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.

European Equities: A Week in Review – 29/02/20

The Majors

It was a week to forget for the European majors and beyond.

Market reaction to the continued spread of the coronavirus drove demand for safe havens in the week.

For the DAX30, it was 7 consecutive day in the red, sinking the German Boerse into corrective territory in the week. It was even more dramatic for the EuroStoxx600, which fell from an all-time-high 433.9 on 19th February into corrective territory, with a 10% loss coming in just 6 trading sessions.

So, looking at the numbers, the DAX30 ended the week down by 12.44% to lead the way. The CAC40 and EuroStoxx600 weren’t far behind with losses of 11.94% and 12.25% respectively. Heavy losses on Friday just added salt into the wounds, with the majors not only in corrective territory but also in the deep red for February.

The CAC40 fell by 8.55% in February, with the DAX30 and EuroStoxx600 sliding by 8.41% and by 8.54% respectively.

We aren’t in bear territory yet, but we could be should economic data begin to spook investors alongside the coronavirus.

The Stats

It was a relatively busy week on the Eurozone economic calendar.

Through the 1st half of the week, key stats included German business sentiment figures and 2nd estimate GDP numbers for the 4th quarter.

Business sentiment improved in February, with the IFO Business Climate Index rising from 96.0 to 96.1. The upside came off the back of a pickup in business optimism that was partially offset by negative sentiment towards the current state of the economy.

Interestingly, the figures failed to reflect any negative bias stemming from the spread of the coronavirus. The timing of the survey likely failed to capture the spread across Europe and the U.S.

Germany’s GDP numbers were in line with 1st estimates, affirming the stall in the economy in the 4th quarter. Not great with what’s on the horizon…

Later in the week, French consumer spending and 2nd estimate GDP numbers and German unemployment figures were in focus on Friday.

A slide in consumer spending in January will be yet one more concern for the ECB. It wasn’t all bad, however, with Germany’s labor market resilient at the turn of the year.

On the monetary policy front, ECB President Lagarde was of the view that the spread of the virus had yet to have enough of an impact on inflation to warrant monetary policy support. Next week’s stats could change that narrative…

The Market Movers

From the DAX, it was a bearish week for the auto sector. Daimler and Volkswagen led the way down, with weekly losses of 11.62% and 10.67% respectively. BMW and Continental weren’t far behind, with losses of 9.37% and 9.42% respectively.

It was a particularly bearish week for the banking sector, with Deutsche Bank and Commerzbank tumbling by 16.88% and 20.09% respectively.

From the CAC, things were not much better for the banks. BNP Paribas slumped by 17.74%, while Credit Agricole and Soc Gen seeing losses of 17.73% and by 17.64% respectively.

The French auto sector took a more modest hit, with Renault and Peugeot sliding by 16.35% and 8.57% respectively.

Travel and tourism stocks were worse hit, however. Germany’s Lufthansa tumbled by 21.17%, with Air France-KLM ending the week down by 23.90%.

On the VIX Index

The VIX rose by 2.43% on Friday. Following on from a 42.09% surge on Thursday, the VIX ended the week up by a whopping 134.84%.

Risk aversion plagued the global financial markets driving the VIX to its highest level since hitting 50.3 back in February 2018. On Friday, the VIX had hit a week high 49.5 before easing back.

Updates of the spread of the coronavirus led the U.S equity markets into corrective territory and the largest weekly slide since the Global Financial Crisis.

For the week, the S&P500 slid by 11.49%.

VIX 29/02/20 Daily Chart

The Week Ahead

It’s another busy week ahead on the Eurozone economic calendar. Through the first half of the week, private sector PMI numbers are due out of Italy and Spain. Finalized numbers are also due out of France, Germany, and the Eurozone.

Expect Italy’s manufacturing PMI on Monday and the Eurozone’s composite on Wednesday to have the greatest influence. There could be revisions to German and French numbers to look out for, however.

On Wednesday, German and Eurozone retail sales figures will also be in focus ahead of German factory orders on Friday.

The markets will be looking for some indication of what impact the coronavirus has had on the economy. February and March numbers will be a better guide.

