Daily Market Outlook, March 13, 2020

Daily Market Outlook, March 13, 2020

Daily Market Outlook, March 13, 2020 

forex guide

After yesterday’s global market collapse the biggest one declines since the crash of 1987,  we have witnessed stabilisation overnight.

The catalyst for the turnaround was a report that Medicago, a Pentagon-funded Canadian biopharmaceutical company,has produced a COVID-19 vaccine. The company’s CEO, Bruce Clark, said his company could produce as many as 10 million doses a month.”  While the vaccine won’t be ready until November, it offers hope that if this season’s outbreak can be contained/managed, next season’s will have less impact.

Still, the Nikkei is down about 6%. Last night, the US Federal Reserve took measures to inject significant cash into the Treasury market, where yields were rising due to a lack of liquidity despite investor flight to safety. The Bank of Japan and Reserve Bank of Australia joined the Fed in adding liquidity to markets. This morning, ahead of its scheduled policy decision next week, the Norges Bank (Norway’s central bank) cut interest rates by 50bp to 1%.

The only data release today of note is the preliminary reading of the University of Michigan’s measure of US consumer sentiment for March. The coronavirus is expected to have a significant impact, but to what degree is unclear. The market consensus forecast is for a decline to 95.0 which would be the lowest since September 2019.

Market focus is very much on equities. Having made an emergency 50bp rate cut to 1.00-1.25% range last week investors are anticipating further reduction at the US Federal Reserve’s scheduled policy meeting next week (17-18 March). The current median forecast among economists is another halfpoint reduction, but some are forecasting a larger cut. Markets will be watching the Trump administration’s further responses to the economic crisis. 

The Bank of England reduced Bank Rate by 50bp to 0.25% (matching the all-time low), but also key were its measures – including the Term Funding scheme for SMEs – to ensure liquidity continues to flow to the wider economy. One area where perhaps the UK showing ‘good’ examples is the coordination of monetary and fiscal policy, as demonstrated by complementary measures by the BoE and the Treasury. 

In contrast, the ECB yesterday decided to keep its benchmark interest rates unchanged 

ECB raised stimulus: In a monetary policy announcement, the ECB steps up stimulus by introducing an additional longer-term refinancing operations (LTROs) to provide immediate liquidity support to the financial system. It also introduced cheaper loans for banks at an interest rate as low as -0.75% for its current TLTRO III program. The ECB also raised its monthly bond buying by adding an “envelope of €120b” on its existing monthly €20b asset purchase program (APP). This top-up will last until the end of 2020. Notably, the ECB kept its key interest rates unchanged but repeated that current low rates are expected to stay or being lowered until inflation hits its sub-2% target. Markets and economists had been divided over the central bank’s potential decision on the Deposit Facility Rate (now unchanged at -0.5%) with investors expecting at least a 10basis point cut. 2020 growth projection was revised lower from 1.1% to 0.8%, as latest indicators suggest a “considerable worsening of the near-term growth outlook” amid the rapid spread of Covid-19 in the region. The risks surrounding the euro area growth outlook are “clearly on the downside”. Headline inflation is expected to “decline considerably over the coming months” on lower oil prices. In her press conference, ECB president Christine Lagarde called on governments in the Eurozone to implement “ambitious and coordinated” fiscal policies and stressed the importance of joint efforts of all players to combat economic fallout. 

US factory gate inflation moderated sharply: Producer prices index for final demand fell 0.6% MOM in February (Jan: +0.5%), its largest decline since Jan 2015, reflecting the broad-based decline in prices of energy, food and also services. Core PPI dropped 0.3% MOM (Jan: +0.5%). YOY, PPI inflation moderated back to 1.3% (Jan: +2.1%) and core PPI growth also slipped to 1.4% YOY (Jan: +1.7%) that could lead to even softer CPI in March onwards.  US initial jobless claims at 211k: US initial jobless claims fell by 4k to 211k last week (previous: 215k), still at historically low level, but we judge that claims will climb up in the coming weeks in response to activity disruption caused by the Covid-19 outbreak which had only started to escalate in the past one to two weeks.  

Eurozone industrial output rose prior to Covid-19: Eurozone January industrial production surprised with a 2.3% MOM gain (Dec: -1.8% revised), its largest gain since late 2017 and was in line with the improved reading in manufacturing PMI earlier of the year prior to the Covid-19 outbreak in the region. YOY, output recorded a more moderate drop of 1.9% versus -3.6% prior. 

Today’s Options Expiries for 10AM New York Cut (notable size in bold)

  • EURUSD:  1.1200 (EUR1.4bn); 1.1300 (EUR1.2bn)
  • USDJPY:   104.00 (USD664mn); 104.50 (USD525mn); 105.00 (USD516mn); 106.00 (USD2.4bn); 106.25 (USD465mn); 106.40 (USD500mn)
  • GBPUSD: 1.2575 (GBP274mn); 1.2700 (GBP213mn)
  • AUDUSD: 0.6450 (AUD699mn)

Technical & Trade Views

EURUSD (Intraday bias: Bearish below 1.1285 Bullish above)

  Gold: Yellow metal trading lower in the Asian session

EURUSD From a technical and trading perspective, price pulled back sharply to test pivotal 1.1050/30 support which represents symmetry swing and Fibonacci 61.8% retracement of the February advance, as this level supports there is a window for another leg higher to develop, a weekly close below this level would suggest a false upside break similar to that witnessed in the USDJPY

GBPUSD (Intraday bias: Bullish above 1.25)

GBPUSD From a technical and trading perspective, as per Weekly Market Outlook, anticipated inverse head and shoulders pattern is playing out as 1.25 supports there is an opportunity for a significant base to develop setting a floor for a significant upside reversal

USDJPY (intraday bias: Bullish above 104.50 bearish below)

USDJPY From a technical and trading perspective, while above 104.50 there is still a window for upside correction, a failure below 103 would negate the upside and open a retest of 101 support en-route to a tet of the psychological 100 level

AUDUSD (Intraday bias: Bearish below .6400 Bullish above)

AUDUSD From a technical and trading perspective as .6400 contains upside attempts look for a test towards the support cluster towards the psychological .6000 level (equidistant swing and pivot cluster)

 

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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