Daily Market Outlook, March 20, 2020

Daily Market Outlook, March 20, 2020

Daily Market Outlook, March 20, 2020 

forex guide

Yesterday marked a busy market day packed with central bank actions that saw the Fed, BOE, RBA and BNM putting their available tools to good use in a bid to fight an oncoming recession. 

Overnight, global stocks recovered some ground in response to these interventions. The Dow Jones rose nearly 4.0% alongside higher S&P 500 (+5%) and NASDAQ (+2.3%). European equities experienced gains of more than after Asian markets traded higher overnight. 

Gold prices retreated further, shedding 1.0% to $1471.24/ounce. Crude oil benchmarks snapped a three-day losing streak and staged a strong 14-24% rebound that saw Brent crude climbing back to $28.47/barrel. Momentum in the US Dollar gathered further strength although we are seeing a pause in upside momentum as of writing.

UK Chancellor Sunak, together with PM Johnson, is expected to unveil a new package of measures later today to support businesses and the economy, as the coronavirus leads to a shutdown in significant parts of the economy. Specifically, the new measures will aim to encourage firms to hold on to their staff. According to reports, they may include a weekly subsidy for workers, a freeze on income tax payments and National Insurance tax breaks. Yesterday, the PM said that the UK can “turn the tide” on the virus within 12 weeks.

BOE slashed rate to record low and raised QE in second intermeeting decision since Covid-19 outbreak: The Bank of England cut bank rate by 15 basis points from 0.25% to an all-time-low of 0.1% overnight, marking its second emergency move that brought the total reduction to 65 basis points in just over one week. The central bank also stepped up its current bond buying program by £200b to £645b. It was also raising the size of its Term Funding Scheme for small businesses (TFSME) that was just announced last week. All decisions were unanimous. BOE said that containment measures taken will result in a “sharp and large” but temporary economic shock. Conditions in the UK gilt market (as in other developed economies’ bond markets) have deteriorated that led the UK and global financial conditions to tighten. The next scheduled meeting on 26 March to be carried on. The number of confirmed cases in the UK was 2626 according to the WHO, still far behind neighbouring France, Germany, Spain and Italy but government’s perceivably lax approach in managing the crisis has many worried its National Health Services (understaffed and underfunded for many years) would not be able to cope with a sudden surge in cases sooner or later.  

Fed set up new swap lines with nine central banks: The Federal Reserve had also set up dollar-liquidity swap lines with nine additional central banks to its five existing ones in another rapid move to ward off potential Covid-19 crisis. The respective amount for each central bank varied from $30b to $60b.  

RBA cut cash rate to 0.25% and launched QE in historic move: The RBA trimmed cash rate by 25 basis points further to 0.25%, its first inter-meeting rate cut since 1997 during the Asian Financial Crisis while emphasizing that it would not raise rate until hitting full employment and inflation target of 2– 3%. This came as a part of a broader package aiming to support the economy during the Covid-19 slump that includes the historic introduction of a quantitative easing program under which the central bank would purchase government bonds in the secondary market to keep the yield on 3-year Australian government bonds at around 0.25%, and at least $90b term funding facility for banks to extend lending to SMEs and exchange settlements at RBA is raised to 0.1% from 0%. Apart from that, RBA will conduct 1M and 3M repo operations to support liquidity in the short term market. It would also carry out longer term (6M or more) repo operations if necessary. RBA stressed that Covid-19 is “first and foremost a public health issue”, it said that monetary policy complements the government’s fiscal response to support the economy.  

US jobless claims surged last week: Initial jobless claims jumped by 70k to 281k for the week ended 14 March (previous: +211k), reflecting firsthand mpact of Covid-19 outbreak on the labour market as the lockdown of cities severely curbed economic activities, resulting in job losses.  

Philly Fed Index tumbled nearly 50pts: The Philadelphia Fed Manufacturing Index dipped by nearly 50pts to -12.7 in March (Feb: 36.7), to indicate the tremendous stress faced by the local manufacturing industry in response to Covid-19 related demand slump and supply chain disruption. 

The Conference Board said the US economy may already enter contraction: The Conference Board Leading Index rose slightly by 0.1% MOM in February (Jan: +0.7%) to 112.1, but does not reflect the impact of the Covid-19 outbreak which happened much later in early March. The Conference Board said that the recovery in manufacturing will now be short-lived because of the disruption in global supply chains and falling demand. “Declines in stock prices, consumers’ outlook on economic conditions, manufacturing new orders, average workweek in manufacturing, and rising unemployment claims will begin to negatively impact the economy”. It said that the economy may already be entering into a period of contraction.  

Japan’s All Industry Index suggests economy stabilized prior to Covid19: Japan All Industry Index rose 0.8% MOM in January (Feb: 0.0%) thanks to the gains in tertiary and manufacturing activities that suggest some form of stabilization before the outbreak of Covid-19 in the country. 

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

  • EURUSD: 1.0680 (350M), 1.0700 (430M), 1.0720-25 (370M), 1.0805-15 (1BLN), 1.0850 (300M), 1.0870-80 (600M), 1.0910 (1.8BLN)
  • USDJPY: 108.90-109.00 (1.3BLN), 110.00 (925M), 110.95 (500M)

Technical & Trade Views

EURUSD (Intraday bias: Bearish below 1.1030 Bullish above)

  Silver: White metal trading lower in the Asian session

EURUSD From a technical and trading perspective, do or die for EURUSD bulls, if we lose 1.08 support look for a quick test of 1.0500/50 as the next downside objective. On the day only a close back through 1.1030 would suggest a delay in downside objectives. UPDATE profit taking pause this morning as stops below YTD lows were run yesterday as 1.060 caps corrections bears will target a test of 1.0500/50 pivot point cluster. On the day a close through 1.10 would encourage further upside price discovery

GBPUSD (Intraday bias: Bearish below 1.21)

GBPUSD From a technical and trading perspective, 1.1950 offered little in the way of support as liquidity evaporated on fears of a London lockdown. It seems premature to talk about a double bottom but a defense of 1.1475 could be significant, a failure to defend this level would suggest further declines to test the psychological 1.10 level UPDATE bulls attempting to deliver a double bottom on the day a close through 1.20 would be constructive

USDJPY (intraday bias: Bearish below 109 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 no 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 UPDATE upside breach of the prior ascending trendline support is constructive, however caution is counselled on a snapback close below 109 would suggest a false break

AUDUSD (Intraday bias: Bearish below .6100 Bullish above)

  Chart of the Day DXY (US Dollar Index)

AUDUSD From a technical and trading perspective .5800 erased yesterday .5500 has produced some near term demand, however until .6000 is reclaimed on a sustained basis it is difficult to get constructive on the pair and .5000 could well be tested. UPDATE a close above .6000 would support a further bounce to retest .6300 as resistance, on the day a failure to reclaim 59.50 on a closing basis would likely see a return to lows

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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