Markets spooked by jump in South Korean & Japanese coronavirus cases

SUMMARY

ANALYSIS

USDCAD

Coronavirus fears are back after the number of new cases soared to 104 in South Korea and 92 in Japan today, after both nations reported their first deaths from the virus, and after the mayor of Daegu, the South Korean city afflicted by the latest surge in new cases, asked its citizens to refrain from venturing outdoors.  China’s National Health Commission reported just 45 new coronavirus cases outside of Hubei province, which now extends the declining daily trend of this statistic to 16 days, but they took another knock to their credibility last night by changing the definition of what constitutes a confirmed case once again by removing clinically diagnosed patients with negative Rna test results.  The official case count has risen to 74,577 in China and there have now been 2,119 deaths, but a quick survey of market chatter this morning suggests that nobody believes this data anymore.  We haven’t believed it from the very beginning of this outbreak, and we think markets are finally starting to focus on the relatively more trustworthy data coming out from neighboring nations like Singapore, Japan, Thailand, South Korea and Malaysia...which is trending in the wrong direction.  See here for an excellent source (BNO News) that tracks the number of cases and deaths in China and the rest of the world.

Today’s coronavirus reality check has finally took a chink out the armor for the Chinese yuan.  After staying bid above the 7.0000 level for the betterment of two weeks while China threw the kitchen sink at creating positive news flow, the yuan has now collapsed lower.  The influential off-shore USDCNH rate has broken higher out of its downtrend since the summer of 2019; a technical development which we warned about on Tuesday.  See here.  The resulting risk-off tone from this yuan move unsurprisingly hit commodity currencies in overnight trade and saw USDCAD roar back to Tuesday’s pivotal chart resistance level in the 1.3260s.

The US Philly Fed survey for February was just released however it has taken the upward momentum out of the broader USD.  While the headline index figure came in at a whopping 36.7 vs 12.0 expected, largely because of a surge in new orders, both the employment and prices paid sub-components missed expectations.  A NY close for USDCAD above the 1.3265 level would do much to restart the market’s uptrend whereas a move back below the 1.3220s would be a negative technical development.  Canada reports its December Retail Sales data tomorrow at 8:30amET.

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MAR CRUDE OIL DAILY

EURUSD

The release of the US Philly Fed survey is leading to a bounce off familiar chart support in EURUSD this morning, perhaps because the broader USD failed to extend higher on the headline beat.  One could make the argument that the internals of the report were more mixed in tone, with the beat on the new orders index getting somewhat diminished by the misses on the employment and prices paid indexes.

We think the market’s downward momentum could stall today if the 1.0790-1.0800 support zone survives another downside re-test.  Tomorrow should be big day for EURUSD as we’ll get the pan-European flash PMIs for February around the 3:30-4:30amET hour.  Traders are expecting Manufacturing reads of 44.8 vs 45.3 prev for Germany and 47.5 vs 47.9 prev for the Eurozone.  Estimates for the Services PMIs are 53.8 vs 54.2 prev for Germany and 52.2 vs 52.5 prev for the Eurozone.

EURUSD HOURLY

APRIL GOLD DAILY

GBPUSD

Sterling is cascading lower today after yesterday’s hotter US PPI data gave the shorts some fundamental ammunition to challenge chart support in the 1.2940-50s.  This level ultimately fell into the London close and it’s been a slippery slope down for GBPUSD ever since.

The UK reported a moderately better than expected Retail Sales report for January today (+0.9% MoM vs +0.7%), but this is a notoriously volatile data set and an unreliable indicator of consumer consumption according to many analysts.  Tomorrow should be a big day for GBPUSD because the pan-European flash PMIs for February will feature the UK’s data set as well.  Traders are expecting 49.7 vs 50.0 prev for Manufacturing and 53.4 vs 53.9 prev for Services.  

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EURGBP DAILY

AUDUSD

The Australian dollar is trading at new 11-year lows this morning after Australia’s latest employment report showed an unexpected rise in the unemployment rate.  While headline job growth mildly beat expectations for January (+13.5k vs +10k), the rate of those unable to find work increased to 5.3% from 5.1% in December, and the rate was 0.1% higher than the consensus estimate of 5.2% for January. 

We said yesterday how a weaker than expected employment report could be the catalyst for new lows in AUDUSD and it appears we got that, and then some.  The market is now clinging to trend-line extension support in the 0.6610s as traders observe the post Philly Fed decline in the broader USD.  March 3^rd rate cut odds in the OIS market haven’t budged from 4% today though, which suggests the move lower since Asia has been more risk-off/coronavirus driven.

AUDUSD DAILY

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USDCNH DAILY

USDJPY

Dollar/yen is continuing its surge higher today as renewed coronavirus fears focus on Japan’s jump in new cases and two reported deaths.  We also think there’s growing concern that this summer’s Tokyo Olympic Games will be negatively affected, if we look at the Tokyo Marathon’s announcement that it will be cancelling its mass race on March 1st due to the coronavirus.  We felt alone yesterday in our “sell everything Japan” theory behind the market’s latest rush to sell yen but we think it was justified.  There was more to yesterday’s price action than simply “risk-on” and we think today’s continued rise in USDJPY proves that point.  What is more, the yen should be trading higher in today’s global risk-off environment, but it’s not.

The market stalled at trend-line extension resistance in the mid-111s yesterday, but since this level has now given way we’d say the longs are still in charge until the mid-112s.

USDJPY HOURLY

US 10YR BUND YIELD DAILY

Charts: Reuters Eikon

About the Author

Erik Bregar - Director, Head of FX Strategy

Erik works with corporations and institutions to help them better navigate the currency markets. His desk provides fast, transparent, and low cost trade execution; up to the minute fundamental and technical market analysis; custom strategy development; and post-trade services -- all in an effort to add value to your firm’s bottom line. Erik has been trading currencies professionally and independently for more than 12 years. Prior to leading the trading desk at EBC, Erik was in charge of managing the foreign exchange risk for one of Canada’s largest independent broker-dealers.

Interested in creating a custom foreign exchange trading plan? Contact us or call EBC's trading desk directly at 1-888-729-9716.

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