Daily Market Outlook, March 02, 2020
Federal Reserve Chair Jerome Powell took the somewhat unusual step of releasing a rare intermeeting statement last Friday, which signaled to the market, the central bank’s preparedness to reduce interest rates if needed to support the US economy.
Powell’s unscheduled statement dented the USD further. The broad USD was relatively supported on Friday, until Powell’s statement that the Fed will “use our tools and act as appropriate to support the economy” pushed it another leg lower. The broad USD closed weaker against the JPY and EUR. In particular, the JPY continued to see strong outperformance within the G10 FX space on risk dynamics. Cyclicals (AUD, NZD, CAD) continued to underperform across the board.
With the Fed in the rate cut game (some quarters calling for 50 bps cut in March FOMC), markets will watch out for two developments going forward. First, will there be coordinated easing across global central banks? Upcoming meetings by RBA (Tue) and BOC (Wed) will be key to watch. Second, how much positivity can be implied from here and how much positivity can markets imply from Fed easing? Typically, an easing Fed supports risk assets, will this be the catalyst needed for a sustained turnaround in risk sentiment?
Market watchers will be keeping a close eye on the emerging COVID-19 outbreak, where there are now over 5,000 cases outside of mainland China. Europe is where the biggest concentration of cases outside of China. Italy has crossed the 1600 mark, over the weekend, with a few dozen cases in each of France, Germany and Spain.
This week’s releases of ISM indices in the US may be even more closely watched than Friday’s nonfarm payrolls report, after the Markit PMIs raised risks that the COVID-19 might be starting to hit the US economy.
Markets are expecting Monday’s ISM manufacturing index to fall to 50.5 from January’s improved 50.9. On Wednesday, the ISM non-manufacturing index is expected to fall to 55.0 from 55.5.
Friday’s NFP release for February may well show a material slowing in job growth partly after the acceleration toward 225k the prior month. Wage growth could also slow a little further given fairly typical seasonal monthly wage gains and year-ago base effects. Otherwise, the rest of the week’s US data is unlikely to have much impact. January construction spending is due on Monday. The ADP’s estimate for private sector employment is due on Wednesday, followed by the usual weekly jobless claims on Thursday. 4Q productivity and costs and January factory orders are also released on Thursday. Friday sees January trade and wholesale data due.
On the CFTC front, non-commercial and leveraged accounts continue to move in favour of the USD as a whole, with their net implied long USD positions extending in the latest reading.
Today’s Options Expiries for 10AM New York Cut (notable size in bold)
- EURUSD: 1.0965 (450M), 1.0980 (540M), 1.1000 (3.5BLN), 1.1050-60 (2BLN)
- GBPUSD: 1.3000 (300M)
- USDJPY: 106.00 (230M), 107.00 (233M), 107.20 (230M), 108.20-30 (1.5BLN)
Technical & Trade Views
EURUSD (Intraday bias: Bullish above 1.0960 bearish below)
EURUSD From a technical and trading perspective, month end short covering has driven prices higher as shorts are squeezed, on the day look for a test of offers 1.1120/60 to cap the first leg higher, before we may see a pullback to test bids towards 1.0960, if this area finds support then we could set a base targeting an equidistant swing pattern later in the week. A failure below 1.0940 would be a bearish development suggesting yet another failed upside attempt.
GBPUSD (Intraday bias: Bearish below 1.2860 Bullish above)
GBPUSD From a technical and trading perspective, as 1.2860 caps corrections look for a test of the equidistant swing objective sighted at 1.2670, on the day only a close above 1.29 would stabilise prices and delay further downside.
USDJPY (intraday bias: Bearish below 109.20 Bullish above)
USDJPY From a technical and trading perspective, prices sliced through the pivotal test of daily ascending trendline support and duly exposed bids and stops to 107.50, as 109.20 caps upside attempts bears look for a 106.50 test next, on the day only a close above 109.60 would delay further downside
AUDUSD (Intraday bias: Bearish below .6600 Bullish above)
AUDUSD From a technical and trading perspective the spike below .6500 has attracted bids early in the week a close back through the .6600 handle would suggest the potential for a more sustained correction targeting .6700. A failure to carve out a meaningful low here will open .6350 downside test next
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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.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!