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.

USD/JPY Weekly Price Forecast – US Dollar Gets Crushed Against Japanese Yen For The Week

The US dollar has broken down significantly against the Japanese yen during the week as the stock markets in New York have been crushed in ways that we haven’t seen since the financial crisis. At this point, we are testing the ¥108 region, which should be supportive. If the market breaks down below there it’s likely to go towards the ¥105 level over the longer term. That being said, we could get a bit of a bounce and go looking towards the ¥110 level above. That is essentially “fair value” for the overall consolidation.

USD/JPY Video 02.03.20

The overall consolidation runs from ¥115 to the upside down to the ¥105 level on the downside. Based upon this candlestick, I do think it’s more likely that we go looking towards the downside but don’t be surprised at all if we see some type of short-term bounce in the process. If we were to break down below the ¥105 level, it would be crucial at that point and we would probably see this market drop down to the ¥100 level, an area that has traditionally caught the attention of the Bank of Japan. To the upside, if the market was to take out the highs of the week, that would obviously be a very bullish sign, but I give that about a 5% chance of happening anytime soon. This is a market that you should be looking for opportunities to sell after bounces, but you may have to do so from shorter-term timeframe such as the daily or the four hour charts.

USD/JPY Price Forecast – US Dollar Continues to Melt Down Against Yen

The US dollar has broken down rather significantly during the training session on Friday, as we continue to see a run to safety and the financial markets. The Japanese yen is reasserting itself as a safety currency, as we have seen in spades over the last several sessions. The US markets have been selling off, and therefore money is flying out of New York as more concerned about coronavirus hit the headlines. As I record this, the Dow Jones Industrial Average is down 900 points, and looking very much like it’s going to reach 1000 lost yet again.

USD/JPY Video 02.03.20

The USD/JPY pair is getting close to the 200 day EMA, an area that will of course attract a lot of attention. At this point, I think that the 200 day EMA could cause a little bit of a bounce, but if we do break down below there then the longer-term trend suddenly becomes negative again. The ¥110 level is essentially “fair value” in the longer-term consolidation area and we have just gotten smoked by a false break out. Because of this, it’s likely that we may return to ¥110 again, as market memory dictates. However, the market is literally moving by the most recent headline, and to be honest the correlation between the S&P 500 in the USD/JPY pair has returned to the norm again, so pay attention to this correlation, as we are getting oversold, and it’s a matter of time before we get some type of nasty bounce. In other words, you can’t short the market quite right now, as you would be “chasing the trade.” That being said, it will be interesting to see what happens next but I would advise keeping a very small position regardless of what you choose to do.

When Investors Are Panicking, Yen flexes Muscles

This week on global stocks was absolutely brutal. We dropped from almost all-time highs to the lowest levels since October. Almost 4 months of rises wiped out in a week. That has to hurt. On the Forex Market, we have the dominance of safe heaven currencies: CHF and JPY. In this analysis, I will analyze the situation on the Japanese Yen.

First, Yen Index. First signs of power appeared on Monday, when the index confirmed the false breakout below important mid-term support (827). Other steps were made on Wednesday and Thursday, when the price broke the mid-term down trendline and the horizontal resistance on the 837. Yesterday’s candle just made everything clear – buyers are fully controlling the situation at the moment. Sentiment for Japanese currency is currently positive.

Now, USDJPY, which we analyzed recently. In our previous analysis we pointed out the giant symmetric triangle and the breakout to the upside. In theory, that was a great buy signal. Just in theory though as in practice, the price met a worthy opponent – highs from the 2019. This is were the price reversed and created a false breakout pattern. Now we are back below the upper line of the triangle, which is a very negative signal for the nearest future.

Now, everyone’s favorite, one and only – GBPJPY. Here, the situation is pretty clear. The price broke the 141 support, which automatically switched the sentiment into a negative one. This level was a crucial resistance from October to December 2019 and later a crucial support, till yesterday. Price staying below this area is definitely pessimistic.

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.

USD/JPY Price Forecast – US Dollar Gets Hit

The US dollar got hit initially during the trading session on Thursday, as money continues to flow out of the United States stock indices. Having said that though, the market does look as if it is trying to find its footing and of course although the Japanese yen has been acting more like a safety currency all of a sudden, the reality is that there is much more impact on the Japanese economy in the short term then there is the US. I think at this point a lot of this is just money being forced from one border to another in order to close out positions.