From elsewhere,

Private sector PMI numbers out of China and the U.S in the 1st half of the week will also influence. Expect manufacturing PMI numbers out of China from the weekend and on Monday to have a greater impact, however.

It will ultimately boil down to updates on the coronavirus, however. The next big risk to the market is for the WHO to announce the coronavirus as a pandemic and for more cases in the U.S…

S&P 500 Weekly Price Forecast – Stock Markets Have Worst Weekend Years

The S&P 500 has had a horrific week, showing extreme volume to the downside. By reaching all the way down to at least the 2900 level during the week, the market looks as if it is starting to change its tune in general. That makes quite a bit of sense as coronavirus is starting to spread, and there’s no way to price and what kind of damage a global epidemic could cause. At the very least, you will be looking at economies slowing down, if not grinding to a standstill.

S&P 500 Video 02.03.20

I believe at this point it’s very likely that the market participants will continue to see value hunters eventually, but we need to see some type of headway made when it comes to the coronavirus and its spread. There might be central bank coordinated efforts over the weekend, but quite frankly that will only be a temporary solution to this very major problem. At this point, rallies are to be sold into, and certainly can’t be trusted, at least not until some type of major change comes along. This has been absolutely brutal week, and typically weeks like this down end up being a “one-off event.” With this, I remain bearish but recognize that a relief rally probably comes relatively soon. That relief rally will simply be an opportunity to get short yet again or perhaps short covering done by others. It’s not assigned to start jumping into the market without some type of actual fundamental change in what’s going on.

Silver Weekly Price Forecast – Silver Markets Crater

Silver markets initially rally during the week, but then got absolutely slaughtered as risk appetite around the world continues to crater due to the coronavirus. The silver markets selling off on a sign of lowered industrial demand, and quite frankly probably some forced liquidation as traders need to raise capital to cover margin in other markets. There have been horrific losses in other assets so sometimes traders need to shift funds around, and this is especially true in situations like we have right now.

SILVER Video 02.03.20

To the downside, the $16.00 level underneath offers a lot of support, so I think that might be where the market goes looking to find buyers. The candlestick closing as low as it has during the week shows just how much negativity there is, as the bloodshed on the world’s exchanges hasn’t ended. I fully anticipate that we will continue to go lower, and any rally at this point will probably be sold into on signs of exhaustion.

However, if central banks around the world start cutting rates, and I suspect that could happen over the weekend, that might have the opposite effect in this market in sending precious metals higher. It is a bit of a guess at this point, but that certainly would be the type of wildcard that could change things. This weekend is going to be crucial as to where we go next, and the world’s central banks are most certainly on notice at this point. Ultimately, there are probably more losses but eventually silver will offer a bit of value, which again I suspect is closer to the $16.00 level underneath. At that point in time it might be a longer-term “buy-and-hold” scenario.

Crude Oil Weekly Price Forecast – Crude Oil Markets Take a Beating for the Week

WTI Crude Oil

The WTI Crude Oil market broke down rather significantly during the trading week, slicing down through the $45 level. Ultimately, this is a market that looks as if it is going to try to make its way down to the $40 level, where there should be a significant amount of support. The crude oil markets continue to suffer at the hands of the coronavirus, and therefore there is no real way to measure risk, and that’s one of the biggest problems with this market right now. When you look at the candlestick, it’s clearly negative and there is no real attempt to rally. Ultimately, I think that the $40 level will offer a significant about the support, but it’s almost going to have to be something OPEC does as far as production cuts on an emergency meeting. Otherwise, any bounce that we get could be somewhat technical but slicing through the $40 level would be a horrific turn of events. For what it’s worth, looking at the daily chart, it looks as if we had formed a very flat, and that does measure for a move to $35 albeit being a bit optimistic for the sellers. Rallies are to be sold.

WTI Oil Video 02.03.20

Brent

Brent markets also have broken down a bit during the week as well, slicing through the $50 level. Ultimately, the market then goes looking towards the $42.50 level. At this point in time I think that rallies are to be sold into, unless something structurally changes. Demand for crude oil is falling through the floor, and quite frankly there is far too much in the way of supply to think that we have a real chance of recovering for any length of time.

