Daily Market Outlook, March 26, 2020 

The US market rose for a second straight session, though the gains were more modest yesterday. The S&P500 closed up 1.2%. Overnight, Asian-Pacific markets eked out some gains, but the Nikkei did fall by a sharp 4.5%. Against the uncertain economic backdrop, sentiment remains fragile

The CBOE volatility Index (VIX) or “fear index” ended higher to 63.95 (from 61.67 previously). Yields on US Treasuries fell on the shorter-end and edged higher on the longer-end of the curve whilst the yields for both 1-month and 3-month Treasury bills dipped below zero on Wednesday as market participants weighed on the positive news of more US fiscal stimulus against the rising COVID-19 infections and fatalities.

In the context of the frenzied action seen in recent weeks, there was a somewhat calmer tone on markets yesterday. Although, sterling did continue to trade in a wide range. There was no standout reason behind the volatility. The large swings in sterling were reflected in cable (GBPUSD) moving within a 1.165-1.20 band yesterday. Meanwhile, a firmer tone to the euro sees EURUSD regain the 1.09 handle.

Today, the BoE will hold its March policy meeting. Although, it is unclear if any further easing will be carried out as the central bank has already cut the Bank rate by 65bps to 0.1% and launched an additional £200bn QE programme at two emergency meetings earlier in the month. Given the somewhat calmer mood on markets this week, the BoE may refrain from further policy action today

More generally, the focus for traders will remain centred on the coronavirus and the efforts to halt its spread/mitigate its economic impact. On that note, EU Leaders will tonight discuss coordinated responses to the coronavirus, including debt financing. 

Today, the US data docket includes a lineup of releases including the third cut of 4Q19 GDP, February trade data And wholesale inventories. 

The most closely watched data is likely to be the initial jobless claims on Thursday (26 March). The claims spiked higher to a two-year high of 281,000 claims for last week (19 Mar) and markets are projecting an even sharper spike today with Bloomberg median estimate at 1.64 million and the highest forecast at 4 million claims. The last spike in claims happened in the Global Financial Crisis (GFC) when claims stayed above 600,000 in 1H 2009. The peak was 665,000 in the week that ended 28 March 2009. Claims never exceeded 700,000 in any week during the GFC.

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

  • EURUSD: 1.0800 (1BLN), 1.0900 (230M), 1.0925 (241M), 1.1000 (1BLN)
  • USDJPY:  108.75 (1.1BLN), 110.00 (742M), 110.75 (350M) 111.00 (480M), 112.00 (1BLN)
  • GBPUSD: 1.2000 (1.4BLN)

Technical & Trade Views

EURUSD (Intraday bias: Bearish below 1.0850 Bullish above)

EURUSD From a technical and trading perspective, it appears a more sustained corrective phase is developing as 1.0850 now acts as support look for a test of the equality target at 1.10 & 50% retracement at 1.1060 this area should see sellers remerge. 

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 UPDATE broader correction appears to be developing as 1.18 acts as support look for an erosion of offers through 1.20 to set up a test of the equality and 50% retracement cluster at 1.2220/1.23, this area should see renewed selling pressure on the first test.

USDJPY (intraday bias: Bearish below 109 Bullish above)

USDJPY From a technical and trading perspective, bulls will target a retest of 2020 highs in a 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 UPDATE on the day look for bids towards 109 to set up the next leg higher in the cycle.

AUDUSD (Intraday bias: Bullish above .5850 Bearish below)

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 as buyers defend .5850 look for another corrective leg higher in a three push higher pattern to test the .6185 equality objective from here we should see sellers remerge

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