Main market themes
- Global market rout amid heightened global risks from Coronavirus pandemic: Major stock indices plunged yesterday as traders scurried for safety and dumped risk assets amid growing concerns over the manifestation of the Wuhan Coronavirus both in terms of the numbers of death toll/ cases of infection, as well as geographical dispersion.
- US equities were down between 1.6-1.9% yesterday with the Dow erasing all gains this year while European indices lost over 2.0%, just shy of the 3.0% losses seen in some Asian bourses, which were not closed for the Lunar New Year holidays. However, markets have steadied overnight with the S&P futures recovering over 0.5%.
- Gold prices rallied to a near seven-year high at $1582/oz on refuge demand while the JPY advanced 0.35% against the USD at 108.90, back below the 108 handle for the first time in three weeks. Global crude oil prices plummeted as well as the spreading of the Coronavirus raised economic worries. Brent lost 2.3% to $59.32/ barrel, below the $60/ barrel benchmark for the first time in two months while the WTI last settled at $53.14/ barrel, down 1.9% on the day.
- US new home sales surprisingly fell: New home sales in the US registered a surprised decline of 0.4% MOM to 694k units in December, its lowest in five months, while November’s gain was revised to a 1.1% MOM decline. The decline was dragged by lower sales in the Northeast and South region, which offset higher sales in the MidWest and West. This marked a three-month losing streak signaling odds of a cooling housing market. Median house prices however registered positive gains for the 2nd straight month, albeit at a slower pace.
- US Dallas Fed manufacturing contracted for the fourth straight month: Dallas Fed manufacturing outlook remained negative for the 4th straight month in January but the smaller negative print at -0.2 vs -3.2 a month ago suggested less pessimism lifted by improvement seen in company outlook, production, capacity utilization and new orders.
- The USD, alongside safe-haven currencies like the JPY and the CHF, rose on Monday, whilst the offshore CNY tumbled to a 2020- low, as growing fears about the spread of a coronavirus from China, although it has steadied in offshore trade Tuesday.
- EUR edged lower on the back of a weaker-than-expected IFO survey, which showed a dip in the business climate in January, and a sharper decline in business expectations from December, though both remained above November levels.
- As far as Tuesday’s US economic docket is concerned, durable goods orders for December are due, alongside January’s conference board consumer numbers. The Richmond fed manufacturing index for January will also be released. The Fed remains in a blackout period ahead of the 28-29 January FOMC meeting, where it is expected to stay on pause, keeping the Fed Funds Target Rate (FFTR) range at 1.50-1.75%. Markets will also be looking out for Fed’s view on the coronavirus and geopolitical developments in the Middle East.
Today’s Options Expiries for 10AM New York Cut (notable size in bold)
- EURUSD: 1.1080 (EUR1.4bn); 1.1100 (EUR379mn)
- GBPUSD: 1.3100 (GBP200mn)
- USDJPY: 108.80 (USD920mn); 109.25 (USD434mn); 110.20 (USD430mn); 110.40 (USD400mn)
- AUDUSD: 0.6675 (AUD225mn); 0.6840 (AUD645mn)
EURUSD (Intraday bias: Bearish below 1.1040)
From a technical and trading perspective, as 1.1065 contains upside corrections look for a test of bids and stops below 1.10, a failure below 1.0980 will be a bearish development exposing the 1.0870’s autumn low. On the day only a close back above 1.1065 would suggest that the symmetry & equidistant swing support will stem the downside pressure.
GBPUSD (Intraday bias: Bearish below 1.3065)
From a technical and trading perspective, as anticipated New York trading yesterday set up the test of bids towards 1.30 as 1.3065 caps corrections today look for a retest of 1.30 and stops below. On the day a close above 1.31 will likely frustrate fresh shorts leading to further consolidation ahead of Thursday asymmetric risk event.
USDJPY (intraday bias: Bearish below 109.60)
From a technical and trading perspective, as anticipated sentiment and momentum divergence has been addressed with the breach of 109.80/60 as this levels caps upside attempts now look for a move to test bids at 108.60 and stops below. On the day only a close back above 109.60 would suggest a move to close the Asian gap.
AUDUSD (Intraday bias: Bearish below .6820)
From a technical and trading perspective, the overnight gap through the ascending trendline support suggests the potential for further downside to test equidistant swing support sited towards .6750. As .6730 survives there is a window to set a base, however, a failure here will open a test of bids back to .6700 and stops below.
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