Sentiment is taking on a renewed negative skew as the week develops. With positive newsflow of massive monetary and fiscal support plans now having waned, and it seems that all markets have to go on now is the worsening impact of the Coronavirus on the major western countries and the prospect of eye-wateringly bad economic data for March. Daily death rates from COVID-19 are increasing for the US, Italy and the UK. Wall Street equities have taken on a choppy outlook of late, but futures are pointing lower today and with Treasury yields lurching lower again today, major forex has a renewed safe haven bias. There seems to be very little light at the end of the tunnel for a beleaguered oil price, where OPEC members have failed to unanimously agree for an emergency meeting and the oil price is once more plunging back lower. The March PMIs are in focus for the major western economies today and these will give a real insight as to the worsening impact of the economic affect of Coronavirus. The US ADP employment change data will also provide a rather somber view of the state of the US labor market. Some good news in the Caixin China Manufacturing PMI for March which came in ahead of expectation at 50.1 (45.0 exp). However, around the flat line (of 50) shows that March at best is not worsening on February’s already calamitous data. Remember, China is at least a month or two ahead of other major economies on Coronavirus. Markets are looking past this, as a glass half-empty today.
Wall Street dropped back into the close last night with the S&P 500 -1.6% at 2584. Asian markets were also lower overnight with the Nikkei -4.5% and Shanghai Composite 0.8% (China equities still able to outperform on negative days). In Europe it is a rather negative looking picture with FTSE futures -3.6% and DAX futures -3.4% in early session moves. In forex, there is a risk negative bias as USD puts yesterday’s late decline to bed and outperforms early today across the majors. JPY is going toe-to-toe with USD this morning, with only CHF the other realistic supported major currency. The commodity currencies (AUD, CAD, NZD) are under the most pressure. In commodities, gold has rebounded from yesterday’s losses (but for how long?) whilst silver is fluctuating around the flat line. Oil is decisively weaker again.
The first day of the month is always important as it is a day of manufacturing PMIs. Given how this is for the month of March, when many western economies really began to be impacted by Coronavirus, this could be a day where fears of a global downturn are brought into sharper focus. The Eurozone final Manufacturing PMI is at 0900BST and is expected to see a slight downward revision to 44.7 (from the flash reading of 44.8, final February was 49.2). The UK final Manufacturing PMI is at 0930BST and is expected to be revised lower to 47.0 (from a flash of 48.0, and down from the final February reading of 51.7). Eurozone Unemployment is at 1000BST and is expected to remain at 7.4% in February (7.4% in January). The ADP Employment change is at 1315BST and is expected to plummet to -150,000 for the month of March (down from +183,000 in February). ISM Manufacturing for March is at 1500BST and is expected to deteriorate to 45.0 (from 50.1 in February). EIA Weekly Crude stocks are expected to show another inventory build last week (which would be the tenth in a row) of 4.3m barrels (last week +1.6m).
Chart of the Day – EUR/GBP
Sterling volatility has been massive in recent weeks with wild swings across the G4 major currency pairs. The month-long huge sterling weakness of February into March is now busy in retracement. This is showing on EUR/GBP as a run of strong negative candlesticks which have formed a downtrend in the past two weeks (up at £0.9040 today). The pair is falling consistently on a daily basis now and intraday rallies are a chance to sell. There is a lot of volatility that is still playing out on an intraday basis and on each of the past six sessions there are upper shadows only to close lower for another bear candle. This suggests there are consistent intraday opportunities to sell and the early move today higher is again likely to be another one. Negative momentum continues to build, with downside potential in the move. The RSI has only just moved to 50 and Stochastics are only just approaching 20. A move below the 50% Fibonacci retracement of £0.8280/£0.9500 has opened 61.8% Fib at £0.8745 as the next target. The hourly chart shows initial resistance today at £0.8900/£0.8955, which is an initial gauge of a sell zone. The hourly chart also shows that £0.8990 was the neckline of a top pattern that is now key resistance with rallies still a chance to sell.
The burgeoning US dollar recovery was nipped in the bud yesterday as EUR/USD rebounded +100 pips into the close. This has left a rather uncertain (small-bodied) but still mildly negative candlestick on the daily chart. It means that how the bulls react today could be important. This is because the momentum indicators seem to be around a crossroads now. The Stochastics are threatening to roll over (and bear cross) whilst RSI is flat around 50. Into the European session the market is once more beginning to drop back again, so the bulls need a response. The hourly chart shows the there is a run of lower highs that has formed over the past couple of sessions but hourly signals are again reflecting the uncertainty of the daily chart. The bulls lost control of the rally early this week, but finding support around $1.0950 (an old near term pivot) has restricted the selling pressure. So, the next move either back above $1.1050 (an old pivot which is now also a lower high) or below $1.0950 support could be crucial for near term direction. Above $1.1050 re-opens $1.1145, whilst below $1.0950 opens a test of the next support around $1.0885. A near term crossroads for EUR/USD.
The Cable rally has been tempered in the past few sessions. Much like the euro rally, the bulls have taken a step back. However, with Cable, the bulls look to be in a stronger technical position. With a couple of small bodied candles, the outlook has begun to con