Daily Market Outlook, March 23, 2020
In a similar vein to last week, the equity market in Asia has sold off heavily this morning, with futures pointing to further losses in European and US bourses today. This follows a further increase in the reported death toll over the weekend due to covid-19 and has led to a number of governments imposing stricter controls on movement. Meanwhile, the Reserve Bank of New Zealand announced a NZ$30bn quantitative easing package, following similar moves from other central banks in recent days.
As governments around the world continue to battle the spread of the coronavirus – amid rising numbers of both confirmed cases and associated deaths – the focus remains on what support measures are being implemented to contain the pandemic and deal with the economic fallout.
Over the weekend, US senators met to finalise a bipartisan Virus Rescue Bill worth around $2 trillion to help ease the blow by providing further support to business and workers. However, the negotiations have reportedly hit an impasse with Democrat officials arguing that the package provided too much support to large businesses and not enough to support hospitals. A procedural vote seeking to advance the bill is expected in the Senate around lunchtime (US time).
Reports suggest that the German government is preparing to set up a €600bn stabilisation fund, aimed at helping companies with liquidity problems. €100bn of which will be used specifically to allow the German government to buy stakes in struggling strategic businesses to stop them from failing.
Following UK Chancellor Rishi Sunak’s announcement of a significant package late on Friday, the House of Commons is set to rush through emergency legislation today giving ministers greater powers to deal with the covid-19 virus. The measures include giving authorities the powers to shut down ports and detain people suspected of having the virus.
There is little in today’s data calendar to interest markets, but they include the Chicago Fed national activity index for February and the ‘flash’ euro area consumer confidence report for March, which is likely to have plunged sharply.
Overnight, the spotlight will be on the March ‘flash’ PMIs (for manufacturing and services) from Japan. Both measures printed sub-50 outturns in February – consistent with contracting activity – and are expected to have moved further down in March as large swathes of the country went into lockdown during the month. The extent of the declines should provide a useful gauge for what to expect from the UK, US and euro area PMIs in the coming week.
On the CFTC front, non-commercial and leveraged accounts moved in favour of JPY and EUR longs, leaving an implied short USD positioning in the non-commercial accounts. Overall, USD still remains in ascendance. Risk reversals across major pairs are still heavily in favour of USD calls, while market watchers continue to monitor USD funding stress through the cross currency basis swaps.
Today’s Options Expiries for 10AM New York Cut (notable size in bold)
- EURUSD: 1.0500 (780M), 1.0720 (290M), 1.0830 (313M)
- USDJPY: 110.00 (500M), 1.1100-10 (900M), 111.50-60 (1BLN), 111.70-80 (670M), 112.00 (1.4BLN)
Technical & Trade Views
EURUSD (Intraday bias: Bearish below 1.0860 Bullish above)
EURUSD From a technical and trading perspective, as 1.0960 caps corrections bears will target a test of 1.0500/50 pivot point cluster. On the day look for sellers to emerge above 1.0850. A close above 1.0850 would suggest a pause in the downside allowing for a broader correction to test offers and stops above 1.10 before the next leg lower
GBPUSD (Intraday bias: Bearish below 1.20 Bullish above)
GBPUSD From a technical and trading perspective, bulls attempting to deliver a double bottom on the day a close through 1.20 would be constructive, however as this level contains upside attempts bears will target a test of bids towards 1.12 as the next downside objective. From here there is potential for a more meaningful correction
USDJPY (intraday bias: Bearish below 109 Bullish above)
USDJPY From a technical and trading perspective, bulls will target a retest of 2020 highs ina viscous round trip move, however, from here upside may prove limited and we could see yet another bull trap, with newly minted longs once again exposed to another set back, to once again challenge bids back below 108
AUDUSD (Intraday bias: Bearish below .6100 Bullish above)
AUDUSD From a technical and trading perspective, as the equality objective at .6100 stems any corrective advance, look for a retest of last week’s lows towards .5500. If bulls can defend this area again we could see a more meaningful corrective phase develop
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