USD/JPY Video 28.02.20

Looking at this chart, we could very well turn around and go looking towards ¥111 level, but we need to cross the ¥110 level first. A daily close above there it does instill a little bit of confidence, and it’s also possible that some of the short-sellers in the stock markets will have to close out their positions going into the weekend. That by its function may drive this price back up as well. Alternately, if the market breaks down below the 50 day EMA we could have the bottom fallout, and then go looking down to the ¥108.50 level. That’s a little less likely, but it is something that you need to be aware of as the Japanese yen typically acts as a safety currency, but with the coronavirus being in that region and so heavily represented, these days are quite normal as I’m sure you have noticed.

JPY/USD Forex Technical Analysis – Poised to Move Lower as Treasury Yields Hover Near Record Lows

The Dollar/Yen is under pressure on Thursday after the yield on the benchmark 10-year U.S. Treasury note resumed its slide and fell to a new record low as concerns over the impact of the coronavirus weakened global equity markets, sending investors into the safe-haven Japanese Yen.

The move lower in yields also reflects traders’ expectations the Federal Reserve will step in at some point and cut rates. However, many economists doubt the central bank will deliver such relief and whether it will be effective.

At 12:45 GMT, the USD/JPY is trading 109.911, down 0.504 or -0.46%.

Lower U.S. rates will tighten the spread between U.S. Government bonds and Japanese Government bonds, thereby making the U.S. Dollar a less attractive investment.

Daily USD/JPY

Daily Technical Analysis

The main trend is down according to the daily swing chart. The downtrend was reaffirmed earlier today when sellers took out Tuesday’s low at 109.892. The main trend will change to up on a move through the last swing top at 112.226.

The minor trend is also down. Minor bottoms at 109.619 and 109.534 are potential downside targets.

The main range is 108.313 to 112.226. Its retracement zone at 110.270 to 109.808 is currently being tested. Earlier in the session, buyers came in at 109.839, slightly above the lower or Fibonacci level.

The next major retracement zone target is a Fibonacci level at 109.361.

Daily Technical Forecast

Based on the early price action and the current price at 109.911, the direction of the USD/JPY the rest of the session on Thursday is likely to be determined by trader reaction to the short-term Fibonacci level at 109.808.

Bearish Scenario

A sustained move under 109.808 will indicate the presence of sellers. This could trigger a plunge into the nearest uptrending Gann angle at 109.506, followed closely by the major Fib level at 109.361.

Bullish Scenario

A sustained move over 109.808 will signal the return of buyers. If this move creates enough upside momentum then look for the rally to possibly extend into the short-term 50% level at 110.270. This is a potential trigger point for an acceleration into a resistance cluster at 110.712.

Side Notes

The USD/JPY has erased about 62% of its rally from January 31 to February 20. Unless there is a dramatic turnaround in the U.S. equity markets and Treasury yields, the USD/JPY is likely to weaken with 108.421 to 108.313 the next likely downside target.

USD/JPY Fundamental Daily Forecast – Weaker on Rising Fed Rate Cut Expectations

The Dollar/Yen is trading lower on Thursday with the weakness being fueled by safe-haven buying of the Japanese Yen. The selling is being driven primarily by overall weakness in the global equity markets and overall expectations of further shedding of risky assets related to the rapidly spreading coronavirus outbreak.

The U.S. Dollar is also losing ground to its Japanese counterpart as Treasury yields continued to hit new lows and investors bet the Federal Reserve would cut interest rates to offset the impact of the coronavirus on the U.S. economy.

Falling yields are essentially tightening the spread between U.S. Government bonds and Japanese Government bonds, making the U.S. Dollar a less-attractive investment.

At 09:38 GMT, the USD/JPY is trading 110.080, down 0.335 or -0.30%.

Dollar Weakens as Coronavirus Fallout Raises Fed Rate Cut Expectations

Money markets are now fully pricing in a 25-basis point rate cut in the Fed’s rate by April and three by March 2021.

But analysts point out that with Fed rates much higher, and therefore the range them to fall much larger, investors are dumping the dollar – reversing some of the U.S. currency’s gains over the past month.

The dollar rose sharply against the Japanese Yen recently when it’s safe haven currency credentials and investors’ belief that the U.S. economy was relatively sheltered from the coronavirus fallout encouraged buying of the greenback. Additionally, some say investors were aggressively dumping the Japanese Yen on the belief that its economy was headed toward a recession.

