Coronavirus fears continue to grip markets


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The US President’s Day holiday got the week off to a slow start. US equity and bond markets would be closed, and FX would grind to a virtual halt once Europe had gone home. Not a lot of point in dedicating an entire commentary to nothing, so here we are in Tuesday already. The day begins with the RBA reminding everyone that rates are historically low in Australia but could still go lower citing potential Coronavirus effects on the economy. AUD drops from 0.6715 to 0.6674. Apple would put out an earnings warning stating it was unlikely to meet first quarter revenue forecasts due to the Coronavirus disruption. And so the tone for the day is set.

The European session would focus on data from the UK and the Euro zone. Better than expected employment data saw GBP rally strongly from 1.2980 to 1.3048. However, Euro area economic sentiment data would be on the weak side initially taking EURUSD down to 1.0820 from 1.0835. Still no fireworks though. Then the US gets going, and maybe looking to make up for a lost day, are ready to test EURUSD resilience. A stronger than expected NY Empire Manufacturing number would be the catalyst for FX to get going, with EURUSD dropping sharply from 1.0825 down to 1.0786. EUR crosses would also sink with EURJPY leading the way, falling from 119.05 to 118.46. XAU would be the main beneficiary, registering some impressive gains while jumping from 1,580 to 1,605. Once again, it’s a tale of low US yields as well as general economic nervousness that has XAU moving higher. Stocks were always going to have a rough day after Apple’s revenue warning. The DAX would close down by over 100 points and the DJ would follow suit, down 165 points at the close. The tech heavy Nasdaq would buck the trend ending flat on the day courtesy of gains from Amazon. As the day’s action drew to a close, the USD was once again the standout performer in FX. Not even GBP could hold its earlier gains closing back at 1.3000. EUR would finish at 1.0790, this despite a short squeeze to 1.0825 at the European close. USDJPY would have a subdued session but still close firmer at 109.88. XAU would end at 1,602. More of the same to come? It’s tough to argue against it.

As Gold was the main mover, lets revisit an hourly chart for the yellow metal. As you will remember our last pop over 1,600 was back in January when the US and Iran were reminding us how much they dislike each other. Since then we have retraced down towards 1,535.70 which was also a previous high back in September of last year. Then follows some back and forth before today’s rally back through 1,600. January’s high of 1,611.50 is the first target, but of far more importance is the 1,616.34 high stretching all the way back to March of 2013. That is some long term resistance on the immediate radar. As always, plenty of ways to play it.

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