For the EUR

It’s a relatively quiet day ahead on the economic calendar. Key stats include Germany’s 2nd estimate GDP numbers for the 4th quarter.

Barring deviation from 1st estimates, however, the numbers are unlikely to have too much of an impact on the EUR.

Following Monday’s sell-off, support through the early part of the day will likely continue through to the U.S session.

Any slide in U.S consumer confidence and risk aversion could return later in the day, however, which would be EUR negative.

At the time of writing, the EUR was up by 0.11% at $1.0866.

For the Pound

It’s another quiet day ahead on the economic calendar, with no material stats to provide the Pound with direction.

Risk sentiment will be the key driver on the day, with Brexit chatter also in focus. EU member states are due to deliver the finalized terms for trade negotiations.

Unrealistic demands would be Pound negative.

At the time of writing, the Pound was up by 0.11% to $1.2938.

Across the Pond

It’s a relatively quiet day ahead on the economic calendar. December house price and February consumer confidence figures are due out later today.

Expect consumer confidence figures to be the key driver. Following some disappointing private sector PMI numbers last week, weak consumer confidence figures would be another red flag.

Fears of a U.S recession had disappeared at the turn of the year. That could change should we see consumer confidence slump.

At the time of writing, the Dollar Spot Index was down by 0.15% to 99.214.

For the Loonie

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

The lack of stats will leave the Loonie in the hands of market risk appetite and crude oil prices.

A steadying of crude oil prices early in the day eased pressure on the Loonie this morning.

The Loonie was up by 0.07% at C$1.3284 against the U.S Dollar, at the time of writing.

Coronavirus Updates Drive Demand for the Dollar as Riskier Assets Slide

Earlier in the Day:

It was a relatively quiet day on the Asian economic calendar this morning. The Kiwi Dollar was in action, with 4th quarter retail sales figures in focus.

Outside of the numbers, risk aversion plagued the markets once more as news updates on the spread of the coronavirus hit the wires.

For the Kiwi Dollar

Retail sales rose by 0.7% in the 4th quarter, following a 1.7% increase in the 3rd quarter.

According to NZ Stats,

  • Electronics, including appliances mobile phones, and computers had the largest sales volume increase for a 3rd consecutive quarter. Sales volume rose by 4.3% following a 4.4% increase in the 3rd
  • 9 of 15 retail industries saw higher sales volumes in the 4th
  • Department stores had the largest fall in sales volume, with volume down by 3.8%. In the 3rd quarter, volumes had increased by 3.8%.

At the time of writing, the Kiwi Dollar was down by 0.46% to $0.6320.

Elsewhere

At the time of writing, the Japanese Yen was up by 0.04% to ¥111.57 against the U.S Dollar, with the Aussie Dollar down by 0.32% to $0.6606.

The Day Ahead:

For the EUR

It’s a relatively busy day ahead on the economic calendar. Key stats include Germany’s IFO Business Climate Index figures for February.

Following better than expected consumer confidence figures last week, any improvement would provide the EUR with much-needed support.

The stats will need to be impressive, however, to offset the early slide stemming from news updates on the coronavirus.

At the time of writing, the EUR was down by 0.23% at $1.0822.

For the Pound

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

The lack of stats will leave chatter on Brexit and market risk appetite to influence.

Strong demand for the Dollar weighed early in the day as the spread of the coronavirus in South Korea continued to hit risk appetite.

At the time of writing, the Pound was down by 0.21% to $1.2937.

Across the Pond

It’s a quiet day ahead on the economic calendar, with no material stats to provide direction for the Dollar.

Following Friday’s pullback that came in response to the PMI numbers, the Dollar was on the move early this morning.

Risk aversion continued to drive demand for the Dollar, as Korea announced that its disease alert level was hoisted to its highest level.

At the time of writing, the Dollar Spot Index was up by 0.29% to 99.5470.

For the Loonie

It’s a relatively quiet day ahead on the economic calendar, with December wholesale sales figures due out of Canada.

While the stats will garner some interest, we don’t expect any long-lasting influence on the Loonie.

News of a further spread of the coronavirus through the weekend weighed on crude oil prices at the start of the week. Demand is expected to take a bigger hit than had been initially anticipated, which led to the early pullback, leading to the early slide in the Loonie.

The Loonie was down by 0.30% at C$1.3265 against the U.S Dollar, at the time of writing.

Commodity Weekly: Gold is in the Midst of a Perfect Storm

Concerns about the human and economic cost of the coronavirus continues to drive the need for strategic diversification and safe haven demand. Pro-cyclical commodities such as crude oil and copper meanwhile saw their recent recovery falter in face of renewed concern over the virus spreading outside of China.