Moving forward, the direction of the USD/JPY, which touched a multi-month high on February 20 at 112.226, would be dependent on economic data on the coronavirus’s impact on confidence and trade outside of China.

Trump Says Coronavirus Risk in US is Low

President Donald Trump told Americans on Wednesday that the risk from coronavirus remained “very low,” and placed Vice President Mike Pence in charge of the U.S. response to the looming global health crisis.

He also said the spread of the virus in the United States was not “inevitable” and then went on to say: “It probably will, it possibly will. It could be at a very small level, or it could be at a larger level. Whatever happens we’re totally prepared.”

Daily Forecast

With U.S. equity markets poised to drop further over the near-term and Treasury yields continuing to fall, it’s hard to build a case for a rapid turnaround in investor sentiment so we expect to see the USD/JPY move lower.

We could see periodic short-covering rallies in the USD/JPY but they are likely to create fresh shorting opportunities. The downtrend is likely to continue unless the Bank of Japan provides stimulus of its own.

USD/JPY Bearish ABC Zigzag Pattern Aims at 61.8% Fib

Dear traders, the USD/JPY made a bearish bounce at the top of the bullish channel. This could confirm the start of the final wave E of a larger triangle pattern.

Weekly chart

USD/JPY Weekly chart

The USD/JPY could be building a bearish ABC zigzag pattern within wave E (purple) of wave B (red). The ABCDE triangle chart pattern (purple) could become invalidated (red x) if price action breaks below the bottom and 100% Fibonacci level.

Daily chart

USD/JPY Daily chart

The USD/JPY is likely to test the support line (blue) of the uptrend channel. A bullish bounce could indicate the end of wave A (pink) and the start of a wave B. A bearish breakout confirms (green check) the move lower towards the Fibonacci support of wave E vs D.

USD/JPY D2 chart

Good trading,

Chris Svorcik

The analysis has been done with the help of SWAT method (simple wave analysis and trading)

For more daily technical and wave analysis and updates, sign-up up to our newsletter

 

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.

USD/JPY Price Forecast – The US Dollar Continues to Bounce Against Japanese Yen

The US dollar has rallied a bit during the trading session on Wednesday, as the ¥110 level is crucial for the longer-term trading ranges, as the market continues to bounce around between the ¥105 level on the bottom, and the ¥115 level on the top. In other words, the ¥110 level is essentially what the “fair value” of this pair should be. Ultimately, this is a market that is all over the place but keep in mind that the coronavirus continues to cause issues.

USD/JPY Video 27.02.20

The Japanese economy is presently looking at a recession, and as a result it continues to punish the Japanese yen itself. Ultimately, this is a market that continues to see noisy conditions, but I do think that overall the US dollar continues to attract a lot of attention. Furthermore, the stock markets in America have been a bit oversold and this could mirror what happens next. If that’s going to be the case, then it’s very likely that the market continues to see upward pressure, but definitely in a significantly erratic fashion. That being said, if we were to break down below the ¥109.50 level it would completely change the attitude of the market and could send this pair much lower. At that point I would anticipate that the market probably goes looking towards the 200 day EMA underneath.

All that being said, this looks to me a lot like a market that has broken out, rallied significantly, came back to test that previous resistance, and now is trying to bounce again. In other words, it’s classic technical analysis as far as breakouts are concerned.

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.

USD/JPY Price Forecast – US Dollar Choppy Against Japanese Yen

The US dollar has been all over the place against the Japanese yen during the trading session on Tuesday, as Japan went back to work after the Emperor’s birthday. That being said, the market is struggling to determine whether or not the US dollar is the safety currency, or if the Japanese yen is serving that function right now. Ultimately, this is a little bit different than the usual dynamic, because the more afraid that the markets become, the more likely they are to run away from the Japanese yen as the coronavirus is the main reason. Ultimately, if we get more of a “risk on” move, this pair also breaks higher in my estimation.

