Next 24 hours: Investors head for the exit doors
Today’s report: Coronavirus spread a big worry for global market
We come into Monday with risk markets under intense pressure as weekend headlines around the coronavirus highlight a surge in coronavirus cases outside of China, namely in South Korea and Italy. There have also been reports of an alarming rise in the death toll in Iran.
Wake-up call
- German IFO
- UK fundamentals
- Risk sentiment
- SNB challenge
- weekend comments
- USDCADwholesale sales ahead
- ANZ Bank
- record run
- hard asset
- institutional demand
- traditional markets
Suggested reading
- Virus Investors Don't Need No Education, T. Culpan, Bloomberg (February 23, 2020)
- The Bernie Sanders Panic Index, B. Fox, Fortune (February 21, 2020)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The downtrend off the 2018 high is looking exhausted and the prospect for a meaningful higher low is more compelling. A higher low is now sought out above the multi-year low from 2017, ahead of the next major upside extension. Only a weekly close back below 1.0800 would compromise this outlook. Back above 1.1240 will strengthen the view.EURUSD – fundamental overview
Solid economic data out of the Eurozone to end the previous week, helped to bolster the Euro out from multi-month lows. On Friday, PMI reads out of the Eurozone were above forecast, and this came in contrast to US PMI reads that disappointed. US existing home sales was another let down and the Euro has been trying to recover. There has been renewed safe haven demand for US Dollars early Monday on account of the coronavirus spread to Italy, though dealers continue to report demand into dips. Looking ahead, we get German IFO reads, the Chicago Fed national activity index, and Dallas Fed Manufacturing. We also get central bank speak from Fed Mester.EURUSD - Technical charts in detail
GBPUSD – technical overview
The market has seen a recovery out from the lowest levels since 2016, with the price now pushing back above the weekly Ichimoku cloud to signal a bullish structural shift. Ultimately, only back below the 1.2500 handle would compromise the newly established constructive medium and longer-term outlook. Next key resistance comes in the form of the monthly high from September 2017 at 1.3658, with setbacks expected to be well supported ahead of 1.2800.GBPUSD – fundamental overview
The Pound continues to be well supported on dips and despite last week's setbacks, dealers report plenty of demand for the UK currency. Economic data out of the UK was solid last week and this came in contrast with Friday's discouraging run of data out of the US. There has been some chatter around President Trump's latest comments, in which he described UK PM Johnson's decision to allow the Chinese company Huawei a role in building the UK's 5G network as a 'betrayal.' Looking ahead, we get the Chicago Fed national activity index, and Dallas Fed Manufacturing. We also get central bank speak from BOE Haldane and Fed Mester.USDJPY – technical overview
The major pair has seen a contraction in range over the past several years. We're getting closer to the market breaking out of the range one way or the other, but until then, look for rallies to be well capped above 112.00 and below 105.00. A monthly close above the 2019 high at 112.40 would change the picture and suggest the major pair was seeing a bullish breakout.USDJPY – fundamental overview
There's been a lot of two way flow in the Yen, with the currency finding demand on risk off flow associated with the spread of the coronavirus beyond China's borders, but also finding offers on Japan recession fears and broad based US Dollar demand. Overall, if the downside pressure on US equities persists, we suspect the Yen demand will start to become more pronounced. It's worth noting, Yen volumes were thinner on Monday on account of a Japanese holiday. Looking ahead, we get the Chicago Fed national activity index, and Dallas Fed Manufacturing. We also get central bank speak from Fed Mester.EURCHF – technical overview
The market remains very well capped into offers and the medium-term picture continues to favour the downside. A break back above 1.1060 would be required to take the immediate pressure off the downside. Technicals are however looking extended and the market should be well supported ahead of 1.0500.EURCHF – fundamental overview
The SNB remains uncomfortable with Franc appreciation and continues to remind the market it will need to be careful about any attempts at trying to force an appreciation in the currency. But the SNB will also need to be careful right now, as its strategy to weaken the Franc is facing headwinds from a less certain global outlook, and from a US administration that has put Switzerland on its currency manipulator watchlist. Any signs of risk liquidation in 2020, will likely invite a very large wave of demand for the Franc that will put the SNB in the more challenging position of needing to back up its talk with action, that ultimately, may not prove to be as effective as it once was, given where we're at in the monetary policy cycle.AUDUSD – technical overview
The market has been under pressure over the past several months, but has also been well supported on dips. The price action suggests we could be seeing the formation of a major base, though it would take a clear break back above 0.7100 to strengthen this outlook. In the interim, look for setbacks to continue to be well supported above 0.6500 on a monthly close basis.AUDUSD – fundamental overview
The Australian Dollar is trying its best to make its way out from multi-year lows against the Buck, finding some demand on the back of weekend comments by Australian Treasurer Frydenberg and FinMin Cormann that the Australian economy is proving resilient despite the coronavirus and Aussie bushfires. Looking ahead, we get the Chicago Fed national activity index, and Dallas Fed Manufacturing. We also get central bank speak from Fed Mester.USDCAD – technical overview
