Daily Market Outlook, March 18, 2020

Daily Market Outlook, March 18, 2020

Daily Market Outlook, March 18, 2020 

forex guide

The US market staged a reversal rally Tuesday on renewed stimulus hope. Main indexes jumped 5-6% in a volatile session over news that the Trump Administration is seeking approval on a $1 trillion stimulus fund that would include some $250b direct payment to households to ward off a potential Covid-19 recession. 

The Federal Reserve launched the Commercial Paper Funding Facility to purchase commercial papers and thus extend credits to businesses, a special crisis tool which was last invoked during the Global Financial Crisis. 

The Dow added more than 1000 pts after just losing nearly 3000pts the day earlier. This followed higher equities in Europe as the French government led by Emanuel Macron announced a €45b stimulus package to support the pandemic-battered economy. 

US Treasury yields surged 13-40 basis points in a single day – the benchmark 10Y UST yields recovered by more than 50% (+36bps) to 1.082%, back above 1.0% for the first time in nearly two weeks. Gold price snapped losing streak to add nearly 1% at $1528.30/ounce. Crude oil prices extended decline as outlook for demand is pessimistic. Brent crude collapsed 4.4% to close at $28.73/barrel, its first sub-$30 level since 2016. 

However, despite that stimulus package being announced by the White House, risk appetite reversed in the Asian trading session, with futures markets in the US are now limit down highlighting the uncertainty with market participants using upticks to exit positions

The EU has closed its external borders for thirty days. There are reports that German Chancellor Merkel may be less opposed to joint EU debt issuance, while the ESM (European Stability Mechanism) could issue coronavirus bonds, backed by EU governments, which could be purchased by the ECB.

In the UK, less than a week after the Budget was delivered, Chancellor Sunak yesterday pledged additional measures to help businesses, including £330bn of government-guaranteed loans, cash grants and extension of the business rate holiday. For households, a 3-month mortgage payment holiday was announced. The Chancellor said that the government would do “whatever it takes” to support the economy, and indicated that there will be further measures to come.

US Feb retail sales dropped 0.5% prior to outbreak: Retail sales dropped 0.5% MOM in February (Jan: +0.6%) following an upwardly revised 0.6% growth in January. Sales for the so-called control group, a key gauge of consumer spending, was unchanged (Jan: +0.4% revised) as the impact of Covid-19 outbreak hasn’t yet been reflected in the data given that the rapid virus spread and the subsequent containment measures only escalated in the past two weeks.  

US industrial production boosted by utilities as weather turns colder: Industrial production rose 0.6% MOM in February (Jan: -0.5% revised), marking its largest gain in three months mainly thanks to the 7.1% MOM rise in utilities output as the temperature returned to normal levels following an unusually warm January. Manufacturing recorded only a minimal 0.1% MOM growth while mining output dropped 1.5% MOM. The pre-Covid-19 growth is expected to be reversed this month when the manufacturing sector began to feel the pain of the pandemic; the earliest signal available was the more than 20pts plunge in the New York Fed Empire State Manufacturing Index.  

US homebuilder confidence eased in March: The NAHB Housing Market Index, a key gauge of homebuilder sentiment slipped to 72 in March (Feb: 74), but still at relatively high level historically. This signals the earlier impact of Covid-19 on the housing sector as its recent recovery is at risk of being disrupted by the rapid spread of the virus in the near to medium term.  Free falling of German investor sentiment: The Germany ZEW Economic Sentiment Index suffered its biggest drop in history of 58.2pts in March (- 49.5 vs 8.7) as the authorities struggle to contain Covid-19 outbreak in Germany and Europe in general. Germany is among the countries outside China with the highest number of cases, trailing behind Italy, Spain and France. The same reading for broader Eurozone also tumbled by nearly 60pts to -49.5 (Feb: 10.4) reflecting investors’ battered confidence regarding near-term Eurozone growth outlook.  Softer wage growth in Eurozone: Labour cost rose 2.4% YOY in 4Q19, moderating from 2.6% in Q3, marking its second consecutive quarter of slowdown, confirming the emerging signs of weakness in the Euro area labour market late last year prior to Covid-19 outbreak.  

UK job report largely disappointed: The UK economy added 184k in the three months to January (Dec: +180k), more than what was expected by economists. Gains came from the full-time employment which recorded the largest quarterly increase in history (+225k), that was partially offset by the loss in part-time jobs. This was however overshadowed by other poorer indicators. Unemployment rate was a tad higher at 3.9% in the same period (Dec: 3.8%), its highest in five months. Average weekly earnings, a key gauge of wage growth rose 3.1% YOY in the three months to Jan (Dec: +2.9%) thanks to higher bonus payment. Excluding bonus, base pay growth eased to 3.1% YOY (Dec: +3.2%). The jobless claims that measured the number of people claiming unemployment benefit also jumped by 17.3k in the month of February (Jan: -0.2k) reflecting the initial impact of Covid-19.  

Japan industrial production recovered prior to Covid-19: Japan industrial production gained for the second month by 1.0% MOM in January (Dec: +1.2%) pointing to recovery in output after the activity disruption caused by an early October typhoon. The decline in production extended to the fourth month but eased to 2.3% YOY (Dec: -3.1%). The gradual recovery however was ruined in the wake of Covid-19 spread in the country, pointing to reversal in MOM growth and even bigger contraction in the annual decline in February.

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

  • EURUSD:  1.0890 (EUR332mn); 1.0900 (EUR253mn); 1.0935 (EUR296mn); 1.1050 (EUR292mn)
  • USDJPY:  106.00 (USD1.1bn); 106.65 (USD790mn); 106.70 (USD620mn); 107.00 (USD613mn); 107.80 (USD615mn); 107.85 (USD685mn); 108.00 (USD2.7bn); 108.05 (USD668mn); 108.60 (USD1.4bn); 109.00 (USD1.7bn); 109.05 (USD438mn)

Technical & Trade Views

EURUSD (Intraday bias: Bearish below 1.12 Bullish above)

  USD/CHF: Swiss Franc trading on a stronger footing this morning

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. The next leg up will be confirmed with a daily close above the near term VWAP at 1.12 UPDATE while price struggle to reclaim 1.12 it appears a test of the pivotal 1.0950 may be underway a failure to find support here will see a quick retest of Year To Date (YTD) lows. A close above 1.12 still needs to get constructive on the pair again

GBPUSD (Intraday bias: Bearish below 1.21)

GBPUSD From a technical and trading perspective, the inverse head and shoulders scenario discussed in last week’s Weekly Market Outlook appears to be negated, unless price can stage an impressive key reversal pattern today closing above Friday’s highs then it appears price looks poised to make a run to test bids and stops below 1.20 the pivot cluster and 2019 lows towards 1.1950

USDJPY (intraday bias: Bearish below 109.50 Bullish above)

USDJPY From a technical and trading perspective, anticipated upside correction extends to test the equidistant swing objective sighted at 107.96, as 108.50/109 prior trend line support now acts as resistance there is a window for another leg lower to develop to retest prior swing lows a close sub 106 will flip the daily chart bearish again as per the near term VWAP

 

AUDUSD (Intraday bias: Bearish below .6000 Bullish above)

AUDUSD From a technical and trading perspective as .6300 contains upside attempts look for a test towards the support cluster towards the psychological .6000 level (equidistant swing and pivot cluster) UPDATE .6000 test underway a failure to produce a bullish reversal pattern here will see further losses to the next cluster magnet sub .5800

 

  Daily Market Outlook, March 13, 2020

 

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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