Natural Gas Weekly Price Forecast – Natural Gas Markets Continue to Show Negativity

Natural gas markets have broken down significantly during the week, slicing through the $1.80 level. That’s an area that has been supportive in the past, and at this point the fact that the market has broken down suggests that we are going to go lower. The oversupply of natural gas continues to be a major problem with this market, as fracking continues to produce way too much. Furthermore, the warmer temperatures coming does not help the situation, and beyond that we have received a very bearish inventory report this past week, so at this point it’s likely that we will see plenty of sellers. The question now is whether or not we can break down below the $1.60 level, and if we do that would be quite remarkable.

NATGAS Video 02.03.20

To the upside, the market could very well try to reach towards the $1.80 level before selling off again, or perhaps even the $2.00 level. I have no interest in buying this market, because quite frankly this is a market that has been far too oversold for far too long to believe that it is suddenly going to change its tune. With warmer temperatures, and oversupply of natural gas, and quite frankly now the worry about the coronavirus killing off demand, it’s very unlikely that this market will be able to recover anytime soon. It is going to take several bankruptcies in the United States when it comes to natural gas suppliers and drillers in order to bring down the commodity supply. At this point, market participants continue to sell rallies.

Gold Weekly Price Forecast – Gold Markets Crater for The Week

Gold markets initially shot higher during the week, reaching towards the $1700 level. That is an area that of course offers a lot of resistance, as it is a large, round, psychologically significant figure. By turning around the way it has, it looks extraordinarily negative as we sliced through the $1600 level. By breaking through there, it shows quite a bit of negativity and a real lack of follow-through. At this point, it’s likely that the market continues to go a little bit lower, or perhaps kills time by going sideways. A simple bounce back is a bit much to ask, at least without some type of stabilization.

Gold Price Predictions Video 02.03.20

The market is still in an uptrend, but this is clearly a “shot across the bow” for those who would be bullish of gold. Longer-term, it’s probably very likely that we do continue to the upside in a bit of a safe haven bit, but a lot of forced liquidation has been going on this week, as margin calls are being fired off in other markets. Large funds will have to sell profitable positions to keep afloat, and that may be what’s going on with the gold market currently. It certainly isn’t US dollar strength, because quite frankly there is none. At this point, it’s likely that the market continues to be very jittery and nervous, so if you are looking to go long, waiting for some type of supportive daily candlestick is probably the best way to go. That, or perhaps a recapturing of the $1600 level.

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.

GBP/USD Weekly Price Forecast – British Pound Roles Over For The Week

The British pound initially tried to rally during the week, reaching towards the 200 week EMA before rolling over. That shows signs of weakness, and perhaps more than likely going to show that the British pound is clearly susceptible to the global “risk off” situation that we find ourselves in. That being the case, it’s likely that we will continue to see a lot of back and forth and although the British pound is going to suffer at the hands of risk appetite falling, the reality is that there is significant support just below so if you are looking to buy the US dollar, although the trade may work in this pair, you may find better momentum in some of the other pairs, specifically the Euro.

GBP/USD Video 02.03.20

At this point, I believe that short-term traders will continue to try to fade rallies, but if we were to break down below the red 50 week EMA on the chart, that probably sends this market much lower, perhaps even as low as the 1.25 handle. At this point in time though it’s obvious that the markets are very jittery and it’s going to take very little to knock them over. As far as rallies are concerned, I would not believe them in this pair until we break above the 200 week EMA which is painted in black on the chart. At that point, we could go as high as the 1.35 handle over the longer term. Expect a lot of volatility but in the end, I believe that the US dollar will strengthen against most currencies.

GBP/JPY Weekly Price Forecast – British Pound Continues to Get Hammered Against Japanese Yen

The British pound broke down significantly during the week, slicing through the ¥140 level. At this point, the market is likely to test the ¥139 level, and if it breaks down below there it’s likely that we will continue to see exacerbated losses. At this point, it’s only a matter of time before that happens from what I see, and when that does kick off, we could drop rather precipitously. The market is clearly failing in general, as the Japanese yen is being used as a safety currency.

