Daily Market Outlook, March 05, 2020
The US market staged a strong comeback yesterday,that led its main indexes to notch nearly 4-4.5% gain overnight as investors reacted to US lawmakers’ bipartisan agreement to pass an $8b emergency funding bill to combat Covid-19 outbreak in the US.
This came alongside a narrowing Democratic presidential race that saw former Vice President Joe Biden surging to become the front runner as the party’s nominee.
Asian market rallied overnight on growing optimism that governments and central banks worldwide are introducing fiscal packages and reinforcing easier monetary policies to fight Covid-19-related economic fallout. However, it is worth noting some early softness in US futures showing a 1% give back on yesterday’s gains.
The Bank of Canada (BOC)’s decision to cut its overnight lending rate by 50bps to 1.25%, citing Covid-19 as a “negative material shock” to the Canadian outlook and “monetary and fiscal authorities (worldwide) are responding”. The move matched the Fed’s larger-than-usual 50 basis points emergency cut yesterday.
Treasury yields recovered by 1-9bps of which 10Y UST yields rose to 1.05%. Gold price fell slightly (-0.2%) to $1636.93/ounce.
US private sector added 183k jobs: The US private sector added 183k jobs in February (Jan: +209k revised) according to the ADP National Employment Report. The number topped consensus estimate of 170k and reaffirms the solid state of US labour market. This was also accompanied by a downward 82k revision to January reading. Feb’s job gains came primarily from the services sector (+172k) and partially from construction (+18k) while manufacturing continued to report job losses.
US ISM non-manufacturing PMI beat estimate prior to Covid-19 impact; Markit Services PMI slumped into contraction: The ISM non manufacturing index recorded an upbeat 57.3 reading in February (Jan: 55.3), beating consensus estimate of 54.8 again showcasing the resilience and strength of the services sector that is supported by a firm job market. Feb print was the index highest in one year and was led by higher new orders, employment and new exports order; output continued to gain albeit at slower pace. While business sentiments appeared to be favourable, surveyed firms began to flag worries over the Covid-19 outbreak in China and its related economic fallout. It’s worth noting that the impact of Covid-19 wasn’t fully reflected in Feb reading and there is possibility of sharp reversal in March. In fact the Feb Markit US Services PMI registered its first contraction in four years at 49.4 (Jan: 53.4) on the back of slower overseas demand that led to fall in exports sales.
Fed Beige Book points to modest and moderate growth: Fed second Beige Book of 2020 reported modest to moderate expansion of economic activity, supported by consumer spending. Covid-19 outbreak was said to have caused flat growth in tourism as well as some supply chain delays in certain districts. Employment increased but hiring was still constrained by a tight labour market. Prices increased modestly as well.
US mortgage refinancing jumped on lower rates: Mortgage applications surged 15.1% WOW last week (previous +1.5%) led by gains in refinancing (+26%) as current homeowners took advantage of the low interest rates (thanks to lower treasury yields) to refinance their homes.
Eurozone services PMI yet to reflect Covid-19 impact: The Eurozone Markit PMI rose a little to 52.6 in February (Jan: 52.5) to mark continuous expansion of Eurozone services sector. Market watchers suspect that the impact of Covid-19 spread again was not reflected in the latest reading given that the outbreak in the region only happened much later and foresee downside risk to March print given that the bloc’s largest economies Italy, Germany and France were hit with the highest number of cases in the region. On a separate note, retail sales rose 0.6% MOM in January (Dec: -1.1% revised) thanks to higher sales of food, drink & tobacco, fuel, medical goods and electric goods.
UK services activity supported by post Brexit demand: The Markit Services PMI for UK slipped to 53.2 in February (Jan: 53.9) to mark a softer gain in services business activity. Nonetheless, growth was supported by rebounding consumer demand following December’s general election and Britain’s ensuing withdrawal from the European Union.
Japan services sector struggled on slowing tourism: Japan Markit Services PMI fell to 46.8 in February (Jan: 51.0), after a rebound in January to signal a renewed contraction in the services sector activity. The survey reported that the spread of Covid-19 has “squeezed new business” due to falling inbound tourist arrivals and has weighed business optimism to near four-year low.
Today’s Options Expiries for 10AM New York Cut (notable size in bold)
- EURUSD: 1.0980 (EUR656mn); 1.1000 (EUR789mn); 1.1050 (EUR349mn); 1.1100 (EUR318mn); 1.1150 (EUR457mn); 1.1175 (EUR774mn); 1.1200 (EUR563mn); 1.1225 (EUR526mn)
- USDJPY: 107.65 (USD525mn); 107.73 (USD315mn); 107.90 (USD1.2bn); 108.00 (USD408mn); 108.40 (USD353mn)
- GBPUSD: 1.2900 (GBP207mn)
- AUDUSD: 0.6550 (AUD792mn)
Technical & Trade Views
EURUSD (Intraday bias: Bullish above 1.11 Bearish below)
EURUSD From a technical and trading perspective, as highlighted in the Weekly Market Outlook scale and scope of short squeeze similar to price action seen in August 2018, suggesting a test of offers and stops above 1.12 before a correction back to test bids towards 1.10 UPDATE as 1.11 supports intraday look for a challenge of year to date highs and offers and stops above 1.1250, this area should prompt some profit taking and a pause that could see a deeper correction ensue to test bids back towards 1.1050/00. A premature failure below 1.11/1.1090 would concern the bullish bias and prompt a quick test of pivotal support below 1.10
GBPUSD (Intraday bias: Bearish below 1.2840 Bullish above)
GBPUSD From a technical and trading perspective, as 1.2860 caps corrections look for a test of the equidistant swing objective sighted at 1.2670, on the day only a close above 1.29 would stabilise prices and delay further downside UPDATE bears frustrated again as discussed in yesterday’s Chart of The Day, as 1.2860 offers eroded, as 1.2800/20 supports look for a test of pivotal 1.2900/20 resistance, sustained trade above here opens a move to test descending trendline resistance above 1.30
USDJPY (intraday bias: Bearish below 108.60 Bullish above)
USDJPY From a technical and trading perspective, prices sliced through the pivotal test of daily ascending trendline support and duly exposed bids and stops to 107.50, as 108.60 caps upside attempts bears look for a 106.50 test next, on the day only a close above 109.00 would delay further downside and set a base for further corrective action
AUDUSD (Intraday bias: Bearish below .6650 Bullish above)
AUDUSD From a technical and trading perspective the spike below .6500 has attracted bids early in the week a close back through the .6600 handle would suggest the potential for a more sustained correction targeting .6700. A failure to carve out a meaningful low here will open .6350 downside test next UPDATE price continues to test pivotal descending trendline resistance a close through 6650 would encourage further corrective upside to challenge offers and stops above .6700. On the day only a close back below .6650 would suggest the correction is complete and a resumption of trend is underway
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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