The downturn in late 2019 has resulted in a medium-term shift in the trend, with the pressure back on the downside. The break back below major psychological support at 1.3000 now exposes deeper setbacks towards the 1.2782 low from September 2018. At this stage, the market would need to push back above the November 2019 high at 1.3328 to take the immediate pressure off the downside.USDCAD – fundamental overview
The Canadian Dollar has been trying to recover from recent lows, and got some help last week from hotter than expected Canada inflation data. But at the same time, there has been persistent downside pressure on the Loonie as the price of OIL remains weighed down. We've also seen the Canadian Dollar under pressure on broad based demand for the Buck in a world where the market is looking for a safe haven option. Looking ahead, we get Canada wholesale sales, the Chicago Fed national activity index, and Dallas Fed Manufacturing. We also get central bank speak from Fed Mester.NZDUSD – technical overview
There's a case to be made for a meaningful bottom, with the market rallying out from longer-term cycle low area around 0.6200. As such, look for setbacks to be well supported in the days ahead, in anticipation of a continued recovery. Only a weekly close below 0.6200 would give reason for rethink. Back above 0.6800 strengthens the outlook and takes the medium to longer-term pressure off the downside.NZDUSD – fundamental overview
ANZ Bank doesn't expect fallout from the coronavirus to be all the intense in the New Zealand economy, and this has helped to offset Kiwi setbacks. New Zealand retail sales produced a softer headline print, but this was offset by an upward revision. Looking ahead, we get the Chicago Fed national activity index, and Dallas Fed Manufacturing. We also get central bank speak from Fed Mester.US SPX 500 – technical overview
There have been signs of a major longer term top, after an exceptional run over the past decade. Any rallies from here, are expected to be very well capped, in favour of a major correction targeting an eventual test of the 2018 low at 2339. The initial level of major support comes in at 3070, with a break below to strengthen the outlook. A monthly close above 3400 would be required to compromise the outlook.US SPX 500 – fundamental overview
Although we've seen the market extending to fresh record highs in 2020, with so little room for additional central bank accommodation, given an already depressed interest rate environment, the prospect for a meaningful extension of this record run, on easy money policy incentives, should no longer be as enticing to investors as it once was. Meanwhile, tension on the global trade front, geopolitical risk, and worry associated with the coronavirus, should weigh more heavily on investor sentiment into 2020. We recommend keeping a much closer eye on the equities to ten year yield comparative going forward, as the movement here is something that could be a major stress to the financial markets looking out.GOLD (SPOT) – technical overview
The 2019 breakout above the 2016 high at 1375 was a significant development, and suggests the market is in the early stages of a bullish move that follows a multi-month consolidation. The next major level of resistance comes in around 1700 (measured move extension target), while in the interim, look for any setbacks to be well supported above 1500.GOLD (SPOT) – fundamental overview
The yellow metal continues to be well supported on dips with solid demand from medium and longer-term accounts. These players are more concerned about exhausted monetary policy, extended global equities, political uncertainty, systemic risk and trade war threats. All of this should keep the commodity well supported, with many market participants also fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax.BTCUSD – technical overview
Setbacks should be very well supported in the 6,000 area, with a higher low sought out in favour of a bullish continuation back above the 2019 high and towards the record high from late 2017 further up. Ultimately, only a weekly close below 5,750 would compromise the constructive outlook. Back above 10,500 further encourages the bullish prospect.BTCUSD – fundamental overview
Bitcoin demand is expected to pick up in 2020, with market forces to likely make a stronger argument for the emerging cryptocurrency. In a world where rates are at historic lows and the equity market looks to be inching closer to major capitulation, the idea of owning a decentralised, limited supply currency, becomes increasingly attractive as a store of value. Moreover, there is plenty of development going on in the decentralised technology space, which should only add to the draw.BTCUSD - Technical charts in detail
ETHUSD – technical overview
The market is in the process of turning back up after stalling out in the latter half of 2019. Look for setbacks to be well supported above of previous resistance turned support at 180 on a weekly close basis, in favour of the next major higher low and bullish resumption back towards and through the 2019 high up at 363. Ultimately, only a weekly close below 180 would compromise the outlook.ETHUSD – fundamental overview
There is plenty of Ether demand built up, with so much optimism around prospects for the blockchain given all of the development going on in the decentralised finance space. At the same time, macroeconomics will likely play a negative role in 2020, at least relative to the price of Bitcoin, with Eth expected to underperform in a risk off backdrop, in light of Ethereum's higher sensitivity and correlation with risk themes.