GBP/JPY Video 02.03.20

The size of this candlestick is of course rather impressive, and it has wiped out quite a bit of constructive action as of late. The coronavirus continues to cause a lot of headline risk out there, and clearly the Japanese yen being used as a safety currency isn’t that big of a surprise. At this point, rallies are to be looked at with suspicion, and as a result it’s very likely that the short-term rallies will end up being selling opportunities, and as a result it’s likely that the pair does eventually break down, but it could be very noisy along the way. Once this pair does break down, it’s likely that it could be looking at a move down to the ¥135 much quicker than anticipated. However, one has to wonder how much more fear there is out there when it comes to the markets in the short term, so a slight bounce really isn’t out of the question at this point in time.

EUR/USD Weekly Price Forecast – Euro Recovers For The Week

The Euro has broken to the upside during the trading week to break above the 1.10 level. That of course is an area that should attract a lot of attention from a psychological standpoint, and it should be noted that the Friday session is forming a somewhat exhaustive looking candle. The weekly candle looks much more bullish though, so at this point it’s likely that we will have a bit of a fight in this general vicinity.

EUR/USD Video 02.03.20

At this point in time, most of the selloff of the US dollar has more to do with the stock market and people repatriating money back to their home countries as the US stock market got absolutely crushed for the week. Ultimately, this is a market that has been in a downtrend for some time, so quite frankly I don’t feel the need to try to buy this market, and the fact that the market is giving up quite a bit heading into the weekend suggests that the downtrend will continue to show itself. Ultimately, this is a market that I do think tests the lows again, but if we were to break above the red 50 week EMA then we have to somewhat reconsider the situation.

The European Union is very likely that in a recession, and the ECB is much looser than the Federal Reserve. Coronavirus cases are breaking out all over Europe, and as a result it’s much more palatable to short this market than trying to buy it. Fading rallies on short-term charts should lead to longer term decline still.

AUD/USD Weekly Price Forecast – Australian Dollar Gets Crushed for The Week

The Australian dollar initially gapped lower to show signs of weakness, turned around to fill that gap, and then broke down to reach towards the 0.65 level during the Friday session. That of course is a large, round, psychologically significant figure, and therefore it’s likely that the market will react there. We are starting to see a slight bounce during the Friday session, but if we were to break down through that area it opens up the door down to the 0.63 handle which is the bottom of the financial crisis area.

AUD/USD Video 02.03.20

At this point, the market looks as if it could bounce, but bouncing from here could be a nice selling opportunity at signs of exhaustion, and the 0.67 level above will probably offer a bit of a “ceiling” in the market. If we were to break above that level it would change a lot of things but right now, I just don’t see that happening. At this point, the market is likely to bounce a bit, but I look at that bounce as an opportunity to pick up the US dollar “on the cheap.” Ultimately, if we were to break down below the 0.63 level underneath, that would be a disaster for the Aussie. The US dollar should continue to attract quite a bit of inflow due to safety concerns, and of course the fact that the Australians are so highly levered to China itself. With this, keep in mind that we are in a downtrend for a multitude of reasons to begin with, so buying is extraordinarily dangerous.

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.

Here We Go Again – The Pound Is Set for another Rollercoaster of a Summer!

We saw the Pound briefly visit $1.30 levels on Tuesday. The upside came off the back of a combination of events.

Firstly, prevalent Dollar weakness stemming from a shift in monetary policy divergence in favor of the Pound supported the upside in Cable. Secondly, however, was the EU’s terms of negotiation that EU member states finalized on 25th. It wasn’t the terms but the desire to form an ambitious agreement that impressed the markets.

The EU and the UK are scheduled to begin hammering out a trade agreement next week. While the Pound found early support, there is a large degree of apprehension.

Britain’s transition period ends on 31st December at which point Britain goes it alone, with or without the EU as a trading partner.

The Issues

Unsurprisingly, there are a number of key issues that remain. These issues continue to exist in spite of Britain and the EU meeting at the table for more than 3-years.

It ultimately took Johnson and a return of a Tory Party majority to force through the Withdrawal Bill and formalize Britain’s divorce with the EU.

So, with Britain and the EU left with 10-months to thrash out a trade agreement, what are the key issues?

