Daily Market Outlook, March 25, 2020 

Asian equity market was up sharply again this morning, with Japan’s Nikkei 225 gaining 8%. That followed the biggest one day rise (11%) in the US Dow Jones Industrial Average since the 1930s. 

Optimism in the markets was supported by reports that the US Congress had reached agreement on a $2 trillion emergency fiscal stimulus package. This follows the Fed earlier this week announcing additional monetary stimulus measures, including unlimited QE. President Trump, meanwhile, said (optimistically?) that he wants to reopen the economy by Easter, although the advice of health officials would need to be heeded first.

Markets paid little attention to a batch of weak economic data reflecting the COVID-19 impact including a Eurozone PMI composite figure of just 31.4 in March, a record decline in excess of 20 points from February and a new historic low. For the UK, the composite PMI index was just 37.1, down from a final 53.0 in February and a new record low.

From today, the UK Office for National Statistics has brought forward the timing of its market-sensitive economic data releases to 7am (before UK markets open) from the usual 9.30am. The reason is the coronavirus risk for reporters who would normally attend the pre-release ‘lock-ins’ at the ONS. 

This morning’s UK February CPI figures were released and showed headline inflation falling to 1.7%YOY from 1.8%, but the core measure (excluding food and energy) edging up unexpectedly to 1.7% from 1.6%. Any coronavirus effects on UK inflation are not likely to show up until next month’s March release. Official ONS UK house price data for January will be released today at 9.30am as usual, while the March CBI retail sales survey is due later in the morning. 

In Europe, the final reading of the March German IFO business survey is due. The preliminary report showed a sharp fall in the headline index to 87.7, the weakest since 2009. Market focus will continue to be on the official policy response to the likely sharp economic contraction ahead. Reports suggest broad support among Eurozone governments towards using the ESM (European Stability Mechanism) to provide credit lines to individual countries. This would be a major step. 

US February durable goods orders data will likely be seen as ‘old news’ in the current environment.Look for a 0.7% fall in headline orders. Markets will be much more interested in tomorrow’s weekly initial jobless claims for the week ending 21 March, which are forecast to have soared to over a million, well above levels seen during the global financial crisis.

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

  • EURUSD: 1.0800 (EUR1.1bn); 1.0820 (EUR706mn); 1.0870 (EUR985mn)
  • USDJPY:  110.25 (USD1.1bn); 111.45 (USD375mn); 111.72 (USD300mn)

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 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 .6170 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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