Daily Market Outlook, March 24, 2020 

The Asian market is sharply higher this morning after another torrid day yesterday when equities touched their lowest level since 2016. US and European equity futures are up this morning. Yesterday’s announcement by the US Federal Reserve of further stimulus measures (details below), including open ended asset purchases, failed to immediately lift equities as both Wall Street and European markets fell sharply. 

The IMF said it expects a global recession this year that is at least as severe as 2008

UK PM Johnson announced further limits on social interaction as the UK goes into a more severe lockdown. This is expected to last at least three weeks. 

In contrast, US President Trump is talking about easing up on restrictions as early as next week although some other US policymakers are talking of the need for a 3-month shutdown. The number of China coronavirus cases is reported to be rising again possibly due to imported infections but Italy has reported its first daily decline. 

The US $2.0trn fiscal stimulus package failed to pass Congress yesterday. However, talks are continuing and Treasury Secretary Mnuchin is reported as expecting it to pass later today. Other measures may be announced at a global level after a conference call of G20 finance ministers and central bank heads yesterday. Until recently there has been little data with which to assess the economic impact of the coronavirus crisis, but that is starting to change. 

Today’s manufacturing and services PMIs for March will provide the first gauges of the economic impact of the pandemic on the UK. They are expected to have also fallen steeply from February. Data will have been collected up until around the end of last week so it should provide an indication of the initial impact of the near shutdown of the country. Nevertheless, it is likely that April will see further falls. 

PMI updates for March are also published for both the Eurozone and the US today, Sharp declines in the German IFO and ZEW surveys point to the likelihood of a big fall in the Eurozone measures, however. The German data has not declined as much as anticipated

In the US, the Markit PMIs usually get less attention than the better established ISM surveys, but their timeliness seems set to guarantee interest today. Market watchers look for very large declines in both manufacturing and services.  

After a volatile session US Treasury yields ended yesterday only modestly lower despite the Fed’s major actions. The USD depreciated initially after the Fed’s announcement hitting its lowest since last Wednesday against the euro. GBP also firmed against the USD although it is still close to bottom of its recent range. 

The US Fed unveiled unprecedented measures on Monday, to backstop the US economy from the COVID-19 impact. The Fed’s decisive action is seen as effective to prevent the financial market from becoming a compounding factor to worsen the COVID-19 impact to the real economy and US households. The latest Fed measures include: 

  1. To continue its asset purchasing program “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy”. 
  2. Using its full range of authority expanding bond purchases to include agency commercial MBS as well as US$300bn new credit programs for employers, consumers and businesses. 
  3. Implementing an extensive range of new programs for companies, households and small businesses in what it calls ‘aggressive action to confront severe disruptions’. 
  4. Widening money market mutual fund facilities to include variable-rate demand notes and bank certificates of deposit. 
  5. Will purchase US$75bn of US Treasuries and US$50bn of agency MBS each day this week. 6. Daily and term repo rates to be reset to offering rate of 0.0%.

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

  • EURUSD: .0765-70 (700M), 1.0800 (500M), 1.0860 (1.1BLN)
  • USDJPY: 109.50 (630M), 110.00 (450M), 111.30-35 (1.3BLN) 111.50-60 (1.1BLN), 111.70-80 (800M)

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. UPDATE failure to secure ground above 1.0850 will confirm current corrective phase is complete and see bears target 1.0500/50

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 through1.20 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.UPDATE a failure to defend .5870 from below will likely encourage another long liquidation and see bears target a retest of last weeks lows, only trade above 6175 would suggest a broader recovery is underway


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