Commodity markets’ main source of influence continues to be the news flow related to the Covid-19 virus and the potential risk of it spreading further across Asia and beyond. China, already reeling from the economic and human impact, is struggling to return to work.

The tentative recovery in key commodities such as copper and crude oil during the past couple of weeks was amongst other things driven by the narrative that the economic impact would primarily be a Q1 event. With the virus continuing to spread outside of China, this narrative has given way to renewed concerns of the virus having a prolonged and negative impact on the global economy.

Goldman estimates that missed work days in China may be equal to the entire U.S. work force taking a two-month unplanned break. The sheer size of this disruption is starting to be felt not only in China but also elsewhere, raising the risk of further short to medium-term pressure on growth-dependent commodities before demand eventually returns to boost prices.

From the table below showing the price performance across major commodities, it is clear that markets dependent on Chinese demand have suffered the biggest setbacks. Those with tight supply chains such as palladium and cocoa have been shielded from the storm while safe-haven demand has continued to drive strong demand for silver and especially gold.

Gold’s near perfect storm of price supporting developments continues. Most significantly, this past couple of weeks has shown the yellow metal’s ability to reach higher ground while the dollar strengthens.

The normal negative correlation has broken down and this has led to some significant gains against most major currencies. Recently record highs have been seen against 10 out of 16 major currencies with gold priced in dollars still the one furthest away from hitting its $1921/oz record from 2011.

Gold continues its impressive rally this past week as it reached a fresh 7-year high following the biggest weekly gain in more than six months. As already mentioned, the recent extension has been particularly impressive at a time when the dollar has been breaking higher against several major currencies.

The dollar strength has been particularly noticeable against the euro, which has dropped to a near 3-year low and in the process, gold priced in euros has rallied to a fresh record high above €1500/oz., thereby reaching another milestone for a rally that began just above €1000/oz in late 2018.

So why is gold in demand when U.S. stocks continue to toy with record highs and the dollar keeps rising? We believe that the combination of additional rate cuts, increased stimulus, negative US real yields – which reached a 7-year low at -0.15% – and increased worries about company earnings going forward will continue to drive strategic diversification and safe haven demand. Adding to this is the clear risk that the virus outbreak may have a longer and more profound impact.

January was a particularly worrying month for markets with U.S.-Iran tensions being followed by the virus outbreak. During January, total holdings in ETFs backed by bullion rose by an average of 1.3 tons/day. So far this February holdings have, despite the mentioned dollar strength and recovering stock markets, been rising by 1.9 tons/day.

While Goldman Sachs sees gold heading towards $1,750/oz, Citi Bank has said it could reach $2,000/oz within the next 12 to 24 months. Having reached our 2020 target of $1625/oz, the virus outbreak is likely to send it higher as it is difficult to see what at this stage can halt or pause the rally perhaps apart from its own success, which has led to a short-term overbought market condition. From a technical perspective, using a Fibonacci extension, the next target is $1,690/oz with support at $1,595/oz.

In our latest Commodity Weekly we said that commodities offer a better insight than stocks when it comes to the real impact of the virus outbreak. Not least considering that the epicenter is in China, the world’s most dominant consumer of raw materials.  On that basis, we remain concerned that the full impact on other markets from the slowdown in China and abroad is not being properly priced in.

The stock market has recovered strongly as investors have become increasingly immune to the apparent risks. Instead, focusing on the support coming from low inflation, low interest rates and central banks, led by the U.S. Federal Reserve, continuing to pump liquidity into the market.

Copper and crude oil did provide some relief during the past couple of weeks after both managed to recover some of the steep losses seen during January. Crude oil found some additional support from worsening supply disruption in Libya, U.S. sanctions against Rosneft over its support for Venezuela and not least hopes for additional OPEC+ production cuts. Copper meanwhile responded positively to efforts made by the People’s Bank of China to support the economy through rate cuts and additional liquidity.

So far, however, from a technical perspective, the recovery in both commodities has been relatively small. Both have struggled to reach a 38.2% retracement of the recent sell-off. On that basis we see the short-term risks once again being skewed to the downside. This is in response to the renewed concern that the continued spreading of the virus will overshadow hopes that China’s stimulus efforts will cushion the blow to the biggest demand shock since the global financial crisis in 2009.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

U.S. Dollar Index (DX) Futures Technical Analysis – Trader Reaction to 99.200 Sets the Tone on Monday

The U.S. Dollar posted a dramatic reversal to the downside on Friday after bullish investors cashed in long positions in reaction to weaker-than-expected U.S. economic data that suggested the economy may not be as strong as expected.

