An absolute deluge of selling across anything of notable risk resulted in record levels of bearishness yesterday. It is far too early to say this morning, but as the elastic begins to snap back, have we seen “the” low? Given the Coronavirus is increasingly sweeping across major countries (Italy on broad shutdown now), the true impact has yet to be seen. Given the sheer weight of the unknown, it is impossible to say if this is “the” bottom yet, even if yesterday felt like a bit of a culmination in selling pressure. Volatility is just eye-watering right now though and is likely to remain elevated for some time to come. The VIX Index of S&P 500 options volatility reached 60 yesterday, levels not seen since the financial crisis of 2008. However, the word of the day could well be “stimulus”. Donald Trump will discuss potential payroll tax cuts with Congressional leaders. Fiscal stimulus has also been suggested by Japan too, whilst tomorrow’s UK Budget is also expected to offer some fiscal support. Subsequently, there seems to be some sense of relief rally this morning. US Treasury yields have rebounded, with the US 10 year yield +16 basis points, and with the strong correlation to the dollar, we see USD also rebounding across the board. Equities are also engaging in something of a relief rally, although at the moment it is small fry compared to the decline of yesterday. China inflation was broadly in line with expectations and does little to change the focus off Coronavirus and its associated impact.
Wall Street closed a mammoth negative session with the S&P 500 –7.6% lower at 2746. US futures are rebounding with gains of +2.7% early today and this has helped Asian markets higher, with the Nikkei +0.8% and Shanghai Composite +1.8%. In Europe, the DAX futures are +1.3% higher in early moves. In forex, the big rebound on USD is small in the context of recent selling, but at least it may be a start. JPY is the biggest underperformer today, whilst the commodity currencies are performing well (aside from versus the dollar). In commodities, gold is over -1% lower, with silver is +0.7%. Oil volatility remains significant in a rebound of +5%.
It is another rather quiet day on the economic calendar. The final reading of Q4 Eurozone GDP (Revised) is at 1000GMT which is expected to be left unchanged from the +0.1% of the second reading.
There will be focus on any central bank speakers at the moment. Nothing from the Fed with the FOMC members in blackout period, but the RBA’s Deputy Governor Guy Debelle is speaking at 2200GMT and we may get a steer for the RBA’s next move.
Chart of the Day – Silver
A hugely volatile session yesterday across major markets saw selling pressure on silver. Although, being an industrial precious metal, silver has financial components that leave it (relatively) balanced during these turbulent times. As such, the market remains in a medium term trading range, even if there is a mild negative bias within that range. Whilst support at $16.50 holds, the bears will be kept at bay. Yesterday’s intraday support holding at $16.50 is encouraging and there is again an appetite to support today at $16.80. However, the recent failure around the mid-range pivot at $17.20/$17.35 leaves the market with resistance to overcome at $17.57, interestingly around the 38.2% Fibonacci retracement (of the $14.25/$19.64 bull run) at $17.58. With momentum indicators still sliding back under their neutral points this still points to mild sell positions around the pivot area, but with short term time horizons. With market fears remaining elevated we expect the pressure to continue on $16.50 but the range to continue.
Given the huge bull run on the euro, some sort of counter-reaction is not a big surprise. Turning back from $1.1492 at yesterday’s high, the early profit-taking today is forming a substantial negative candle. The question is, whether this is the start of something meaningful from the dollar bulls. Technically, the first reversal signal could be the RSI closing back under 70 (classic RSI bear cross), but given that we saw this a week ago, there needs to be a move at least into the low 60s, or even sub-60 to really suggest a firm reaction. A bear cross on Stochastics too would be added confirmation. A look on the hourly chart shows there is a pullback in process, but a decisive move below $1.1350 is the first trigger, whilst a breach of $1.1285 would be confirmation of something deeper. Then the pullback would be eyeing the breakout support band $1.1200/$1.1240. The hourly chart shows $1.1410 developing into a potential lower high this morning.
Sterling has posted another positive candle as the market has pulled higher, but resistance around $1.3200 remains intact to leave the medium term range intact. However, this near term bias is turning on its head again this morning and another retracement move is growing with force. How the bulls react to the support around $1.3070 will be key. This was the latest breakout, but already this morning, the bulls have breached the support. Give the decisi