The British government is looking for the following:

  • Abandon commitments made back in October in the EU-UK political declaration that accompanied the Withdrawal Bill.
  • Ultimately, the British government is looking to deliver Brexit in its true form, with Britain free from EU rules and regulations. The last thing that the British government will accept is any strings attached that leaves Britain under any EU laws.
  • A comprehensive trade agreement in the same form as the Canada agreement supplemented by fishery law enforcement.
  • Predetermined judicial cooperation in criminal matters and also transport, and energy.
  • Fishery issues have already hit the headlines before talks even began. For those who voted to leave the EU, it may be somewhat alarming to hear that the EU wants continued access to British waters. An EU concession here is for annual negotiations in order to agree on continued access for EU vessels.

Other key points to negotiate include, but are not limited to:

  • State aid/subsidies
  • Workers’ rights
  • Tariff Free Access to the EU Market
  • Minimal customs barriers.
  • Financial Services

The Timeline

As things stand, Britain and the EU have until June to agree on an outline to a trade agreement.

This would then need to be finalized by September, which gives both sides just 7-months.

When you consider the chatter from Macron and senior French government officials, their preference would be to prevent progress. The alternative would be to tie Britain into EU laws, which is clearly a no-no for Britain.

With Angela Merkel on the way out, Macron has been vying to become the voice of Europe.

Bringing down the British government and leaving Britain to grapple with WTO trade terms would be quite a coup.

So, if the EU and Britain fail to make solid progress in the coming 4-months, the writing may be on the wall for Britain and the Pound.

British Prime Minister Johnson has managed to block the chance of any extension to the transition period.

When considering the issues at hand, even the more optimistic may consider the path ahead as a difficult on.

For that very reason, the Pound’s rollercoaster ride is likely to resume. At least through to the end of the 3rd quarter.

As far as the British Government is concerned, if there is a lack of progress by June then the government will walk away. That means a no-deal hard Brexit that the markets feared since the EU referendum outcome.

What’s next?

Britain and the EU meet next week to get things going and there’s likely to be plenty of chatter.

The EU must appear to be in a position of strength, able to protect the rights of its remaining member states.

Failure to achieve this would raise the chances of further departures from the EU. It’s hardly a surprise that Macron has taken such a position on Brexit.

It’s also going to be of little surprise that he will maintain his position until the bitter end.

After all, there’s little point in being the voice of a Europe that is broken and more interested in protectionism.

For the Pound

We can expect the rollercoaster ride of the last few years to resume.

The good news, for now, is that economic indicators have shown an improvement in economic conditions.

All of this has been in line with the BoE’s post-Brexit outlook, however, which suggests a slowdown to come.

Throw in the likely effect of the coronavirus on the global economy and the doom and gloom may well build.

Could Macron call for the tunnel to be blocked in the event of a no-deal end to the transition period?

Johnson may insist on it should the spread of the coronavirus continue through to June…

At the time of writing, the Pound was down by 0.08% to $1.28859, with the return to sub-$1.29 levels leaving the Pound down by 0.60% for the current week and by 2.42% for the current month…

Expect $1.25 levels to be on the cards should it become painfully clear that talks are going to go nowhere…

GBP/USD 27/02/20 Daily Chart

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.

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.

IMF, US Government, Fed are Watching the Data, When They Should Be Listening to the Financial Markets

Are officials playing “kick the can” with the financial impact of the coronavirus on the global economy, or are we ready to say we’re going to see zero growth during the first quarter? And how long are we going to have to wait for predictions of a global recession? Two quarters?

I get that no one wants to cause a panic in the markets, but guess what, I think there will be, once the seemingly optimistic Federal Reserve policymakers finally have some negative data they can work with. By then it may be a little too late to rescue the second quarter.

After sounding too optimistic about the economy in 2018 and aggressively raising rates three times in 2019, they now appear to be a little stubborn about acknowledging there is a future economic downturn in the air.

Sometimes I feel that Fed members are more worried about predicting the length of an economic downturn than the actual start of economic problems. But now is the time to set aside track record worries like they were batting averages and make the call, even it is a tad early.