Helping to drive the dollar lower was a survey of purchasing managers that showed U.S. business activity in both the manufacturing and services sectors stalled in February on coronavirus worries.

On Friday, March U.S. Dollar Index futures settled at 98.188, down 0.588 or -0.59%.

The dollar was also pressured by a plunge in U.S. Treasury yields, which fell as mounting concerns about the economic impact of the coronavirus epidemic drove investors into safe-haven assets. The benchmark 10-year yield was down 5.4 basis points in afternoon trade at 1.4713%. It was the first time the note yielded less than 1.5% since early September.

The 30-year bond was down 5.4 basis points at 1.9181%. The session low was 1.886%, an all-time low.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 99.815 will signal a resumption of the uptrend. The main trend will change to down on a move through 97.165. This is highly unlikely, but there is room for a normal 50% to 61.8% correction.

The minor trend is also up. A trade through 98.580 will change the minor trend to down. This will shift momentum to the downside.

The minor range is 98.58 to 99.815. Its 50% level or pivot at 99.200 was tested on Friday with the market closing slightly below this level.

The short-term range is 97.165 to 99.815. Its retracement zone at 98.490 to 98.180 is the first downside target.

The intermediate range is 96.815 to 99.815. Its retracement zone is 98.315 to 97.960.

The major range is 96.020 to 99.815. Its retracement zone at 97.920 to 97.470 is the major downside target and value zone.

A pair of retracement levels come in at 97.960 to 97.920, creating an important support cluster.

Daily Swing Chart Technical Forecast

Based on Friday’s price action and the close at 98.188, the direction of the March U.S. Dollar Index on Monday is likely to be determined by trader reaction to the minor pivot at 99.200.

Bullish Scenario

A sustained move over 99.200 will indicate the presence of buyers. The first upside target is a minor pivot at 99.480. Overtaking this level could lead to a test of the minor top at 99.815. This is a potential trigger point for an acceleration to the upside.

Bearish Scenario

A sustained move under 99.200 will signal the presence of sellers. This could trigger an acceleration to the downside with the first potential target the minor bottom at 98.580, followed by a 50% level at 98.490.

Side Notes

We should find out on Monday if Friday’s sell-off was a “one and done” move in reaction to the weak U.S. economic data or the start of a major shift in momentum to the downside.

The Week Ahead – Economic Data and COVID-19 Updates to Drive the Majors

On the Macro

It’s a relatively busy week ahead on the economic calendar, with 55 stats to monitor in the week ending 28th February. In the previous week, just 64 stats had been in focus.

For the Dollar:

It’s a busy week ahead for the Dollar.

The markets will have to wait until Tuesday, however, to assess the impact of COVID-19 on the U.S consumer, with the all-important CB Consumer Confidence figures for February due out.

FED Chair Powell had talked of economic resilience and with the U.S equity markets close to record highs, there’s little reason to expect any deterioration. Forecasts are Dollar positive.

The focus will then shift to January durable goods orders and 4th quarter GDP numbers due out on Thursday. Barring revision from 1st estimates, we expect the durable goods orders to have the greatest influence.

COVID-19 is expected to have a material impact on key economies. The markets will want to ensure that the U.S economy remains unscathed… After all, there remains a distinct difference between survey-based and actual data.

At the end of the week, January inflation and personal spending figures are due out along with the Chicago PMI for February.

Barring material deviation from prelims, we would expect finalized consumer sentiment numbers to be brushed aside.

Over the week, housing sector figures will also draw attention mid-week, with new home and pending home sales figures due out.

The Dollar Spot Index ended the week up by 0.21% to 99.337.

For the EUR:

It’s a relatively busy week ahead on the economic data front.

In the 1st half of the week, Germany is on focus once more. February’s IFO Business Climate Index numbers are due out on Monday, ahead of 2nd estimate GDP numbers on Tuesday.

While the IFO numbers will be the key driver, any revisions to the GDP numbers will have a greater impact…

In the 2nd half of the week, French consumer spending and GDP numbers are due out along with German unemployment figures on Friday.

Expect Germany’s unemployment numbers to have the greatest influence on the day.

Through the 2nd half of the week, prelim inflation figures for February will likely have a muted impact on the EUR.

The EUR/USD ended the week up down by 0.15% to $1.0847.

For the Pound:

It’s a particularly quiet week ahead on the economic calendar.

There are no material stats scheduled for release, which leaves the hand firmly in the hands of Brexit.

On 25th February, the EU is due to deliver its starting terms for trade negotiations that begin next week. France has already talked of a tough time ahead and Britain has been clear that there can be no strings attached.

