South Korean COVID-19 cases double. European flash PMIs beat, but skewed to upside.

SUMMARY

ANALYSIS

USDCAD

Global risk sentiment is trying to recover this morning after some better than expected flash PMI data out of Europe counters another negative wave of coronavirus headlines out of Asia last night. 

The number of new cases doubled to 204 in South Korea and surpassed 100 in Japan.  Chinese authorities reported an alarming new outbreak within its prison population; proving how contagious the virus can be between people living in close quarters.  The coronavirus now appears to be spreading in Iran too, which doesn’t have a great health care system.  Two villages near Milan have urged all residents to stay at home as a precautionary measure after Italy reported 3 new coronavirus cases.  On top of all this, the Chinese National Health Commission reported a jump in new cases outside Hubei province today (+257) despite once again changing the definition of how it defines a confirmed case, and the government’s Politburo admitted that the turning point of the coronavirus outbreak “has not yet come”.      

Now for the good news…or at least so it seemed.  The February flash PMI data for Germany, the UK and the Eurozone all beat consensus expectations this morning, which led to relative strength for EUR and GBP across the board.  We think the marketplace breathed a sigh of relief that these European sentiment surveys didn’t come in more negative given the worsening coronavirus outbreak over the last few weeks.  However Chris Williamson, Chief Business Economist of IHS Markit which produces these monthly PMI surveys, has since warned traders that this month’s results are essentially skewed to the upside by supply chain disruptions:

“Longer delivery times are usually a good thing (firms are busier due to strong demand) so it acts in a positive direction to raise the PMI. However, current longer delivery delays are a symptom of supply shock. So still boosting PMI but means a false signal of health.  Output and new orders indices generally didn't rise to the same degree as the headline manufacturing PMI. These are the indices to watch in coming months.”

We think this is why the bounces in EURUSD and GBPUSD have now halted and why the other proxies for risk are still struggling heading into NY trade.

Canada just released its Retail Sales report for the month of December and the numbers came in mixed: flat MoM vs +0.1% exp on the headline and +0.5% MoM vs +0.4% exp on the ex-autos measure.  Nothing to see here in our opinion as it seems the USDCAD market agrees by sticking to its 1.3220-60s price range.  The US flash PMIs are up next at 9:45amET, with 51.5 expected for Manufacturing and 53.0 expected for Services.

USDCAD DAILY

USDCAD HOURLY

MAR CRUDE OIL DAILY

EURUSD

The German and Eurozone flash PMIs both beat consensus expectations this morning (details below) but Chris Williamson’s comments, about how the February numbers were skewed to the upside, has taken some of upside momentum out of this morning’s EURUSD bounce.  Trend-line chart support in the 1.0790s is still holding however, which we think could allow the market to benefit from a disappointing US flash PMI number.  

German Manufacturing PMI: 47.8 vs 44.8 exp and 45.3 prev

German Services PMI: 53.3 vs 53.8 exp and 54.2 prev

German Composite PMI: 51.1 vs 50.8 exp and 51.2 prev

Eurozone Manufacturing PMI: 49.1 vs 47.5 exp and 47.9 prev

Eurozone Services PMI: 52.8 vs 52.2 exp and 52.5 prev

Eurozone Composite PMI: 51.6 vs 51.0 exp and 51.3 prev

EURUSD HOURLY

APRIL GOLD DAILY

GBPUSD

The UK’s flash PMIs for February also beat expectations, but by a wider margin on the Manufacturing read (details below).  We think this partly explains sterling’s relative outperformance against the euro this morning.  GBPUSD bounced all the way back to Wednesday’s breakdown zone in the 1.2940-50s.  This area is now acting as chart resistance though as we head into NY trade.

UK Manufacturing PMI: 51.9 vs 49.7 exp and 50.0 prev

UK Services PMI: 53.3 vs 53.4 exp and 53.9 prev

UK Composite PMI: 53.3 vs 52.8 exp and 53.5 prev

GBPUSD DAILY

GBPUSD HOURLY

EURGBP DAILY

AUDUSD

The Australian dollar has fallen to another 11-year lows this morning as today’s coronavirus news flow takes a negative tone once again.  Yesterday’s chart support level in the 0.6610s has now given way, which makes the market vulnerable to even further losses in our opinion.  We think we’re seeing a little short covering now however in AUDUSD ahead of the US flash PMIs at 9:45amET.

AUDUSD DAILY

AUDUSD HOURLY

USDCNH DAILY

USDJPY

Everyone’s now debating the yen’s traditional safe haven status because of escalating coronavirus fears.  We think it's shot, at least for now.  Just look how USDJPY declined after the positive-looking PMIs out of Europe this morning, but has since bounced higher as risk sentiment slips again…the exact opposite of how it normally behaves.  

Japan’s February flash PMIs, released last night, showed private sector output falling at its fastest pace since 2014.  More here from IHS Market.  With Japan reporting some of it worst quarterly GDP figures in five years earlier this week (-6.3% YoY vs -3.7% expected), we think markets could begin re-focusing more on Japanese economic data points as drivers for USDJPY price action.

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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