In this case, calling it a disaster early will be better than calling it too late. I don’t think anyone is going to be upset if the Fed makes a pre-emptive strike and makes an insurance rate cut a few months early. After all, investors are already pricing in at least one rate cut later in the year.

IMF:  We Don’t Know When It Will Happen, but We’ll Tell You What It Will Look Like

On February 19, International Monetary Fund (IMF) chief Kristalina Georgieva said the new coronavirus, or COVID-19, outbreak is the “most pressing uncertainty” facing, the world economy right now.

She further added it’s an international health emergency that “we did not anticipate in January” and “It is a stark reminder of how a fragile recovery could be threatened by unforeseen events.”

But then she went into optimistic mode and said, “If the disruptions from the virus end quickly, we expect the Chinese economy to bounce back soon, she wrote. “Spillovers to other countries would remain relatively minor and short-lived, most through temporary supply chain disruptions, tourism, and travel restrictions.”

February 19? This sounds like something she should have said in late January. Last week, Apple warned investors about reduced demand and supply chain interruptions. So I think the IMF is behind the ball.

To her credit, Georgieva did mention the IMF’s longer-term viewpoint, saying that a long-lasting outbreak would have significant consequences for the Chinese and global economies.

“Its global impact would be amplified through more substantial supply chain disruptions and a more persistent drop in investor confidence, especially if the epidemic spreads beyond China,” she said in a post.

Over the weekend, Georgieva started to acknowledge a worst case scenario, “But we are also looking at more dire scenarios where the spread of the virus continues for longer and more globally, and the growth consequences are more protracted.”

Economic Impact of Coronavirus Will Be Clearer in ‘Three or Four Weeks,’ Mnuchin Says

Meanwhile, U.S. officials will have a better idea of how the coronavirus outbreak will impact the economy in “three or four weeks,” U.S. Treasury Secretary Steven Mnuchin said Sunday.

“I think we’re going to need another three or four weeks to see how the virus reacts, until we really have good statistical data,” he said.

Mnuchin further added, “Although the rate of the virus spreads at is quite significant, the mortality rate is quite small. It’s something we’re monitoring carefully, one of the discussions we’re having here is that countries should be prepared, but I think we’re at a point where it’s too early to either say this is very concerning or it’s not concerning.”

Will check back with you, Mr. Mnuchin, in three or four weeks, to see what the markets seem to already know.

Fed Still Waiting on the Numbers

Last week, Federal Reserve Vice Chairman Richard Clarida reiterated that the “fundamentals in the U.S. are strong” though he said Fed officials are monitoring risks, in particular the coronavirus.

“It’s obviously something that is probably going to have a noticeable impact on Chinese growth in the first quarter,” he said. However, there’s no indication at this point that it will impact policy.

“What we would be looking for is some body of evidence that suggests that we need to make a material reassessment of our outlook, and certainly we have not done that yet,” Clarida said. “But we are monitoring, because China is a huge part of our economy.”

Conclusion

The IMF is not predicting an economic downturn per se, but seems to be telling us what one would look like in both the short-term and long-term. Mnuchin says we won’t know if there are going to be problems for three or four weeks and the Fed’s Richard Clarida says the economy is fine and the Fed is monitoring the situation.

In the meantime, the financial markets, especially U.S. Treasurys, gold, the Japanese Yen and to some extent, the global equity markets, seem to be saying the economic problems are already here.

Financial market investors were ahead of the Fed before in 2018 and central bankers made three cuts in 2019. I think they are right again so I expect the Fed to cut its benchmark rate sooner rather than later in 2020.

Natural Gas Price Fundamental Weekly Forecast – Cold Weather Not Stable Enough to Sustain Rallies

Natural gas futures are trading lower early Monday after nothing significant in the weather department developed over the weekend. The price action is basically an extension of Thursday and Friday’s sell-off. According to the latest models, warmer trends are showing up in the latest forecasts. Not only are futures prices feeling downside pressure, but so are spot prices. On Friday, the Natural Gas Intelligence (NGI) Spot Gas National Average dropped 10.5 cents to $1.705.

Last week, April Natural Gas futures settled at $1.917, up $0.061 or +3.29%. Early Monday, futures are trading $1.879, down $0.038 or -1.98%.