Expect chatter on trade to be the key driver in the week. Economic data out of the UK impressed last week. That should remove the near-term focus on the BoE and monetary policy.

The GBP/USD ended the week down by 0.64% to $1.2964.

For the Loonie:

It’s a relatively busy week ahead on the economic calendar.

In a quiet 1st half of the week, however, economic data is limited to December’s wholesale sales figures due out on Monday. While the numbers will provide direction, the focus will be on GDP numbers due out on Friday.

Any weak numbers and expect the chances of a rate cut to rise, which should send the Loonie back to C$1.33 levels.

Outside of the stats, market risk sentiment will also be a key driver.

The Loonie ended the week up by 0.20% to C$1.3225 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a relatively quiet week ahead.

Key stats include 4th quarter construction work done and new CAPEX figures due out on Wednesday and Thursday.

While housing sector conditions have improved and are key to supporting consumer spending, CAPEX numbers will likely have a greater influence.

Business confidence has failed to bounce back at the turn of the year. Weak investment numbers will weigh on Thursday.

On Friday, private sector credit figures are unlikely to have a material impact on the Aussie.

Outside of the numbers, expect updates on COVID-19 to also provide direction.

The PBoC and Chinese Government have delivered support and will likely deliver more if the need arises. Will it be enough to support the RBA’s view that the impact of the virus will be short-lived?

The Aussie Dollar ended the week down by 1.30% to $0.6627.

For the Kiwi Dollar:

It’s a relatively busy week ahead on the economic data front. At the start of the week, 4th quarter retail sales figures will influence on Monday. The attention will then shift to January trade data and business confidence figures due out on Thursday.

Expect the retail sales and trade figures to have a greater impact, however.

On the trade front, there will be particular interest in export figures to China that are likely to have seen a sizeable decline.

In December, exports to China had accounted for 28% of NZ exports…

The Kiwi Dollar ended the week down by 1.38% to $0.6349.

For the Japanese Yen:

It’s a relatively busy week on the economic data. The markets will need to wait until Friday, however, for key stats.

Expect prelim January industrial production and retail sales figures to have the greatest influence.

Following some particularly dire numbers out of Japan last week, more doom and gloom should test the BoJ’s resolve…

Outside of the numbers, updates from China and the region on the coronavirus will also provide direction.  Expect any rise in cases within the region to weigh on the Yen.

The Japanese Yen ended the week down by 1.67% to ¥111.61 against the U.S Dollar.

Out of China

It’s a quiet week on the economic data front. Key stats are limited to February private sector PMI numbers that are due out on Saturday.

Outside of the numbers, chatter from Beijing and COVID-19 updates will continue to be the main area of focus.

The Chinese Yuan fell by 0.58% to CNY7.0271 against the U.S Dollar in the week.

Geo-Politics

Trade Wars: It’s simmering in the background. U.S President Trump may be quietly concerned over the impact of the coronavirus on his trade win against China… China is unlikely to meet any of the terms any time soon. With the Presidential Election campaign beginning to heat up, U.S farmers may not be getting the demand that Trump had promised…

Looking across to the EU, the Airbus v Boeing battle could send the EU into a trade dispute with the U.S. While hopes are of a resolution, progress on talks will need monitoring…

UK Politics: Terms of the EU’s starting point ahead of trade negotiations are due to be delivered on 25th February.

Expect plenty of reaction from Parliament and the markets from the terms that are likely to point to that tough time ahead…

Corporate Earnings

It’s a quieter week ahead on the corporate earnings calendar, as earnings season begins to wind down. Marquee names releasing earnings include:

From the U.S: Macy’s Inc. (Tue), JC Penny Co. Inc. (Thurs),

From of the UK: Standard Chartered PLC (Mon), Rio Tinto (Wed), British American Tobacco (Thurs), and International Consolidated Airlines Group SA (Thurs)

The Weekly Wrap – U.S PMIs and the Coronavirus Drive Risk Aversion

The Stats

It was a busy week on the economic calendar, in the week ending 21st February.

A total of 72 stats were monitored, following the 46 stats in the week prior.

Of the 72 stats, 39 came in ahead forecasts, with 24 economic indicators coming up short of forecast. 9 stats were in line with forecasts in the week.

Looking at the numbers, 27 of the stats reflected an upward trend from previous figures. Of the remaining 45, 36 stats reflected a deterioration from previous.

For the Greenback, it was a particularly bullish week, with risk aversion and positive economic data driving demand for the Dollar. That was the story until Friday when the Dollar hit speed bumps as private sector activity waned.

The Dollar Spot Index rose by 0.21% to 99.337, in the week.

