Daily Market Outlook, February 13, 2020 

A day after WHO announced that the cases on new Coronavirus cases had stabilised in China and the market cheered the news, Risk sentiment was overshadowed this morning by the jump of confirmed cases reported by Hubei province as a result of revision of the counting method. The “clinically diagnosed” cases will also be included in daily disclosure. Nevertheless, after the revision, the fatality rate in Wuhan dropped significantly to 3.1% from 4.2% while % of patients in critical condition also fell to 15.6% from 24.4%. The ratio in Wuhan started to converge to the national average. This is positive in my opinion as this may alleviate the concern that this virus is still evolving in the epicenter Wuhan.

RBNZ signaled no change to OCR in 2020: The RBNZ kept its official cash rate (OCR) unchanged at 1.0% as widely expected and signaled that it would leave the benchmark rate at this level for the remainder of 2020. It pointed out that employment was “at or slightly above its maximum sustainable level” and inflation was close to its 2% target midpoint. Growth is expected to accelerate over the second half of 2020, driven by both monetary and fiscal stimulus. Outlook for government investment and household spending are stronger. RBNZ did flag the downside risk posed by the Coronavirus but assumed that the overall economic impact on New Zealand will be of a short duration. It added that monetary policy has time to adjust if needed as more information becomes available.  

Slower US mortgages demand last week: US mortgage application picked up modestly by 1.1% for the week ended 7-Feb (previous: +5.0%), supported by a smaller rise in refinancing applications as number of applications for purchases of new houses dropped again last week.  Eurozone industrial production fell further at year-end: Industrial production dropped by a whopping 2.1% MOM in December (Nov: 0.0%) following a flat month earlier. The decline was broad based across all subcategories with capital goods output taking the largest loss of 4%. Looking at the country level, output of the bloc’s key economies all contracted save for that of Portugal. Germany output dropped 2.5% (Nov: +1.0%) after a brief rebound in November. On an annual basis, the contraction in industrial output enlarged to 4.1% YOY (Nov: -1.7%), its largest fall in a year and was its 14th month of consecutive decline, underscoring entrenched weakness in the Eurozone manufacturing sector, in line with its persistently poor PMI readings. 

Japan producer price index picked up in January; machine tools orders fell: Japan producer price index gained larger than expected by 1.7% YOY in January (Dec: +0.9%), its biggest increase since late 2018, reflecting favourable base effect. On separate note, machine tool orders contracted by 35.6% in January (Dec: -33.6%), reflecting continuously weak global and domestic demand.

Fed chair Powell told the Senate Banking Committee that “we will have less room to cut” and “we’ve explored every possible way to find every scrap of policy space” and “I believe we will use them aggressively”. Meanwhile, mortgage financing rose 1.1% last week, but refinancing jumped 5.0% to extend the 15.3% increase in the prior week as borrowers reacted to falling mortgage rates.

In the latest Politburo meeting, China’s top policy makers vowed to step up more counter cyclical measures via larger fiscal stimulus to support the growth. Meanwhile, it also ordered the prudent monetary policy to be more flexible, hinting at a possible more liquidity injection and rate cut in the pipeline.

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

  • EURUSD: 1.0875 (EUR202mn); 1.0930 (EUR238mn)
  • USDJPY: 109.00 (USD725mn); 109.60 (USD275mn); 110.50 (USD870mn)
  • AUDUSD: 0.6660 (AUD811mn); 0.6710 (AUD1.1bn); 0.6750 (AUD650mn)

Technical & Trade Views

EURUSD (Intraday bias: Bearish below 1.09 Bullish above)

EURUSD From a technical and trading perspective, anticipated quick move to test 1.09 bids & stops below completed as anticipated. Bearish targets the yearly, monthly and weekly pivot confluence sited at  1.0880/70 achieved. Look for profit taking to emerge here with a window to form a base for a more sustained correction, to test offers and stops above 1.10. A failure to find support today would open a move to fill the ‘GAP’ at 1.0726

GBPUSD (Intraday bias: Bearish below 1.2970 Bullish above)

GBPUSD From a technical and trading perspective, anticipated test of the yearly pivot underway, the closing breach of this level opens a test of bids towards 1.28 and stops below. On the day only a close back through 1.2970  would confirm further range trade. Yesterday reversal flipped the daily chart bullish as per the near term volume weighted average price look for follow through to test offers and stops above 1.30, to suggest a base is in place for further corrective upside

USDJPY (intraday bias: Bullish above 109.60 Bearish below)

USDJPY From a technical and trading perspective, the sustained grind higher continues, as 109.20 caps corrections look for a test of offers and stops to 110.50. Caution counselled as we test these levels with significant sentiment divergence likely to be addressed once again

AUDUSD (Intraday bias: Bearish below .6720 Bullish above)

AUDUSD From a technical and trading perspective, the day only a close above .6740 would suggest minimum conditions for cycle completion have been met and as such another corrective phase is underway, only a move through .6770 would encourage further short covering and encourage further upside corrective action. A failure today below .6700 would suggest a replay of last week’s bearish end to the week and open a move to test bids and stops below .6650

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