Risk Settles, USD Little Changed as China Virus Fears Ease

Summary: Markets settled following assurances from Chinese authorities that they are taking steps to contain the Wuhan coronavirus from a possible pandemic. Risk appetite settled as fears of a threat to global economic growth eased. The Dollar Index (USD/DXY), a popular gauge of the Greenback’s value against a basket of foreign currencies ended flat at 97.541. Sterling starred as best performer, supported by further improvements in economic data. GBP/USD closed in NY at 1.3135 from 1.3075, up 0.68%. Against the Canadian Dollar (Loonie), the Greenback soared 0.52% to 1.3145 (1.3075) after the Bank of Canada left rates unchanged but opened the door to a rate cut in April. Asian currencies settled with USD/CNH at 6.9100. The Euro ended little changed at 1.1095 (1.1092) ahead of today’s ECB Monetary Policy meeting. The Dollar was moderately higher against the Yen at 109.90 (109.80). The Australian Dollar kept its weak tone, falling to a fresh monthly low at 0.6827 before settling at 0.6845, unchanged from yesterday. Australia releases its December employment report today.

Wall Street stocks eased after hitting new intraday records. The DOW dipped 0.07% to 29,180 (29,201) while the S&P 500 finished flat at 3320.
Data released yesterday saw UK CBI Industrial Orders Expectations climb to -22 in December following November’s -28, beating forecasts of -25. UK December Public Sector Net Borrowing improved to GBP 4.0 billion from a seasonally adjusted improvement in November at GBP 4.2 billion (GBP 4.9 billion). Canada’s Headline CPI was flat at 0.0% in December, matching forecasts of 0.0%. Trimmed Mean CPI however dipped to 2.1% from 2.2% the previous month, missing expectations of 2.2%. The Bank of Canada left its key lending rate unchanged at 1.75%. US Existing Home Sales in December climbed to 5.54 million units, beating forecasts of 5.34 million.

• EUR/USD – The Euro traded in a lower, tight range between 1.10702 and 1.10985, before climbing to settle at 1.1095. President Trump threatened to impose tariffs on European Union cars which weighed on the shared currency. Traders are cautious into today’s ECB policy meeting and announcement.

• GBP/USD – Sterling soared to an overnight high at 1.31528 on the improvements in UK Industrial Orders Expectations and Net Public Sector Borrowing reports. GBP/USD settled at 1.3135.
• AUD/USD – The Aussie Battler weakened to 0.6827, overnight and fresh monthly low before rebounding to settle at 0.6845. While fears have eased on the coronavirus outbreak, the risk is of a pandemic still exists. Which will keep the Aussie capped ahead of today’s Australian Employment report.
• USD/CAD – The BOC provided fireworks for Loonie bears, making it clear that easing is on the table. The US Dollar soared to a high at 1.31524 from 1.3075 yesterday, settling currently at 1.3145. BOC Governor Stephen Poloz said that Canadian consumer spending data has been “unexpectedly soft”. The latest COT report also saw speculative CAD longs increase to +CAD 32,852 bets from +CAD 26,637

On the Lookout: Traders will continue to monitor developments on the Chinese coronavirus as reports filter in. Events and data releases today will provide near term direction for markets.
The big event is the ECB policy meeting, rate announcement and Press Conference. Will the ECB provide fireworks that the BOC did?
Data today start with New Zealand’s Visitor Arrivals for December. Japan reports its December Trade Balance and All-Industry Activity. Australian data follow next with M1 Inflation Expectations, December Employment Change, Unemployment and Participation Rate. Europe sees Eurozone Consumer Confidence. US Weekly Unemployment Claims round off the day’s reports.

Trading Perspective: After last night’s BOC fireworks, the focus is now on the ECB and Euro. This will dictate where the Dollar heads. In December, the Euro soared after the ECB meeting and announcement. ECB President Christine Lagarde in her first chair provided a brighter outlook on the economy and growing signs of a mild increase in inflation. Since then, Euro area data has continued to improve. Euro short bets were trimmed further in the latest COT report.

1. EUR/USD – The Euro finished little changed at 1.1095 despite trading in a lower overnight range. The shared currency failed to trade above 1.1100. The ECB will provide the catalyst for the next Euro move. While Euro short bets have been trimmed, to -EUR 48,182 from the previous week’s -EUR 61.664, the market is still short. The risk is still for a higher Euro. Immediate support can be found at 1.1070 followed by 1.1040. Immediate resistance can be found at 1.1100 and 1.1130. Look to trade a likely range today of 1.1080-1.1130. Prefer to buy dips.

1. AUD/USD – The Aussie continued its soft trend, slip sliding away to 0.6827 overnight and monthly lows following the Chinese coronavirus impact on Asian currencies. The Asian EM’s settled overnight. Today’s Australian Employment report expects a small gain in jobs creation between 12,000 to 15,000 (December’s 39,900). Traders will focus on the full-time vs part-time employment. AUD/USD has immediate support at 0.6825 followed by 0.6805. Immediate resistance lies at 0.6860 (overnight high 0.68562) and 0.6890. Market positioning is still short in the Aussie. Look to trade a likely range today of 0.6830-80. Prefer to buy dips.
2. USD/JPY – the Dollar closed little changed against the Yen at 109.90 after trading to a high at 110.10. At their meeting yesterday, BOJ Governor Haruhiko Kuroda was slightly optimistic in his outlook. The effects of the Chinese coronavirus have yet to be fully known and despite assurances from authorities, the risk for spreading are still real. This should keep the Yen buoyed against the Greenback. Immediate support for USD/JPY lies at 109.80 following by 109.50. Immediate resistance can be found at 110.10 and 110.30. Look to trade a likely range today of 109.60-110.00. Prefer to sell rallies.
3. GBP/USD – Sterling continued its up move from its 1.2950 low this week on continued improvements in UK economic data. GBP/USD hit a high at 1.31528 before easing to settle at 1.3135. Immediate resistance lies at 1.3155 followed by 1.3195. Immediate support can be found at 1.3100 and 1.3080. We highlighted yesterday that market positioning in the Pound has increased GBP longs to total +GBP 31,532 bets from +GBP 16,510. Brexit uncertainties will keep the Pound capped and the risk is for a lower Pound from here. Look to trade a likely range of 1.3050-1.3150. Prefer to sell rallies.

Happy trading all.