Out of the U.S

In the 1st half of the week, key stats in the week included manufacturing numbers out of NY State and January wholesale inflation figures.

Any concerns over the impact of the coronavirus on U.S manufacturing sector activity would have eased. The Index jumped from 4.80 to 12.90 in February.

Wholesale inflationary pressures were also on the rise. Core producer prices rose by 0.5% in January, following a 0.1% rise in December. Producer prices also rose by 0.5%, following a 0.1% increase in December.

The focus then shifted to Philly FED Manufacturing and U.S prelim private sector PMI numbers for February.

On Thursday, the Philly FED Manufacturing Index jumped from 17.0 to 36.7 in February. Economists had forecast a fall to 10.0.

Private sector PMIs failed to impress on Friday, however.

The all-important U.S service sector contracted in February. According to prelim February figures, the Services PMI fell from 53.4 to a 76-month low 49.4.

Things were not much better for the manufacturing sector, with the PMI falling from 51.9 to 6-month low 50.8. As a result, the U.S Composite Output Index slumped to a 76-month low 49.6.

Friday’s numbers will have created some uncertainty over the U.S economic outlook that struggled in February. The ISM numbers will be key… Did the FED Chair get it that wrong?

On the monetary policy front, the FOMC meeting minutes from Wednesday had limited impact. FED Chair Powell’s testimony from last week was considered more current.

In the equity markets, the Dow fell by 1.38%, with the S&P500 and NASDAQ down by 1.25% and by 1.59% respectively.

Out of the UK

It was a busy week on the economic calendar.

In the early part of the week, employment and inflation figures provided direction.

In December, average wages plus bonuses rose by 2.9%, easing from 3.2% in November. While wage growth slowed, employment continued to rise at a solid clip in the final quarter. Employment rose by 180k in December, following on from a 208k rise in the 3-months to November.

A 5.5k rise in claimant counts in January suggests that the unemployment rate will hold steady at 3.8%.

On Wednesday, inflationary pressures picked up at the start of the year, with the annual rate of inflation accelerating to 1.8%.

While the stats were skewed to the positive in the 1st half of the week it was not enough to support the Pound, however.

In the 2nd half of the week, retail sales and private sector PMI numbers also impressed.

Core retail sales rose by 1.6% in January, with retail sales rising by 0.9%, the pickup coming in spite of rising consumer prices.

Wrapping things up on Friday, private sector PMI numbers delivered support to the Pound.

The Manufacturing PMI rose from 50.0 to 51.9, while the Services PMI fell from 53.9 to 53.3, leaving the Composite unchanged at 53.3.

Upbeat stats in the week further eased any expectation of a BoE rate cut near-term, leading the Pound back to $1.29 levels.

Outside of the numbers, Brexit chatter was also in focus as France looked to send a strong message of intent across the Channel.

Britain’s chief negotiator David Frost delivered Britain’s goals on Monday, while also stating that signing up to EU standards would defeat the purpose of Brexit. The comments came in response to warnings from the French government as the EU and Britain prepare to begin trade negotiations…

France’s warnings and Britain’s stance suggest a tough time ahead, which left the Pound in the red early in the week.

In the week, the Pound fell by 0.64% to $1.2964, with the FTSE100 ending the week down by 0.07%.

Out of the Eurozone

It was a quiet start to the week economic data front, with economic data limited to economic sentiment figures out of Germany and the Eurozone.

The numbers were skewed to the negative, with investor concerns over the effects of the coronavirus weighing.

The Eurozone’s Economic Sentiment Index fell from 25.6 to 10.4, with the German Sentiment Index falling from 26.7 to 8.7.

In the 2nd half of the week, however, the stats were skewed to the positive.

Consumer confidence seemed unaffected by the spread of the coronavirus. Germany’s GfK Consumer Climate Index fell by 9.9 to 9.8, with the Eurozone’s consumer confidence rising from -8.1 to -6.6.

At the end of the week, prelim private sector PMI numbers were also skewed to the positive.

Manufacturing sector activity picked up in February, with the Eurozone’s PMI hitting a 12-month high.

While the Eurozone’s Composite rose from 51.3 to 51.6, it wasn’t all smooth sailing, with new orders continuing to weigh.

Finalized inflation figures from member states and the ECB monetary policy meeting minutes had a muted impact on the EUR.

For the week, the EUR rose by 0.15% to $1.0847, with a 0.57% rally on Friday reversing losses from the week.

For the European major indexes, it was a bearish week. The DAX30 fell by 1.20% to lead the way, with the CAC40 and the EuroStoxx600 ending the week down by 0.65% and by 0.61% respectively.

