Coronavirus continue to make markets nervous


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Coronavirus developments continue to make the major headlines and none of them are good. They range from the uncertain to the downright scary. At this point it’s a case of hoping we never to get to the point of global panic although one expert suggested that if containment doesn’t work, 60% of the world’s population could become affected. Let’s not go there. Instead we will focus on some economic data as well as several testimony from key Central Bankers.

First up some better than expected Q4 GDP data out of the UK. This was tempered by some weaker than expected Industrial and Manufacturing Production numbers. Overall the market was happy to focus on the positives and GBPUSD would rally from 1.2900 to a high of 1.2968. Despite AUD lingering just above 10-year lows and the economy’s obvious exposure to China bargain hunters emerged once more, taking the ‘Aussie’ from 0.6680 to 0.6736. CAD would also show strength, taking USDCAD from 1.3320 to 1.3277. EUR would await testimony from ECB’s Lagarde. She noted growth in the Euro area had been slowing since early 2018 and inflation was still well below targets. EURUSD would take a drop from 1.0915 to a low of 1.0891, just shy of major support at 1.0880. We then got a bounce up to 1.0925, which felt as much like short-covering as anything else. Bank of England Chairman Carney is next, and his main point was that interest rates would be relatively low for the foreseeable future. Not exactly news, but enough to take the gloss off the earlier rally and see the Pound slip back to 1.2930. Finally the beginning of Fed Chair Powell’s testimony which will be spread over 2 days. Other than addressing the Coronavirus issue, his comments were largely positive noting that there is no reason the current expansion cannot continue. US equities would use those comments to follow the earlier gains in Europe, the DJ up as much as 130 points at its best levels. But by the European close, much of those gains were gone, although the S&P and Nasdaq both remained higher by over 0.4%. The US afternoon would drift into a slumber. FX barely moving with EURUSD unable to get back over 1.0925. Equity markets slowly give back their gains and by the NY close all 3 major indices barely register a plus on the day. A day that started with promise, ended up being a damp squid. Hopefully tomorrow we get a few more fireworks.

As GBPUSD moved more than most today, I figured it was worth taking a quick look at the proud Pound. I’ve put up an hourly chart with the 100H moving average in orange. Looking back at some recent price action we can see that this average has provided both support and resistance but has also acted as pivot with some sharp momentum when broken. Like all things technical, its not a perfect science and for once I am not highlighting any particular levels, but today has seen a break above this MA and although we did have a brief dip back at the European close, it held and we have closed higher. After the recent sell off from above 1.3200, has momentum turned for GBP? We shall see, but worth keeping an eye on.

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