Summary: Volatility reigned in all markets as equities tanked after the World Health Organisation described COVID-19 as a pandemic for the first time. Prior to the WHO’s comments, Britain and Italy announced they were putting aside large sums to fight the virus. The Bank of England cut its Official Bank Rate by 0.5% to 0.25% following in the Fed’s footsteps. Other global central banks, the Reserve Bank of Australia and the Bank of Canada have lowered rates in recent weeks. The British Pound, in choppy trade, initially rose to 1.29763 before dropping to 1.2820, steadying to close at 1.2840, down 0.75%. The Euro extended its decline to 1.1280 from 1.1300 as traders readied for the ECB policy meeting following 50 bp rate cuts from the Fed and BOE. Italy’s Prime Minister Giuseppe Conte said the government had earmarked USD 28.3 billion to ease the economic impact with the country nearing a recession. A favoured gauge of the Dollar’s value against a basket of foreign currencies, the Dollar Index (USD/DXY) advanced 0.11% to 96.523. The benchmark US 10-year bond yield rose 7 basis points to 0.87%. The USD/JPY pair dropped to 104.096 from its 105.45 open yesterday in volatile trade, steadying to settle at 104.40 this morning. The Australian Dollar finished at 0.6495, a touch above its 0.6485 open yesterday after see-sawing between 0.6455 and 0.6540. The rebound in Wall Streets stocks ran out of steam, equities sank after WHO Director General Tedros Adhanom Ghebreyesus announced. “We have therefore made the assessment that COVID-19 can be characterised as a pandemic.”
US Headline CPI in February rose 0.1%, matching January’s 0.1%. Core CPI rose 0.2%, also matching the previous month and forecasts of 0.2%.
On the Lookout: The main event today is the ECB policy meeting and its response to the impact of the coronavirus. The European Central Bank needs to do more than lower interest rates. ECB President Christine Lagarde said that Europe could face a 2008-like economic shock if European government do not provide a coordinated response. These comments could see some big announcements made today.
Before that, US President Trump is scheduled to speak on the coronavirus in Washington DC (12 noon, Sydney time). Data releases today see Japanese PPI and BSI Manufacturing Index. Australia releases its M1 Inflation Expectations. Eurozone Industrial Production follows. Finally, the US reports its Headline and Core PPI. The ECB rate decision, Monetary Policy Statement and Press Conference round up today’s events and data reports.
Trading Perspective: “My, my, hey, hey volatility is here to stay.” The tune to Neil Young’s 1978 tune rings loud in today’s market. It’s COVID-19 versus the global government and central bank responses to battler the spread of the disease. Stocks fell into bearish territory. FX continued its choppy trade while the Dollar steadied. Overnight bond yields steadied. The US 10-year bond yield closed at 0.87%. Global rival rates were also up, but not to the extent of the US climb. This has supported the Dollar. However, its too premature to call a base to the Dollar.
EUR/USD – The ECB Steps Up to the Plate, Meantime 1.12-1.15
The Euro extended its decline, dipping 0.36% against the US Dollar to 1.1280 after a failed attempt at the strong resistance level at 1.1500. EUR/USD dropped to an overnight low at 1.12574 on the broad-based US Dollar rebound. All eyes on the ECB today. It’s their turn to step up to the plate and act. Following the Reserve Bank of Australia, Bank of Canada, Federal Reserve, and Bank of England interest rate cuts, President Christine Lagarde and her colleagues need to do more than lower rates.
Lagarde earlier warned that Europe could face a 2008 like economic shock if European governments do not provide a coordinated response. Last night the Italian government earmarked USD 28.3 billion to ease the economic impact of COVID-19 on the country. These concerns are a signal that a big announcement will be made later today.
Meantime we can expect the range between 1.1200-1.1500 to hold. Market positioning remains short of Euro bets. On the day, immediate resistance can be found at 1.1310 followed by 1.1350. Immediate support lies at 1.1250 (overnight low 1.12574) followed by 1.1220. The US Dollar’s rebound off it’s lows are a result of expectations for a fiscal stimulus from the US. If Europe comes back with one of its own, the Euro will climb, and the Greenback will fall. For now, trade the 1.1220-1.1380 range with the wider 1.12-1.15 in mind.
AUD/USD – On the Backfoot Amid COVID-19 Woes, Look to Trade 0.64-0.66
The Australian Dollar struggled to maintain its head above 0.6500 cents as the US Dollar rallied and the country battled the spread of the coronavirus within. AUD/USD traded in its own volatile fashion between 0.64554 and 0.65394 before settling to finish at 0.6490. The Aussie Battler opens at 0.6485 in Sydney. The Australian Business Insider reported this morning that confirmed cases of COVD-19 have risen to 128 with the majority in New South Wales, the most populated state at 77. Australian Prime Minister Scott Morrison announced yesterday that the government committed AUD 2.4 billion for the healthcare system. Which is separate to the official Australian government’s upcoming stimulus effort.
The Aussie looks like the Battler is in for a 0.64-0.66 range with both sides generating interest. In between those two pivot points, expect volatility. A lot of A$ can be generated trading this range Happy days! AUD/USD has immediate support at 0.6450 followed by 0.6420. Immediate resistance can be found at 0.6540 and 0.6490. Market positioning and the outlook for a generally weaker US Dollar suggests a buy on dips mentality. Be prepared to trade both sides of that range for now.
GBP/USD – Struggling Despite UK Double-Barrelled Policy Response
Despite a rally off one-week lows Sterling struggled to gain above the 1.3000 resistance mark after the British government unveiled a GBP 30 billion stimulus plan and the Bank of England cut interest rates by 0.5% to boost the struggling economy. The British Pound initially jumped to 1.29763 highs before slumping to 1.28206 overnight low, rallying to 1.2840 at the New York close. Brexit and the recovering US Dollar remain headwinds.
GBP/USD has immediate support at 1.2820 followed by 1.2780. A clean break of 1.2780 would see 2020 lows of 1.2725. Immediate resistance can be found at 1.2860 followed by 1.2900. Overnight UK 10-year bond yields climbed 6 basis points to 0.29%. US 10-year rates were up at 0.87% from 0.8% yesterday. At the end of the day, the US Dollar will dictate where the Pound eventually heads. Look for a choppy trade between 1.2820-1.2920 today. Prefer to buy dips on an overall weaker Greenback scenario.