Elsewhere

It was a particularly bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week, the Aussie Dollar fell by 1.30% to $0.6627, with the Kiwi Dollar down by 1.38% to $0.6349.

For the Aussie Dollar

It was a relatively quiet week for the Aussie Dollar on the economic data front.

Key stats included 4th quarter wage growth numbers on Wednesday and January employment figures on Friday.

It was a mixed set of numbers, however. Wage growth continued to grow at a tepid pace of 0.5%, with the unemployment rate rising from 5.1% to 5.3%.

There was a 46.2k jump in full-time employment to limit the negative sentiment towards the Aussie Dollar on the day.

On the monetary policy front, the RBA Meeting Minutes added further pressure on the Aussie Dollar on Tuesday.

The rate statement released on 4th February had shown little concern over the likely effects of the coronavirus on the economy.

The minutes, however, sent a different message, with members also considering a rate cut at the meeting. All of this was in spite of the RBA expecting economic activity to pick up in the 2nd half of the year.

With the RBA minutes on the dovish side, risk aversion in the week added pressure on the Aussie Dollar. While numbers out of China showed the spread of the coronavirus slowing, cases elsewhere caused alarm.

For the Kiwi Dollar

It was a particularly quiet start to the week on the economic colander, with no material stats to provide direction.

A likely extended period of soft demand for goods from New Zealand weighed on the Kiwi Dollar in the week.

China’s measures to continue to contain the spread of COVID-19 is expected to weigh on demand for overseas goods.

In the 2nd half of the week, 4th quarter wholesale inflation figures on Thursday did little to support the Kiwi. Input price inflation eased from 0.9% to 0.1% in the 4th quarter. Economists had forecast an easing to 0.4%.

For the Loonie

It was a busy week on the economic calendar. Key stats included January inflation figures on Wednesday and December retail sales figures on Friday.

The numbers were mixed in the week, with a pickup in the annual rate of core inflation providing support mid-week.

Retail sales figures did little to impress, however, with retail sales stalling in December.

While the stats did provide direction, crude oil supply disruption provided support.

The Loonie rose by 0.20% to end the week at C$1.3225 against the Greenback.

For the Japanese Yen

It was a busy week on the data front.

At the start of the week, 4th quarter GDP numbers and finalized industrial production figures caught the markets off-guard on Monday.

In the 4th quarter, the economy shrank by 1.6%. Compared with the 4th quarter of 2018, the economy slumped by 6.3%.

Economic woes were attributed to the sales tax hike, typhoons, and the U.S – China trade war.

Of concern for the BoJ will be the fact that the contraction came before COVID-19 began to spread…

On Wednesday, trade figures were not much better, with Japan’s trade deficit widening from ¥154.6bn to ¥1,312.6bn.

While exports fell by 2.6% year-on-year, the numbers were not as bad as had been anticipated. February figures will give the markets a better idea of what impact the coronavirus has had on the Japanese economy.

At the end of the week, it was weak stats once more, however.

Japan’s Manufacturing PMI fell from 48.8 to 47.6, with the Services Sector PMI falling from 51.0 to 46.7.

Market jitters over the spread of the coronavirus weighed heavily on the Yen. Rising cases in Japan and the region led to the markets seeking safety elsewhere.

Economic data out of Japan suggested that there is more trouble ahead for the Japanese economy. Uncertainty over the coronavirus spread across the region was also a key driver to the Yen’s demise.

The Japanese Yen fell by 1.67% to end the week at ¥111.61 against the U.S Dollar.

Out of China

Economic data was on the lighter side in the week, with key stats limited to new loans for January.

New loans surged by CNY3,340.0bn in January, following a CNY1,140.0bn rise in December.

Outside of the numbers, the PBoC cut loan prime rates on Thursday, though not by the extent that the markets had anticipated.

The PBoC cut 1-year loan prime rates from 4.15% to 4.05%, with the 5-year LPR cut from 4.8% to 4.75%.

While the more modest cuts weighed on the markets on Thursday, updates on the coronavirus provided support. The number of cases in China was in decline in the week, with the number of deaths also falling.

Earlier in the week, fiscal and monetary policy support had given the Yuan a boost before a pullback to CNY7 levels against the Dollar.

The CSI300 rallied by 4.06%, while the Hang Seng slid by 1.82% in the week.

In the week ending 21st February, the Yuan fell by 0.58% to CNY7.0271 against the Greenback.