NatGasWeather:  Too Many Mild Breaks to Sustain Rallies

NatGasWeather blamed the price weakness on weather-data that showed late-February cold moderating into March. The forecaster went on to say that the European model lost more than 15 heating degree days (HDD).

The Global Forecasting System (GFS) had already begun to warm in earlier runs but gained back 7 HDDs in Friday’s midday run, though the model is still down more than 30 HDDs from the start of the week, NatGasWeather said. Specifically, the model favors mild conditions returning across most of the United States March 3-6, besides the far northern part of the country.

“It certainly helps the balance has tightened considerably the past few months to provide a floor to prices, but sustained colder-than-normal patterns are required to fully take advantage,” the forecaster said. “Essentially, these bouts of colder air are helpful, but to be full-fledged bullish, there mustn’t be these mild breaks in between, and the weather data keeps disappointing by trending milder in time with longer breaks.”

U.S. Energy Information Administration Weekly Storage Report

The EIA reported Thursday that domestic supplies of natural gas fell by 151 billion cubic feet for the week-ended February 14.

Last year’s withdrawal was 163 Bcf and the five-year average draw is 136 Bcf, according to the EIA.

Total stocks now stand at 2.343 trillion cubic feet, up 613 billion cubic feet from a year ago, and 200 billion cubic feet above the five-year average, the government said.

Weekly Forecast

The main trend is down according to the weekly swing chart. A trade through $1.788 will signal a resumption of the downtrend. The main trend will change to up on a move through $2.447. This is highly unlikely at this time.

The minor trend is also down. The nearest minor top is at $2.204, followed by another minor top at $2.196.

The minor range is $1.788 to $2.024. Its 50% level or pivot at $1.906 is controlling the near-term direction of the market.

A sustained move under $1.906 will indicate the selling pressure is getting stronger. Overtaking this level will signal the return of aggressive counter-trend buyers.

We could see periodic short-covering rallies over the near-term, but without a lingering cold front, any rallies are likely to be stopped by fresh short-sellers.

Price of Gold Fundamental Weekly Forecast – Hope, Fear and Greed Driving Prices Higher

Gold gapped higher on Monday after reports showed the coronavirus outbreak was spreading around the world, threatening lives and the global economy. G20 finance ministers and central bankers declared in a statement over the weekend that current global economic growth remains slow with the coronavirus outbreak posing the greatest risk.

At 00:06 GMT, April Comex gold is trading $1667.10, up $18.30 or +1.11%. The high of the session is $1684.10.

Despite the outlook, the G20 said that global economic growth is expected to pick up “modestly” in 2020 and 2021.

“Global economic growth remains slow and downside risks to the outlook persist, including those arising from geopolitical and remaining trade tensions, and policy uncertainty. We will enhance global risk monitoring, including of the recent outbreak of COVID-19. We stand ready to take further action to address these risks,” according to the final document of the conference.

CNN reported the host of the G20 meeting, Saudi Finance Minister Mohammed Al Jadaan, said that countries will be ready to act on the risk coronavirus poses to commerce.

“We all agreed that all countries and states will be ready to intervene as needed to face these risks and it’ll be a multilateral intervention including the WHO (World Health Organization) to monitor these risks and use relevant policies as needed,” Jadaan said.

International Monetary Fund Revises Outlook

The International Monetary Fund (IMF) said on Saturday that the virus will likely cut off 0.1% from global growth, and drag down growth for China’s economy to 5.6%, which is 0.4% lower from its January outlook.

“But we are also looking at more dire scenarios where the spread of the virus continues for longer and more globally, and the growth consequences are more protracted,” said International Monetary Fund Managing Director Kristalina Georgieva at the G20 Finance Ministers and Central Bank Governors Meeting.

US Treasury Secretary Steven Mnuchin:  Too Early to Speculate About Longer-Term Impact of Coronavirus

U.S. Treasury Secretary Steven Mnuchin said on Sunday central bankers will look at options for responding to the fast-spreading coronavirus as needed.

Mnuchin told reporters after a meeting of finance officials from the world’s 20 largest economies that it was too early to speculate about the longer-term impact of the deadly outbreak, but more would be known in three to four weeks.

