Slower rate of coronavirus infection today helps risk sentiment overnight

SUMMARY

ANALYSIS

USDCAD

Broader risk sentiment is better bid once again today as Chinese officials said there were only 2,478 new cases of the coronavirus today versus 3,062 new cases yesterday.  We’re not so sure this is anything to celebrate and when you combine it with reports that China’s National Health Commission changed their definition of what constitutes a “confirmed case”, the news is even less surprising.  More here from Taiwan News.  China’s foremost medical advisor, Zhong Nanshan, was also said to add to investor optimism overnight when he said “this event may be over in something like April”, but we’d caution that he was quoted on January 28^th that the outbreak would have peaked by now. 

Forget the fact that the official coronavirus infection count in China is now 42,708 and the death toll has now topped 1,000.  Ignore the reports that Chinese companies reportedly struggled to get employees back to work yesterday, that layoffs have begun and that nearly 100 businesses have been allowed to declare force majeure.  Pay no attention now to WHO chief Tedros Ghebreysus, who’s continuing his redemption in the world of public opinion by acknowledging that the virus “holds a very grave threat for the rest of the world”.  Everything is getting better now according to Chinese authorities.  Our “take everything at face value” markets are going along with this carefully crafted narrative out of China and so we’re seeing global equities, the Chinese yuan, oil prices and commodity currencies trading higher.  Dollar/CAD traded back below the 1.3300 figure as a result going into the NY open.

The market saw a brief spike back above the 1.3300 level following the release of the text for Jerome Powell’s 10amET speech before the House Financial Services Committee, but the move is now reversing.  Full speech here.  We can’t say there’s anything surprising new “news” here out of the Fed chair, which is why we think the initial knee-jerk buy-USD move has faded so swiftly.

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MAR CRUDE OIL DAILY

EURUSD

Euro/dollar slumped below trend-line chart support in the 1.0910s at the start of NY trade this morning and we’re heard chatter that this negative sounding Reuters report was behind it.  The release of Powell’s speech text saw the USD uptick broadly initially, but this move has now reversed and then some.  The Fed chairman will take to the mic at 10amET to present the Fed’s semiannual Monetary Policy Report before the US House of Representatives Committee on Financial Services, and he’ll do the same thing tomorrow before the US Senate Banking Committee.

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APRIL GOLD DAILY

GBPUSD

Sterling saw a mild bounce during the London AM today after the UK’s YoY GDP figures for December and Q4 topped analyst estimates.  December was reported +1.2% YoY vs +1.1% and Q4 was reported +1.1% vs +0.8%.  The UK also showed a surprise trade surplus of the month of December (+0.845bln vs -10bln expected), albeit with a strange one time effect from precious metal sales.  The nation’s Industrial and Manufacturing Output figures for December missed expectations (+0.1% MoM vs +0.3% and +0.3% vs +0.5% respectively) but everyone seems focused on the marginal beat to the “hard” GDP figures and how this will keep the Bank of England on hold in March.  We think a NY close back above the 1.2950s for GBPUSD would put a short-term halt to the market's recent downward momentum.

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AUDUSD

The Australian dollar rallied with broad risk sentiment overnight.  Yesterday’s bounce off the 0.6660s was supportive in NY yesterday and the decline in USDCNH throughout Asian trade last night provided the positive catalyst in our opinion.  The text of Jerome Powell’s speech before the House of Representatives today at 10amET has brought about some USD selling as NY trade gets underway today, which is now seeing the 0.6710s resistance level give way.  We think a NY close above this level will flip the market's momentum more positive heading into tonight's Reserve Bank of New Zealand interest rate decision at 8pmET.

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USDJPY

Dollar/yen is seeing some mild selling this morning as US yields initially traded lower following the release of Powell’s speech text for 10amET, but market volatility is rather muted.  We think the market will continue to range trade here until we get a headline that breaks us out of the 109.50-60 to 110.00 corridor.

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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.

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