U.S. Dollar Index Futures (DX) Technical Analysis – 99.040 Potential Trigger Point for Downside Acceleration

The U.S. Dollar is trading sharply lower against a basket of currencies late Friday after a survey of purchasing managers showed U.S. business activity in the manufacturing and services sectors stalled in February as companies have grown increasingly worried about the impact of the coronavirus on the U.S. economy. Most of the losses in the index are being fueled by a surge in the Euro, its biggest component. The Japanese Yen is also rebounding after dropping about 2% this week.

At 17:54 GMT, March U.S. Dollar Index futures are trading 99.180, down 0.596 or – 0.60%.

The Euro was about 0.6% higher against the greenback. Business activity in the Euro Zone picked up more than expected this month, a business survey showed on Friday, in welcome news for policymakers at the European Central Bank, who are trying to revive growth and chronically low inflation.

The British Pound rose against the U.S. Dollar after British factories reported the fastest rise in output for 10 months in February, assuaging some fears over the economy as Britain prepares for trade talks with the European Union. The Sterling was up 0.53% against the greenback.

Daily March U.S. Dollar Index

Daily Technical Analysis

The main trend is up according to the daily swing chart. A trade through 99.815 will signal a resumption of the uptrend. The main trend will change to down on a trade through 97.165.

A close below 99.020 will form a potentially bearish weekly closing price reversal top.

The minor trend is also up. A trade through 98.580 will change the minor trend to down. This will also shift momentum to the downside.

The minor range is 98.580 to 99.815. Its 50% level or pivot at 99.200 is currently being tested.

The main range is 97.165 to 99.815. Its retracement zone at 98.490 to 98.180 is the next major downside target.

Daily Technical Forecast

Based on the early price action and the current price at 99.180, the direction of the March U.S. Dollar Index into the close on Friday is likely to be determined by trader reaction to the minor pivot at 99.200.

Bullish Scenario

A sustained move over 99.200 will indicate the presence of buyers. The first target is an intraday pivot at 99.480. This is followed by the minor top at 99.815.

Bearish Scenario

A sustained move under 99.200 will signal the presence of sellers. The first downside target is the uptrending Gann angle at 99.040.

The Gann angle at 99.040 is a potential trigger point for an acceleration to the downside with the next major target zone 98.490 to 98.180.

Private Sector PMIs and the Coronavirus in Focus as Risk Aversion Hits

Earlier in the Day:

It was a relatively busy day on the Asian economic calendar this morning. The Japanese Yen was in action, with January inflation figures and prelim February private sector PMIs in focus.

Outside of the numbers, risk aversion plagued as the markets responded to news updates on the spread of the coronavirus.

For the Japanese Yen

The annual rate of core inflation picked up from 0.7% to 0.8% in January, while the annual rate of inflation eased from 0.8% to 0.7%. The numbers were in line with forecasts. Consumer prices stalled in January, following a 0.1% rise in December.

The Japanese Yen moved from ¥112.048 to ¥112.030 upon release of the figures that preceded the PMIs.

In February, the Manufacturing PMI fell from 48.8 to 47.6, with the Services PMI falling from 51.0 to 47.6, according to prelim numbers.

The Japanese Yen moved from ¥112.118 to ¥112.0132 upon release of the figures. At the time of writing, the Japanese Yen was up by 0.13% to ¥111.95 against the U.S Dollar.

Elsewhere

At the time of writing, the Kiwi Dollar was down by 0.41% to $0.6307, with the Aussie Dollar down by 0.29% to $0.6596.

The Day Ahead: 

For the EUR

It’s a busy day ahead on the economic calendar. Key stats include France, Germany and the Eurozone’s prelim private sector PMIs for February.

Finalized January inflation figures from Italy and the Eurozone are also due out but will likely have a muted impact on the EUR.

Forecasts are EUR negative and we can expect plenty of sensitivity to the numbers. The PMIs will give the markets an indication of just how bad things are likely to get on the economic front.

From the U.S, private sectors PMIs are also due out and will also influence risk sentiment later in the day.

At the time of writing, the EUR was up by 0.07% at $1.0793.

For the Pound

It’s another relatively busy day ahead on the economic calendar. Key stats include prelim private sector PMI numbers for February.

We saw January’s private sector activity give the BoE reason to pause in the last MPC meeting. Expect any dire numbers to raise expectations of BoE support near-term. The market focus will be on the services PMI…

Outside of the numbers, there is always Brexit chatter to also impact.

At the time of writing, the Pound was up by 0.09% to $1.2893.

Across the Pond

It’s a relatively busy day ahead on the U.S economic calendar. Key stats include February’s prelim private sector PMIs and January existing home sales figures.

Expect the PMI numbers to have the greatest impact on the Dollar and risk appetite.

While the focus will be on service sector PMI numbers, the manufacturing PMI will need to hold its ground.

