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2020-02-14 08:15

Markets hopeful that Thursday's coronavirus spike in China was a "one-off" event

Source: EBC Trading Desk

 

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SUMMARY

  • Official infections are now 15,152 higher than yesterday, bringing total to 59,804 as of Feb 13.  Deaths now top 1,367.
  • Hubei removes two top health officials.  Biochemical weapons expert, major general Chen Wei, now in charge.
  • Foxconn factories have not restarted.  Hubei work suspension extended to at least Feb 20.  Wartime residential lockdown starts in Dawu County.
  • Global markets go risk-off in Asia, but recover during European/early NY trade as traders seemingly give China the benefit of the doubt.
  • US reports slightly higher CPI figure for January, +2.5% YoY vs +2.4% on the headline.  +2.3%  vs +2.2% for Core CPI.
  • Sterling surges following resignation of UK finance minister Sajid Javid.
  • Speculation now swirling about big fiscal stimulus announcement in March UK budget.
  • EURUSD keeps falling as 1.0860s support gives way.  Risk recovery + US CPI helping.  Nothing positive out of Europe.
  • CAD, AUD and CNH all bouncing as well, leaving yesterday’s USDCAD dip buyers disappointed.

ANALYSIS

USDCAD

There’s a mild risk-off tone to global markets this morning as China’s National Health Commission reported a staggering 15,152 increase in the number of new coronavirus cases and 254 more deaths, bring the totals now to 59,804 and 1,367 respectively.  We’re being told that the Hubei province has now started including “clinically diagnosed” cases into the number of confirmed cases for publication.  China’s CCTV reported that Hubei has removed its two top health officials from their posts.  What is more, China's chief biochemical weapons expert, major general Chen Wei, is now to be stationed in Wuhan to take control of the situation.  All these headlines are adding further fuel that the allegation that Chinese authorities are covering things up and that the virus was somehow released from the Wuhan’s P4 bioweapons lab. 

 

We were told on Monday that Taiwan’s Foxconn, a major electronics manufacturer, got the green light to re-open two major plants in China but the company is now saying the reports “were not factual”.  The TomTom traffic app is not showing meaningful evidence of Chinese citizens returning to work in Beijing, according to Bloomberg.  Huanggang, a neighboring city to Wuhan, has announced measures including sealing residential complexes.  The Dawu Country in Hubei has announced a “wartime” lockdown that will prevent people from leaving their homes without permission.  Hubei’s work suspension has been extended to at least February 20th.  Can we really honestly believe the “China is getting back to work” theory that has been lifting risk sentiment all this week?  We don’t.

 

Equity futures, oil prices, US yields and USDJPY all re-priced lower overnight to reflect these new headlines, but the negative effect on the Chinese yuan and commodity currencies has been rather muted.  USDCAD buyers showed up yesterday amid the market’s test of the 1.3240-60 support zone (which was technically positive), but they haven’t benefitted from today’s risk-off tone (which should disappoint them).  This morning’s slightly higher than expected CPI figures out of the US for January led to slight uptick for yields and the broader USD, but this is not meaningfully helping USDCAD.  We think the market needs another positive catalyst quickly in order to deter yesterday’s buyers from giving up.

USDCAD DAILY

USDCAD DAILY

USDCAD HOURLY

USDCAD HOURLY

MAR CRUDE OIL DAILY

MAR CRUDE OIL DAILY

 


 

EURUSD

It was a puke fest for EUR yesterday as rampant coronavirus optimism punished the negative yielding currency with nothing fundamentally positive on the horizon.  Euro/dollar resumed lower after the 10amET option expiries and collapsed to new 2 ½ year lows at the 1.0860s.  Last night’s shocking upward revision to the number of coronavirus in China helped the market bounce 20pts, but sellers pounced when EURUSD couldn’t regain Tuesday’s support level in the 1.0890s.  The 1.0860s support level gave way at the NY open and this morning’s slightly hotter US CPI read is not helping a market that’s grasping for straws at this point.  EURUSD is now down over 250pts in just two weeks and its scary accurate how well January’s bearish head & shoulders pattern foretold all this on the charts.

EURUSD DAILY

EURUSD HOURLY

EURUSD HOURLY

APRIL GOLD DAILY

APRIL GOLD DAILY

 


 

GBPUSD

A big cabinet reshuffle from Boris Johnson is wreaking havoc on the sterling shorts that re-entered the market in early February.  UK finance minister Sajid Javid has resigned and Rishi Sunak has taken his place; which is leading to speculation that this now clears the path for the Johnson government to announce larger than expected stimulus measures in its upcoming budget in March.  More fiscal stimulus would also take some of the recent pressure off the Bank of England to cut rates, which we think is also contributing to GBP outperformance here.

 

GBPUSD has blasted through yesterday’s chart resistance in the 1.2980s and is threatening a break above its next resistance level in the 1.3040-50s.  If such a breakout were to occur on a closing basis today, we think this would flip the market’s chart structure decisively more positive.  See here, from Sky News, for more on Sajid Javid’s departure.

GBPUSD DAILY

GBPUSD DAILY

GBPUSD HOURLY

GBPUSD HOURLY

EURGBP DAILY

EURGBP DAILY

 


 

AUDUSD

The Australian dollar fell lower last night following the surprisingly higher coronavirus case numbers announced by China’s Hubei province but, like the yuan and the Canadian dollar, it is also shrugging off the negative news.  It’s almost as if global markets are believing the spin the Chinese officials attached to last night’s news – namely that these broader diagnoses procedures are now in place “so that patients can receive standardized treatment according to confirmed cases as early as possible to further improve the success rate of treatment”.  Um ok. 

 

AUDUSD is now threatening a break above the 0.6740s; a level it struggled with yesterday.  We have no idea why the markets are seemingly giving China the benefit of the doubt here, but it’s a difficult trend to fight this morning.

AUDUSD DAILY

AUDUSD DAILY

AUDUSD HOURLY

AUDUSD HOURLY

USDCNH DAILY

USDCNH DAILY

 


 

USDJPY

Dollar/yen probably showed the most pronounced reaction to last’s night surge in the Chinese coronavirus case count.  It pulled back swiftly off trend-line chart resistance in the 110.10s and then made a bee line for Monday’s support zone in the 109.60s.  However, it too is now bouncing as the US 10yr yield retraces most of its overnight losses.  We could argue some of this is a delayed reaction to this morning’s higher than expected US CPI figures, but again we feel like markets desperately want to believe China here.  Perhaps traders want to see another day of Chinese coronavirus statistics before jumping to conclusions.  Stay tuned tonight.

USDJPY DAILY

USDJPY DAILY

USDJPY HOURLY

USDJPY HOURLY

US 10YR BUND YIELD DAILY

US 10YR BUND YIELD DAILY

Charts: Reuters Eikon


About the Author

Erik Bregar

Erik Bregar - Director, Head of FX Strategy

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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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Posted By Mandee Myers at 08:15 AM

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