USD/JPY Video 26.02.20

At this point, the ¥110 level is what I look at as the “fair value level” as far as the longer-term trading is concerned as the ¥105 level underneath is the support level, while the ¥115 level above is the resistance barrier. This means that the market will continue to be attracted to the ¥110 level, and therefore a bit of a pullback may not be that surprising, but I would anticipate that there seems to be a lot of interest and demand down at the ¥110 level. Another thing to pay attention to is the 10 year note in the United States, which is reaching historic lows as far as yield is concerned, meaning that there is a lot of demand for safety out there. That does drive up the value of the US dollar, so ultimately I still favor the upside on the whole.

Covid-19 Is On a Good Way To Cancel The Major Buy Signal On The USD/JPY

Coronavirus outbreak in South Korea and Italy, gave boost to the two main safe heaven currencies on the market: CHF and JPY. On the JPY, this strengthening is against the main bearish trend seen on the charts since the August 2019. Interesting setup can be seen on the USDJPY, where in the last week, the price created a legitimate buy signal, which currently is under the pressure coming from the Covid-19.

USD/JPY Weekly

The positive sentiment towards the American Dollar in the USDJPY was coming from the breakout of the major, long-term resistance. This resistance was the upper line of the symmetric triangle formation, which was active since the 2015. Last week’s rise, especially on Wednesday, was very rapid and allowed the price to create a technical buy signal. Buyers did not hesitate and managed to pull the price towards the previous year high (around 112.20). This is where, the Covid-19 struck back and created a great background for the bearish counter attack.

Currently, we are under the influence of the bounce from the horizontal resistance mentioned above (112.20). From the technical point of view, the pull back is still nothing serious. The price very often aims the broken resistance, to test it as a closest support. Just like now.

Situation here is pretty simple. As long as buyers manage to keep the price above the upper line of the triangle, the sentiment is positive. When the price will come back inside the triangle, the false breakout protocol will be activated. You all know what that protocol means – usually a strong movement against the original breakout. In that case, buyers may be in a serious trouble.

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.

USD/JPY Fundamental Daily Forecast – US Stock Market Plunge Returns Safe-Haven Status to Yen

The Dollar/Yen is trading lower for a third consecutive session on Tuesday as sellers continue to erase the huge spike to the upside which took place on February 19 and February 20. The price action suggests that those predicting the end of the Japanese Yen’s dominance as a safe-haven asset may have been wrong.

At 10:30 GMT, the USD/JPY is trading 110.372, down 0.350 or -0.32%

Back to Safe-Haven Status?

Given Monday’s steep sell-off in U.S. equity markets and the sharp break in the Dollar/Yen, it looks as if investors are treating the Japanese Yen as a safe-haven asset once again. The move on Monday clearly reflected a “risk-off” trade as the rising Japanese Yen rallied along with other traditional safe-haven assets like U.S. Treasurys, the Swiss Franc and gold. Yesterday’s rally in the Yen showed no evidence that investors might be discounting the Yen’s traditional safety value owing to Japan’s virus exposure.

BOJ’s Kuroda Blames Yen’s Steep Fall on Strong Dollar

Bank of Japan Governor Haruhiko Kuroda said on Saturday, February 22 the yen’s recent declines were largely driven by a strong dollar, shrugging off some market views that the widening coronavirus epidemic is triggering an outflow of funds from Asia.

Kuroda dismissed views held by some market players that the yen could be losing its status as a safe-haven currency.

“When you look at recent developments, the dollar is strengthening against the yen, the euro and various currencies including those in Asia, Kuroda said.

“It’s true there is uncertainty over the coronavirus outbreak’s impact on the Chinese, Asian and global economies. But I don’t think there has been a fundamental change in the exchange-rate market.”

Kuroda Remains Upbeat about Economy

Kuroda also said he had not changed his view that Japan’s economy would continue to recover moderately, suggesting that he saw no immediate need for the BOJ to expand stimulus.

“If needed, we will take additional monetary easing steps without hesitation,” he told reporters upon arriving at a Group of 20 finance leaders’ gathering in Riyadh.

“But the situation is still uncertain. I don’t think our scenario projecting a moderate economic recovery has been derailed.”

Daily Forecast

The next few days could be critical as to determining whether the Japanese Yen is still a safe-haven asset. Monday’s price action certainly supports the case for those who believe it is still a safe-haven. U.S. stocks plunged and the Japanese Yen rose sharply.

Furthermore, with the USD/JPY losing more than 50% of its surge last Wednesday and Thursday, it is starting to look like the spike to the upside was fueled by massive buying from the juggernaut Japanese Government Pension Investment Fund that was probably buying foreign bonds ahead of the end of the Japanese financial year in March.