The markets are expecting a resilient U.S economy amidst the spread of the coronavirus.

At the time of writing, the Dollar Spot Index was down by 0.06% to 99.6803.

For the Loonie

It’s a relatively busy day ahead on the economic calendar, with December retail figures due out of Canada.

With the BoC sitting on the fence digesting economic data, expect the Loonie to be particularly responsive to the numbers.

Any slide in spending and we can expect the BoC to begin leaning towards providing further support.

The Loonie was up by 0.07% at C$1.3250 against the U.S Dollar, at the time of writing.

U.S. Dollar Index Futures (DX) Technical Analysis – Should Rally Until Euro Reverses to Upside

The U.S. Dollar continued to strengthen against a basket of currencies on Thursday. This time the rally was fueled by stronger-than-expected economic data. Helping to boost the dollar was another steep drop in the Japanese yen, which plunged for a second day as investors began to question its status as a safe-haven asset due to concerns over its economy.

Earlier this week, a Japanese government report showed that GDP had weakened. With the coronavirus expected to impact the Japanese economy during the first quarter, traders are starting to bet on the start of a recession in the world’s third largest economy.

At 18:51 GMT, March U.S. Dollar Index futures are trading 99.735, up 0.138 or +0.14%.

In U.S. economic news, the number of Americans filing for unemployment benefits rose modestly last week. The data suggested sustained labor market strength that could help to support the economy amid risks from the coronavirus and weak business investment.

In another report on Thursday, the Philadelphia Fed said its business conditions index jumped to a reading of 36.7 in February, the highest since February 2017, from 17.0 in January.

Daily March U.S. Dollar Index

Daily Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed earlier in the session when buyers took out yesterday’s high.

The main trend will change to down on a trade through 97.165. This is highly unlikely. However, due to the prolonged move up in terms of price and time, the index is inside the window of time for a potentially bearish closing price reversal top.

Daily Technical Forecast

Based on the early price action and the current price at 99.735, the direction of the March U.S. Dollar Index into the close is likely to be determined by trader reaction to yesterday’s close at 99.597.

A close under 99.597 will form a closing price reversal top. This won’t change the main trend to down, but if confirmed, it could trigger the start of a 2 to 3 day correction.

The Dollar is Searching for its Price Ceiling

The dollar index tracks the USD against the six most popular world currencies, where the yen and the euro can be considered the main catalysts for a decline, having lost 3.0% and 2.6%, respectively.

Nevertheless, smaller and secondary currency pairs also deserve traders’ attention, the movement in which is a kind of manifestation of profound processes of financial markets. Judging by these movements, the longstanding carry-trade idea becoming obsolete, as the high-yielding currencies of emerging markets are no longer highly profitable and the central banks of these countries are softening their policies in the attempt to revive economic growth.

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Against the backdrop of the coronavirus epidemic and the Chinese authorities’ efforts to stimulate the economy, the Yuan is weakening. The Dollar is again worth more than 7 Yuan due to the easing of monetary policy of the authorities and fears of investors about a sharp cooling of China’s economic growth. The 7.0 mark was and remained an essential barometer of sentiment in China.

The price dynamic above this level reflects the continued uncertainty in markets about future growth prospects. In early 2017 and late 2018, the Yuan was heavily protected by PBC near this level. The signing of Phase One trade agreement also returned the renminbi underneath this waterline. However, the demand for the Dollar pushed the pair higher earlier this week.

The weakness of the Yuan and the Chinese economy also affected the Australian Dollar. AUDUSD is declining again this week, updating its 2009 lows below 0.67.  It was a kind of waterline at 0.70, and the pair failed its attempt to climb higher at the end of last year.

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A separate story is a Turkish Lira. This currency does not depend on problems in China so that it can be viewed as a different story. The USDTRY broke through 6.0 this week, following another cut of the rate by the Turkish Central Bank. TCMB has been more focused on reviving economic growth in recent months, rather than curbing inflation.

The steady downward trend of the lira against the Dollar has been observed for more than a month, and last week the pair crossed the 6.0 level, returning to last year’s highs. Above the current mark (6.08) the pair was only in May 2019 and from August to October 2018 during the period of extreme volatility in the pair. It seems that now the markets are trying to find the “ceiling” for the pair, the growth above which will be sensitive for the policymakers, forcing them to stand up for their currency.

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The same can be said about the South African Rand, which crossed the mark of 15.00 in USDZAR, which was repeatedly tested for strength in recent years but did not stay long. The weakening of the Rand against the Dollar looks more surprising as it is happening against the background of robust gold price growth, that previously determined the price direction of ZAR.

This article was written by FxPro