Major indices and equities to rebound on cues from the international market but mixed sentiment surrounds the Fed rate cut to keep gains in check.
Summary: Despite Wall Street’s sharp plunge over an unexpected move by the US Fed and a G7 dud. Major indices in Asian and European markets continue to trade positive in the global market today. Contrary to broad market expectations of immediate action from G7 central banks and finance ministries, the meeting saw members of the body just agree to take appropriate actions and fiscal measures in order to support the economy from virus outbreak woes as per necessary.
This is viewed by investors are members expressing solid commitment and interest in taking measures to support economic activity but as the outcome lacked clarity on a clear action plan from central banks the impact of the meeting on the global market was relatively muted.
Market bulls continue to remain supported over the fact that stimulus measures from central banks across the globe can be expected in near future and on the promise of cash support from Chinese aviation administration for both domestic and foreign careers to help restore canceled flight service amid the COVID-19 outbreak. In the European market, major indices traded positive as traders hoped ECB will follow behind US Federal Reserve and cut interest rates in the near future.
Precious Metals: Unexpected rate cut from US Feds and repeated calls from US President Donald Trump to further decrease rate cuts fuelled demand for safe-haven assets keeping precious metals well supported. Move from the US Fed is viewed as a sign that they expect a far-reaching impact from the COVID-19 outbreak on the US economy in the future escalating demand for safe-haven assets.
Crude Oil: Crude Oil price for major international benchmarks and its futures in the global market continued to gain upward momentum today. Agreement from G7 central bank members to take stimulus measures and further supply cut from OPEC+ members during their meeting later this week helped improve demand to supply ratio in favor of increased demand from major global economies.
AUD/USD: The pair is trading positive in the global market today with the price of AUD scaling back above the 0.66 handle as Australian GDP saw better than expected outcome which along with unexpected rate cut from US Fed’s underpinned AUD bulls. But firm USD in the global market kept further AUD gains in check.
On The Lookout: On the US presidential election nomination race for the democratic party, super Tuesday vote saw Joe Biden gain a fresh wave of supportive momentum putting his head to head against Bernie Sanders while Mr. Michael Bloomberg suffered a major blow. In an unexpected turn, US Feds cut the interest rate by 50 basis points but the move had mixed reactions from investors causing a meltdown in Wall Street.
Some believe that the move is a result of the Fed’s anticipation for the far-reaching impact of coronavirus outbreak on the US economy given the fact that this is the first unscheduled move by fed’s since 2008. However, many believe that the impact from the fed rate cut will lack the required support to the US economy given the lack of incentives for making banks swing into pro-active supportive actions given the democratic nature of the US market.
On economic calendar release front, US market will see release of weekly EIA crude oil inventory data, ADP Non-Farm Employment Change, Markit Composite & Services PMI, ISM Non-Manufacturing Employment and PMI, Beige Book and Speech from Fed Bullard while Canadian market sees release of Q4 Labour Productivity and interest rate decision from Canada’s central bank.
Trading Perspective: In the forex market, major global currencies are expected to trade positive give broad-based risk sentiment but firm USD is likely to keep gains in check. US stock and index futures trading in the international market were positive on broad-based risk sentiment which suggests Wall Street is likely to see major indices rebound from previous session lows in trading session today. But gains in Wall Street are likely to be capped, given a mixed reaction to Fed rate cut and caution ahead of BOC’s interest rate decision announcement.
EUR/USD: While the pair gained bullish traction over an unexpected move by US Federal Reserve, EURO’s gains were capped at the 1.1190 handle given strong resistance near the 1.1200 handle. Further, a pick-up in USD’s momentum in early European session caused the pair to move in range bound pattern near mid-1.1160 handle adding pressure to EURO bulls. Traders now await US data and positive PMI’s would help USD gain strength dragging price back below mid-1.11 handle in North American session.
GBP/USD: The pair is mostly trading flat with signs of the bearish cave in as talks of stimulus measures from central banks to support economic activity and the possibility of sharp rate cut adds pressure to GBP. GBP bulls are already suffering from no-deal Brexit woes but managed to gain hold above 1.28 handle on temporary USD weakness over surprise fed rate cut. But the pair has since lost most of the intra-day gains and is testing the 1.2800 handle as USD gained strength in the early European session. Traders now await US data and positive PMI’s would lead to further decline pushing price as low as the 1.275 handle.
USD/CAD: The pair is trading in red today as USD suffered a serious blow in the international market over unexpected fed rate cut last night. This combined with sharp gains in the crude oil price since the trading session began for the week helped CAD gain momentum and keep price capped below the 1.335 handle. Traders now await US data and BOC interest rate decision for directional cues and short term profit opportunities.
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