Not all Safe Havens Equal Amid Coronavirus Outbreak

Gold has certainly lived up to its billing as a safe haven asset, testing the $1690 resistance level after having surged to levels not seen since Q1 2013. At the time of writing, Gold has advanced by about eight percent so far this year.

Bullion bulls have only gotten more tenacious over the past week, as the coronavirus’ spread outside of China prompts market jitters about the duration and global footprint of this outbreak.

Ultimately, market participants would want to know how much the coronavirus would impact global economic growth. Until the spread of the coronavirus is contained, investors are likely to continue seeking shelter in Gold until the Covid-19 storm clouds disperse.

Coronavirus-related concerns to keep EURCHF’s downward trend intact

Covid-19 has given the Swiss Franc yet another reason to strengthen against the Euro, with EURCHF finding a floor around the 1.06 long-term support level for the time being. Serving as a barometer of risk sentiment on the continent, the currency pair has weakened by over two percent so far in 2020. The Franc also boasts of a year-to-date advance against all G10 currencies except for the US Dollar.

With the China-dependent EU economy struggling to overcome these global challenges, it is unlikely that the Euro can stage a meaningful rebound against the safe haven CHF, which suggests that EURCHF is expected to remain suppressed over the near-term.

Covid-19 erodes Yen’s safe haven status

However, Covid-19’s spread in Japan has eroded the Yen’s status as a safe haven asset, with JPY having weakened against all G10 and Asian currencies so far in February, except for the Malaysian Ringgit. Although USDJPY has moderated since breaching the psychological 1.12 level, the pair is still trading around levels not seen since May 2019.

With the number of confirmed cases in Japan now exceeding 130, the coronavirus is compounding Japan’s economic outlook. Investors will closely scrutinize Japan’s latest data on inflation, industrial production, jobs, and retail sales, all due this Friday, and set usd/jpythem against the latest domestic developments around Covid-19, in determining the Yen’s next move.

For more information, please visit: FXTM

Written on 02/25/20 08:00 GMT by Han Tan, Market Analyst at FXTM


Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. 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 for any loss arising from any investment based on the same.

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 81% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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.

Global Stock Markets Plunge As The Virus Arrives In Europe

Global markets tanked as with the COVID 19 arriving on Europe’s doorstep; it has magnified investors’ attention to the single most significant global risk of the virus crisis, the fear of clustering cases outside of China.

Risk-off sentiment intensified Monday as the S&P500 is down around 2½% heading into the close with European equities falling almost 4% and smaller losses through Asia as Covid 19 mushrooms from an Asia centric concern to a global nightmare.

US 10Y yields fell a further 9bps to 1.38%, the lowest since July 2016, while 30-year yields set another record low of 1.84%, having fallen ~20bps in the past week.

Oil is down more than 4%, and copper fell 1.5%. Even as the number of new cases in China is declining and the WHO indicates that the virus there has peaked, the market has reacted to growing evidence of spreading infections outside China: notably Italy, Iran, and Korea.

The risk-off tone overnight has seen the US2s10s curve at its flattest since October, and as the interest rate and growth, differentials continue to support capital flows into the US.

And absent a more dovish Fed, these tenacious structural trends are showing little signs of abating as global investors seek safe harbor under the umbrella of US bond yields, creating a supercharged USD dollar. However, its the dollar strength that the Fed might not be able -even if willing – to tolerate as the strong USD both tightens financial conditions and depress oil and commodity prices sufficiently enough for the Fed to miss their inflation targets. The irony here for gold investors is that a weaker dollar could lessen the chances of a Fed rate cut.

There has been very little data flow do divert attention away from the coronavirus. Still, Fed speak, both hawk and dove didn’t sound off any rate cut alarm bells as Cleveland Fed’s Loretta Mester (voter /hawk) and Minneapolis Fed’s Neel Kashkari (voter/dove) both advocated policy prudence.

The WHO director-general called the outbreaks “deeply concerning,” though he also noted that the WHO was “encouraged by the continued decline in cases in China.

Even as the market focusses on recent outbreaks outside China, Chinese activities are starting to recover.; if the Chinese labor force activities recover quickly, then PBoC stimulus effort will start paying dividends via ramped up domestic production.

