The virus is spreading and the outbreak situation is still grim, says Chinese Premier Li Keqiang.

SUMMARY

ANALYSIS

USDCAD

Dollar/CAD is trading bid this morning as the overnight news flow was negative once again surrounding the coronavirus outbreak.  While US Health and Human Services Secretary Alex Azar instilled a sense of calm yesterday, which saw risk sentiment recover further and USDCAD buyers fail in the 1.3190s, virus contagion fears are back on again this morning.  China’s state broadcaster CCTV is now reporting 6,078 confirmed cases and 132 deaths.  Rumors swirled last night that the US is about to ban all air travel to and from China, while British Airways has already gone ahead and suspended all flights to Beijing and Shanghai.  Chinese President Xi has called in the army to help; Premier Li Keqiang said the virus is spreading and that the outbreak situation is still grim, and some traders are now speculating that the WHO will officially announce a pandemic this morning at its press conference at 11amET.  All of this has seen mild “risk-off” flows enter the fray throughout early European trade today and this is helping the USD broadly.

Today is also “Fed day” but, with the coronavirus on everyone’s mind and with the money markets applying no pressure on Jerome Powell to do anything later this afternoon, we think the FOMC meeting could turn out to be a non-event.

USDCAD DAILY

USDCAD HOURLY

MAR CRUDE OIL DAILY

EURUSD

Euro/dollar continues to hug chart support around the 1.10 figure this morning as another wave of coronavirus fear propels the USD broadly higher.  We think a NY close below this level would be another negative technical development for EURUSD, which continues to reel from a bearish “head & shoulders” pattern that took shape in mid-January, but we think hedging flows related to sizable option expiries around the 1.10 level (for tomorrow/Friday) could stem follow-through selling this week.

EURUSD HOURLY

FEB GOLD DAILY

GBPUSD

Sterling managed to rebound with the broader risk tone yesterday after Alex Azar spoke; giving GBPUSD a more uplifting NY closing print above key chart support in the 1.3010s.  All of this is starting to unravel now though as a mild “risk-off” move in Europe lifts the USD broadly.  The market is now trading back below the 1.3010s, which doesn’t bode well for the fund net long GBPUSD position heading into the Bank of England meeting tomorrow at 7amET.  OIS market odds of a 25bp rate cut have slipped to 45% this morning vs 53% early yesterday.

GBPUSD DAILY

GBPUSD HOURLY

EURGBP DAILY

AUDUSD

Yesterday’s NY session bounce for the Aussie continued into Asian trade last night after Australia reported slightly higher than expected CPI numbers for Q4 2019.  The QoQ print came in at +0.7% vs +0.6% expected and the YoY figure was +1.8% vs +1.7% expected.  This was enough to see AUDUSD extend to the 0.6770s and Feb 4^th RBA rate cut odds fall back to 20% from 50%, but then trend-line chart resistance and another wave of negative coronavirus news flow took over during early European trade.  The market now sits back in the 0.6740-50s support zone from early yesterday as traders await the WHO press conference.

AUDUSD DAILY

AUDUSD HOURLY

USDCNH DAILY

USDJPY

Dollar/yen indeed filled its Sunday opening chart gap in the 109.10-25 area yesterday, and it got some help from US Health and Human Services Secretary Alex Azar when he said the coronavirus is “no immediate threat” to Americans.  US equity futures, US 10yr yields and March crude oil futures also continued higher to fill their Sunday opening gaps yesterday, but since then all these markets have effectively been in “now what?” mode.  Some near term price targets have been achieved but now traders need another catalyst for price movement.  Odds are this will come from the WHO press conference at 11amET and, to a limited degree, from the Fed meeting later today.  

USDJPY DAILY

USDJPY HOURLY

GERMAN 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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