Daily Market Outlook, February 26, 2020
No Turnaround Tuesday for the US market as virus concerns intensified after the Center for Disease Control warned Americans to be prepared for the spread of Covid-19 within US communities. This came amid rising cases around the world especially in Europe and South Korea where authorities scrambled to contain the outbreak many deemed to be too late.
Fears surrounding COVID-19 will continue to dominate. Centers for Disease Control and Prevention (CDC) officials briefed the US on how to get ready if the coronavirus outbreak worsens domestically; even as top White House economic advisor Larry Kudlow maintained that the coronavirus was contained so far in the US and that economic growth had yet to be significantly affected. Dozens of other countries have also accelerated emergency measures to curb the spread of the coronavirus, which has killed close to 2,700 in China, although the World Health Organization (WHO) says the outbreak there has been declining since 2 February.
The Dow fell dramatically by 880pts (-3.2%) after just losing more than 1000pts on the day before. The S&P500 dropped 3% and NASDAQ trailed behind, finishing the day 2.8% lower. Tuesday marked US markets’ fourth consecutive losing session. Earlier, European key benchmarks generally slip near or around 2%.
The UK and EU trade negotiations are set to commence next Monday; chief negotiator Michel Barnier warned of a “complex, demanding” talks and sent a clear message that the EU would not back down
US Richmond Fed Manufacturing Index points to softer activity: The Richmond Fed manufacturing index came in lower at -2 in February (Jan: 20), way below analysts’ estimate of 10. The reading indicates softer activity in the Fifth District’s factory activity and was in contrast with similar gauges published by the NY, Philly and Dallas Fed recently.
Little change in US consumer confidence: The Conference Consumer Confidence Index rose slightly to 130.7 in February (Jan: 130.4 revised), a smaller increase compared to analysts’ expectation, indicating little change in US consumer sentiment. The latest print reflects the near-9pts drop in consumer’s gauge of current conditions and better perception over short term outlook (+6.4pts).
US house price soared in December: House prices in the US soared at year end as indicated by 0.6% MOM gain in the December FHFA House Price Index (Nov: +0.3% revised). The S&P CoreLogic Case Shiller Index for houses in 20 US cities picked up 0.4% MOM in the same month (Nov: +0.5%) leading the YOY growth at a 2.85% (Nov: +2.54% revised), its largest increase in 11 months. House prices in the US continued to pick up momentum amid higher demand, supported by lower interest rates and improving inventory.
Japan leading index rose in Dec: Japan December’s leading index was unchanged at 91.6 in a final reading (Nov: 90.8), better than November’s print, indicating brighter outlook for Jan 2020; its coincident index slipped to 94.1 (Nov: 94.7).
Citi Preliminary Month End Rebalancing view: The asset rebalancing signal is stronger than the hedge rebalancing one at +1.4 hist std. dev. The FX impact is USD selling against JPY and GBP at month end
Today’s Options Expiries for 10AM New York Cut (notable size in bold)
- EURUSD: 1.0745 (EUR406mn); 1.0750 (EUR626mn); 1.0800 (EUR963mn); 1.0825 (EUR455mn); 1.0850 (EUR1.8bn); 1.0870 (EUR855mn); 1.0890 (EUR1.3bn); 1.0900 (EUR1.2bn); 1.0985 (EUR492mn); 1.1000 (EUR663mn)
- GBPUSD: 1.2850 (GBP314mn); 1.3000 (GBP645mn); 1.3030 (GBP221mn); 1.3125 (GBP231mn) • EURGBP: 0.8355 (EUR200mn)
- USDJPY: 108.70 (USD543mn); 108.95 (USD550mn); 109.05 (USD736mn); 110.00 (USD838mn); 110.45 (USD505mn); 110.75 (USD792mn); 110.85 (USD580mn); 111.00 (USD2.6bn)
- AUDUSD: 0.6600 (AUD277mn); 0.6605 (AUD377mn); 0.6650 (AUD456mn); 0.6700 (AUD547mn)
Technical & Trade Views
EURUSD (Intraday bias: Bullish above 1.0870 bearish below)
EURUSD From a technical and trading perspective, bullish reversal seen Friday has flipped the daily chart bullish, contrarian players will be looking for a move back through 1.09 to encourage trend followers to further cover short positions. The somewhat lacklustre follow through would suggest a move back through 1.0830 prompting a retest of last weeks lows to test the pivotal 1.0750 monthly trendline support highlighted in Friday’s Chart of the Year. However note sizeable optionality in play today towards 1.09 so likely see this area as magnetic ahead of the NY cut
GBPUSD (Intraday bias: Bearish below 1.2980 Bullish above)
GBPUSD From a technical and trading perspective, prices once again holds a test of range support below 1.29 as this area holds there is the potential for another upside attempt to test descending trendline resistance sited around 1.3050, however, a failure to recapture ground above Friday’s highs will concern the nascent bullish spirits and likely see a retest of last week’s lows before another basing attempt. If bulls can defend the pivotal 1.2980 today there is a window to test 1.3046 descending trendline resistance and key decision for the next phase of action
USDJPY (intraday bias: Bullish above 111.00 Bearish below)
USDJPY From a technical and trading perspective, test of bids and stops to 110.50 prompts a recovery attempt from bulls, however, as 111.10 caps upside attempts look for a more sustained test of bids back towards 110, a failure to find support here will suggest a false upside break and open a move to test support back at 109 as highlighted in the daily chart. If buyers do make a show of support to push back through 110.80 we could be in the process of developing a more significant base at the midpoint of the daily channel
AUDUSD (Intraday bias: Bearish below .6630 Bullish above)
AUDUSD From a technical and trading perspective the equality target down to .6600 has been achieved, anticipate the potential for some profit taking around current levels, as .6570 supports we may witness an attempt to base here for a retest of offers back towards .6650. Basing attempts persist despite the overnight spike lower
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
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