Admittedly with many unknows surrounding the impact. But there are a few knows. China is coming back on the grid while governments and global central banks aren’t about to let this insidious virus snatch defeat from the jaws of victory.

Oil markets

With the virus arriving in Europe, it has magnified the oil market’s attention to the single most colossal risk of the virus crisis, the fear of a “super spreader” outside of China.

This appears to have materialized over the weekend, with a considerable number of cases reported in South Korea and Italy.

And using China as a template, the most immediate economic impact is likely to be aggressive containment measures and travel bans. So similarly, to the primary containment measures in China, traders went into sell first ask questions later mode for fear of more evidence that the outbreak is spreading in Europe or even to the United States.

From a technical perspective, the so-called OPEC+ straddle implied price bottom between $50-50.25 is holding as the thought of a move below $50 makes a more massive OPEC + production cut response more likely.

WTI continues to respect his level, but with thoughts of “disease X “keeping investors awake at night, China teapot refinery activities need to come roaring back with a vengeance.

And with China workers appearing abler and willing to come back online, it could go a long way to stabilizing regional risk sentiment.

Gold markets

On the back of a colossal position build over the past week, gold investors found themselves a bit too far over their skies and absent a decisive shift in Fed speak, the markets insatiable demand for gold has temporarily abated as profit-taking has set in.

From a technical perspective after yesterday’s launchpad on the back of a massive parabolic rally, the failure to break $ 1700 was a touch disappointing and likely caused some technical unwinds.

However, the afternoon gold liquidation could be related to equity margin calls rather than any underlying market weakness, given the overtly risk-off tone dominating the markets The steep declines in stocks may have triggered the need to meet margin requirements by some investors and necessitate the sale of liquid assets such as gold. So, if this is indeed the case once these margin obligations are covered, gold could rebound a touch.

But with a possible recentring of risk on a more favorable Asia centric theme, the slower rate of infection in China has eased demand for hedges, so gold price action may not be as robust today.

Currency Markets

Asia FX

The turning point for the Asia FX remains less clear as global risk aversion comes to the fore as Covid19 cases are getting reported abroad, redoubling the global fear factor.

In this environment, foreign investors have gone cold on riskier assets in favor of the umbrella of US treasuries, which is creating USD demand as investors favor the USD over more China sensitivity Asia currency growth proxies.

Until we see a significant increase in people going back to work in China and the PBoC stimulus paying dividends via ramped up domestic production, Asia FX could languish.

The Malaysian Ringgit 

Political uncertainty on the back of PM Mahathir resignation and as the power struggle intensifies leaves the government in a state of gridlock at a time when policy inputs are most needed to ward off the economic tumult from a protracted USD-China trade war and the double whammy effect from the coronavirus.

The Australian Dollar

FX markets look to be moving from “Asia is the epicenter of COVID” and with the lights starting to flicker across China’s industrial heartland decent support is beginning to build around AUDUS .6600 as Asia key currency barometer the Yuan remains on an even keel on anticipation of the ramp-up in production

The Euro 

Better PMIs out of Europe at the end of last week helped to put a stop to the EUR’s slide, though in an environment where the USD still looks to be the safe haven of choice, it may be hard for the EUR to recoup too much ground. Germany’s IFO index saw both current conditions and business expectations improve slightly in February, despite market expectations of a modest decline.

With the coronavirus spreading in Europe, immediate EURUSD weakness may not be a foregone conclusion on the back of the virus crisis. The primary driver of recent euro weakness has been carry trade-related funding. If the virus were to spread across Europe, the negative growth impact could be offset by an unwind of carry trades amidst risk-aversion. What’s more, a severe economic impact is likely to see a more significant monetary policy response from the Fed rather than the ECB given available monetary policy space.

The Swiss Franc

The European outbreak of the virus should make the Swiss franc an even more popular safe haven. It is the only European currency with a negative beta to growth. As the SNB appears resigned to staying on the sidelines, funding carry trades in francs has been far less prevalent than in euros or yen.

The Japanese Yen

An epic debate is raging behind the scenes over whether or not we are witnessing a regime shift USDJPY. Is it or isn’t it losing its safe-haven status? But overnight, the JPY was clearly a safe-haven bet as the focus has shifted from China to Europe. JPY loses its haven appeal when the exogenic shock comes from China but not from global risk aversion.

With virus fear spreading in Europe, the JPY should, in theory, also benefit from the squeeze on its funding shorts.