Donald Trump has the ability to move markets. However, his attempts to calm market fears fell on deaf ears yesterday as the US Centres for Disease Control and Prevention (the CDC) noted that a case of Coronavirus in California was of a patient whose “exposure is unknown”. The potential for a “community spread of COVID-19” where the identity of patient zero is unknown could be the next step in how the virus impacts. The panic selling seems to be ramping up again. Away from risk and towards safe haven assets. With volatility on equities, bonds and forex elevated, the primary asset class to benefit is government debt. The US 10 year yield has fallen below 1.30% and is now at its lowest ever level. Investors are flooding to the safety of Treasuries and right now, there is no reason for this to change. The knee jerk reaction is initially hitting the US dollar this morning, but it is unlikely that the US dollar will be sold for too long. Elevated volatility on US Treasuries amid panic buying should be supportive for the dollar. The yen and gold are also once more in favour. The flip-side of this is that equities are getting dumped at an alarming rate once more this morning. Given that there was a 2% sell-off from the day high on the S&P 500 last night, these are not markets for the feint-hearted right now.
Wall Street saw an attempted rally sold into last night with the S&P 500 closing -0.4% lower at 3116. US futures have also accelerated lower overnight, standing another -0.6% lower today. The selling pressure spread to Asia, with the Nikkei -2.1%, although the Shanghai Composite was a shade higher at +0.1%. In Europe, there is a real sense of expanding panic again, with FTSE futures -1.3% and DAX futures -2.0% in early moves. In forex, there is a correction on USD creeping in today, with on CAD being a worse performer. The technical rally on EUR continues to develop. In commodities, the dollar weakness and safe haven bias is supportive for gold which is around +$8 higher, whilst the selling pressure remains a drag on oil which is another -1% lower.
It is another day of US data on the economic calendar, with growth in focus. However, first up there is a clutch of Eurozone sentiment gauges for February at 1000GMT. Eurozone Economic Sentiment is expected to remain at 102.8 (102.8 in January), with Eurozone Industrial Sentiment expected to remain at -7.3 (-7.3 in January) and Eurozone Services Sentiment is expected to improve slightly to +11.2 (from +11.0 in January). Into the US session, Prelim US GDP for Q4 2019 (second reading) is at 1330GMT and is expected to see the Advance growth reading confirmed at +2.1% (+2.1% Advance Q4, +2.1% Final Q3). US Durable Goods Orders are at 1330GMT and are expected to fall by -1.5% in the month of January (from December’s growth of +2.4%). US Weekly Jobless Claims are at 1330GMT and are expected to remain around recent levels with 212,000 (from 210,000 last week). Pending Home Sales at 1500GMT are expected to increase by +2.2% on the month of January (after a -4.9% decline in December).
There is another Fed speaker to watch out for today, with Loretta Mester (voter, mild hawk) speaking at 2030GMT.
Chart of the Day – EUR/GBP
Sterling has been choppy in recent sessions, just as the euro has managed to engage some kind of near term recovery. This has pulled EUR/BP back towards a confluence of resistance of overhead supply around £0.8390/£0.8440 and a five month downtrend at £0.8435 today. The falling 55 day moving average at £0.8460 has also been a basis of resistance in recent weeks (although not to the pip). The broad outlook on Euro/Sterling has been negative for much of 2020 and especially trading under the old key floor at £0.8480. With the negative configuration on momentum indicators (RSI failing consistently between 50/60 and MACD lines under neutral), we see rallies as a chance to sell. This rebound in the past week, therefore lends the latest opportunity. We watch for exhaustion signals of this rebound. A sell-zone between £0.8390/£0.8480 is likely to house the next lower high for the renewed pressure on the key low at £0.8275. A move above the £0.8535 lower reaction high changes the outlook more positive.
The euro has performed relatively well against the major forex currencies in the past week. This has allowed EUR/USD to engage in a recovery. The issue is that this is a near term unwinding of the oversold position that has built up throughout February, but one which is essentially a bear market rally. Despite yesterday’s doji candle (denotes uncertainty), the market is this morning pulling clear of the resistance of the old key October low at $1.0875. The recent bull cross on MACD lines and improvements on RSI and Stochastics show the recovery is still progressing. The hourly chart shows a small base implying $1.0950 as a rebound target. This is still well within the 8 week downtrend (today at $1.0990) and under the overhead supply $1.0980. SO we are happy to run near term positive positions towards $1.0950 and wait for renewed sell signals. The market also continues its run of posting higher daily highs and higher daily lows in each of the past four sessions. Initial support is $1.0855/$1.0875.
The outlook on Cable is increasingly uncertain. On a day to day basis the market is swinging higher then lower, lending a very mixed outlook now. A run of five candlesticks of alternating configuration is leaving traders stuck between a rock and a hard place. The fact that Cable more than entirely retraced a +75 pip rally from Tuesday with yesterday’s -100 pip decline, only to bounce back +20 pips early this morning, characterises the lack of certainty in the market moves. We continue to see Cable as having developed a marginal negative bias in recent weeks, having started to post lower highs and lower lows. The Fibonacci retracements of the $1.2193/$1.3515 bull run have limited moves in the past week. 50% Fib is supportive around $1.2850, whilst 38.2% Fib is a basis of resistance now at $1.3010 (having previously been a basis of support through January). Momentum is stuck correctively configured leaving us with a mild bias to sell strength and preference to test the $1.2845 February low. A breach of this support opens $1.2820 and $1.2765. Above $1.3070 is a game-changer for the bulls now.