Daily Market Outlook, April 7, 2020 

The Asian market is mostly up for a second consecutive day on optimism that the coronavirus epidemic may be slowing in some countries. New cases fell in Spain and Italy, while New York Governor Cuomo said that the number of mortalities may be plateauing. China reported no new deaths for the first time. 

In the UK, The main domestic news was that PM Johnson was hospitalised in intensive care as a precaution last night after ten days of self-isolation. Foreign Secretary Raab is deputising for the PM. The number of new cases also fell, although government advisers said it was too early to declare a peak. T

In Australia, the RBA left interest rates unchanged at 0.25% after reducing them by 50bp last month – it said “smaller and less frequent” bond purchases are likely if conditions improve.

There are no major economic data releases scheduled today, aside from German February (pre-lockdown) industrial production rising by 0.3%m/m. Italian retail sales and US JOLTS and consumer credit data are not likely to generate much excitement. 

The focus in Europe will be on the Eurogroup meeting of finance ministers to decide on a European response to the coronavirus economic impact to complement national fiscal measures and the ECB’s monetary policy stimulus package. There has been well-publicised disagreements on so-called ‘corona bonds’ favoured by countries including France, Spain and Italy, but opposed by others such as Germany and the Netherlands who are adverse to joint EU debt liabilities. Northern European countries instead favour the use of credit lines from the European Stability Mechanism (the EU’s bailout fund), with countries reportedly receiving potential funds of up to 2% of GDP. Reports suggest that other supporting measures will be considered, including a European Commission proposal for a short-time working scheme worth €80-100bn.

Attention will remain on the trajectory of the coronavirus outbreak, especially in some of the hotspots, amid signs that the number of cases may be easing. As noted above, the number of new cases in Italy fall to 3,599, the lowest in nearly three weeks, while in Spain new infections declined to a two-week low of 5,029. UK new infections also fell to 3,839, but that is still higher than a week ago.

The Federal Reserve has announced another new facility. In conjunction with the US Treasury, the Fed will provide term loans to banks backed by small business loans made under the Paycheck Protection Programme (a scheme which provides loans to small businesses which keep employees on their books and helps keep cash flow running). 

In Japan, PM Abe announced a record and much larger than-expected ¥108 trillion (~20%/GDP) fiscal package. The package will reportedly include ¥6 trillion (~1%/GDP) in direct cash payments to households and ¥26 trillion (~5% of GDP) in tax deferrals and more social spending.

Today’s Options Expiries for 10AM New York Cut (notable size in bold)

  • EURUSD: 1.0800 (450M), 1.0840 (200M), 1.0870-75 (430M) NB: EURUSD 3-billion between 1.0800-50 Wednesday April 8
  • USDJPY:  107.95-108.00 (550M), 108.25 (570M)

Technical & Trade Views

EURUSD (Intraday bias: Bearish below 1.09 bullish above)

EURUSD From a technical and trading perspective, prices continue to rotate around the equality objective at 1.08, however, without a sustained break of 1.09, newly minted longs may throw in the towel exposing bids and stops below 1.0750, with bears likely to press for a retest of March lows. On the day only a close above 1.0915 would suggest stabilisation. UPDATE strong bids have emerged from the equality objective a close today through 1.0870 will flip the daily chart bullish with an upside equality objective at 1.1278

GBPUSD (Intraday bias: Bullish above 1.22 neutral below)

GBPUSD From a technical and trading perspective, a move back through 1.22 would suggest a broader corrective phase to unwind near term overbought momentum, 1.20/1.1950 will be pivotal this week, if bulls fail to defend this area, a deeper decline could ensue to test bids and stops below 1.17

USDJPY (intraday bias: Bearish below 110 bullish above)

USDJPY From a technical and trading perspective, double bottom delays downside objective with a whipsaw back to 110 before lower again. Through 107 would suggest downside targets are directly in play

AUDUSD (Intraday bias: Bullish above .6000 bearish below)

AUDUSD From a technical and trading perspective, defence of .5950 can set a platform for a move higher to test .6400. However, a failure at .5900 will open a deeper decline to test .5650. UPDATE pivotal test of .6200 underway a close through here will encourage a test of the .6400 upside objective, only a breach of .6000 on a closing basis would concern the near term bullish bias

 

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