“I’m not going to comment on monetary policy, but obviously central bankers will look at various different options as this has an impact on the economy,” Mnuchin said.

Weekly Forecast

Gold investors aren’t waiting for the data to confirm the severity of the coronavirus outbreak on the global economy. They are already betting on weak numbers.

Gold investors aren’t waiting for the central banks to cut interest rates and implement quantitative easing. They aren’t waiting for fiscal stimulus from the major economies. They are betting on it.

However, the market won’t go straight up with a meaningful correction or two. Traders have to eat so they will lighten up and book profits along the way. Hedge funds like to be right and enhance their returns, but they can’t take a performance fee unless they book profits.

The main trend is up, momentum is up and the fundamentals are bullish, but you’re still going to have to use your trading skills to make money.

The best recommendation at this time is to know your exit before you get it. Be careful chasing new highs and be prepared to enter on the 50% retracements of whatever time period you decide to trade.

USD/JPY Fundamental Weekly Forecast – Investors Questioning Yen’s Worth as Safe-Haven Asset

The major surprise in the Forex markets last week was the plunge in the Japanese Yen. The usual safe-haven currency posted its worst week in two-and-a-half years as worries about the coronavirus’ spread in South Korea, Japan and Beijing drove funds from Asia to the U.S. Dollar.

Following weak domestic data and growing fears about the coronavirus’ economic fallout, the Japanese Yen plummeted to its lowest level since last April as investors questioned its worth as a safe-have asset.

Last week, the USD/JPY settled at 111.575, up 1.791 or +1.63%.

Investors Fear Spreading Coronavirus Will Drag Down Asian Economies

As of Friday, the coronavirus has killed more than 2,200 people in mainland China and efforts to contain it have largely paralyzed the world’s second biggest economy. Also on Friday, South Korean authorities confirmed 52 new coronavirus infections, Yonhap reported, bringing its total to 156 and raising further alarm about the epidemic.

Two infected passengers from a cruise ship quarantined near Tokyo have died, and two passengers evacuated from the liner to Australia have now tested positive.

The jump in cases in South Korea and in Japan seems to have put a little fear in investors regarding Japan and the Yen’s appeal as a safe-haven asset.

Japanese Economic Reports

Concerns over the health of Japan’s economy began last Monday with the release of the Q4 2019 Preliminary GDP report and worsened with the release of reports on Core Machinery Orders and Flash Manufacturing PMI.

Japan’s economy shrank 1.6% in the fourth quarter of 2019, according to a government estimate released on February 17. The decline from the third quarter is the biggest contraction since 2014. The drop was even more severe – a 6.3% plunge – when measured as an annualized rate.

Revised Industrial Production rose 1.2%, but smaller than the 1.3% forecast and previous reading. Capacity Utilization came in at -0.4%. The prior reading was 0.3%.

Japan’s core machinery orders fell 12.5% in December from the previous month, dropping more than expected, government data showed on February 19. The month-on-month fall in core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, compared with the median estimate of a 9.0% decline in a Reuters poll of economists.

The Jibun Bank Japan Manufacturing PMI dropped to 47.6 in February 2020 from 48.8 in the previous month and well below market expectations of 49.0, a preliminary estimate showed. The latest reading pointed to the steepest pace of contraction in the manufacturing sector since December 2012 amid the coronavirus outbreak, while activity was already under pressure following the sales tax hike and devastating typhoon in October.

Weekly Forecast

Why did the Japanese Yen weaken last week? Japan’s economy is flirting with recession and the coronavirus could put it over the edge. Last week’s data serves as proof that the virus is likely to stamp out hopes for an economic recovery in the first quarter and investors lost confidence in the currency as a safe-haven asset.

The Dollar/Yen blew past the 112 level last Thursday to a 10-month high against a broadly stronger U.S. Dollar. The catalysts behind the surge were increasing concerns over Japan’s economic health. Although demand for the dollar softened on Friday due to weaker-than-expected U.S. manufacturing and services PMI data, conditions are ripe for further upside action this week especially if the coronavirus continues to spread in Asia.

In my opinion, it’s going to take a while for investors to regain confidence in the Japanese Yen after last week’s debacle.