Markets in Digestion Mode, Awaiting Next Coronavirus Development

Global financial markets turned mixed today, digesting yesterday’s steep selloff. Investors are holding their bets again, awaiting next development regarding global outbreak of China’s Wuhan coronavirus. There is no sign of a sustainable recovery European stocks, but US futures point to higher open. In the currency markets, Sterling is so far the strongest one for today, followed by Swiss Franc. Meanwhile, New Zealand Dollar is the weakest, followed by Australian.

Technically, focus is back on 0.6581 temporary low in AUD/USD after recovery lost steam. Break will resume larger down trend. While USD/CAD is losing some intraday upside momentum, it’s still on track to retest 1.3327/9 resistance zone. Break would pave the way to retest 1.3664 high. EUR/USD and USD/CHF are both staying in consolidation and more corrective trading would be seen.

In Europe, FTSE is currently down -0.69%. DAX is down -0.28%. CAC is down -0.45%. German 10-year yield is down -0.0189 at -0.497. Earlier in Asia, Nikkei dropped -3.34%. Hong Kong HSI rose 0.27%. China Shanghai SSE dropped -0.60%. Singapore Strait Times rose 0.51%. Japan 10-year JGB yield dropped -0.0407 to -0.102.

Released today, US house price index rose 0.6% mom in December, above expectation of 0.3% mom. S&P Case-Shiller 20 cities house price rose 2.9% yoy, above expectation of 2.7% yoy. UK CBI realized sales rose to 1 in February, up from 0. Germany GDP was finalized at 0.0% qoq in Q4. Japan corporate service price index rose 2.3% yoy in January, above expectation of 2.1% yoy.

WHO: China coronavirus literally knocking at the door

WHO spokesperson Christian Lindmeier warned in a press conference in Geneva that China’s Wuhan coronavirus is “literally knocking at the door” of countries. He added that many countries have so-called “pandemic plans” ready. But for how, WHO is not planning to make “big announcement” of any kind.

Death toll in Iran surged to 15 today, with total of 95 confirmed cases. It’s just reported that the country’s deputy health minister has tested positive for the coronavirus. Situation in South Korea remains serious with 10 deaths and 977 confirmed cases. President Moon Jae-in  warned the country is in “very grave” situation and the coming week would be key in the battle to contain the outbreak. After a sudden surge to 229 cases in Italy, 12 towns are locked down to contain the outbreak.

EU announced mandate to negotiate ambitious, wide-ranging and balanced partnership with UK

European Council announced the mandate for chief Brexit negotiator Michel Barnier to open the negotiations for a new partnership with the UK after the Brexit transition period. Andreja Metelko-Zgombić, Croatian State Secretary for European Affairs, said, “This confirms our readiness to offer an ambitious, wide-ranging and balanced partnership to the UK for the benefit of both sides. The EU is now ready to start negotiations.”

In the announcement, EU said the future partnership “should be underpinned by robust commitments to ensure a level playing field for open and fair competition, given the EU and the UK’s geographic proximity and economic interdependence.” EU also intends to establish a free trade agreement which “ensures that zero tariffs and quotas apply to trade in goods.” The agreement should provide for “cooperation on customs and regulatory aspects”, and “include effective management and supervision, dispute settlement and enforcement arrangements.”

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0815; (P) 1.0843; (R1) 1.0882; More…

Intraday bias in EUR/USD remains neutral as consolidation from 1.0777 is extending. Stronger recovery cannot be ruled out but upside should be limited by 38.2% retracement of 1.1095 to 1.0777 at 1.0898. On the downside, break of 1.0777 will resume larger down trend. Though, break of 1.0898 will target 61.8% retracement at 1.0974.

In the bigger picture, down trend from 1.2555 (2018 high) has just resumed and prior rejection by 55 week EMA affirms medium term bearishness. Sustained break of 78.6% retracement of 1.0339 (2017 low) to 1.2555 at 1.0813 will pave the way to retest 1.0339 low. For now, outlook will remain bearish as long as 1.1239 resistance holds, in case of strong rebound.

Economic Indicators Update