Monday saw risk aversion at elevated levels, as markets were overcome with concerns around the spread of the coronavirus. Equities and JPY crosses suffered the most with XAU being the main beneficiary. Today has seen a partial correction of those moves, although there is little in terms of positive news to warrant that reaction. However, sometimes markets just move too far and too fast for their own good. While the Nikkei would still post a 0.5% decline on the day (Chinese and HK equity markets are closed for the New Year celebrations), European stocks would all show gains. The DAX would close up 0.7% and the FTSE 100 up 0.8%. Even with the reversal in equity markets, USDJPY would initially trade lower to 108.76 while EURJPY would make a new low at 119.81.
US equity futures had indicated a positive start for Wall Street and despite mixed Durable Goods data, the USD would begin to rally with equities. As Europe headed home, EURUSD would test 1.1000, GBPUSD 1.2985 while USDJPY would squeeze back to 109.20. EURJPY would bounce back to 120.10 as XAU drops from 1,580 to 1,568. The DJ would open up 100 points and ultimately bounce by 280 points at its best levels. As the US day progressed, the reversal of yesterday’s moves continued. Equities aside, FX would stray from the earlier USD strength. EURUSD squeezed back to 1.1022, GBPUSD to 1.3025 and EURJPY to 120.30. By the end of the day the DJ would close well off its best levels but still up 180 points on the day. The S&P and Nasdaq would fair better up 1% and 1.47% respectively. And to end the day we had Apple’s earnings after the bell which came in better than expected. The stock would be up nearly 2% in after-hours trading. Everything is good with the world again it would seem! How fickle our markets are. On a day that saw no new alarming headlines on the coronavirus, we had quite the reversal. Now all eyes turn to the Fed meeting and the ensuing interest rate decision. Stay tuned!
When markets are over-reacting to situations like we currently have, technicals can become a little clouded. The last 48 hours have seen some wild swings, with traders abandoning their charts and adopting more of a herd mentality. So what pearls of wisdom can I bring you? When charts resemble the scribblings of a 3 year old, that can be challenging. So I turn to XAU for a little inspiration. As you will see from the hourly chart, I have drawn a trend line off the low (1,535.68) after the 1,611 high from the beginning of the month. That 1535.68 level was also a previous high back in Sept of 2019. For a market that appears to be bullish for XAU, some gradual appreciation (rather than the whipsaw type moves we are currently seeing) would be constructive. Keep an eye on that line over the next couple of sessions and see if we hold and make some slow gains, or if we once again see a deeper correction.
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