Daily Market Outlook, March 27, 2020 

Yesterday, US weekly jobless claims figures provided the first evidence of the extent of the damage the coronavirus is having on the labour market. Claims soared from 300k to an unprecedented 3.3m. The previous record was 695k in 1982. 

Despite the abysmal data, US equities rallied yesterday, with the S&P 500 finishing the session up 6.2%. The index has gained over 17% in the past three days. The sizable fiscal and monetary measures taken by the Fed and the US government appear to be supporting sentiment for now. After Monday, when many markets hit their lowest level since 2016, equities have had an exceptional rally. In their worst ever outturn Chinese industrial profits fell by 38% between Jan/Feb and the same point a year ago.

The number of confirmed coronavirus cases globally has risen above 529,000. The US now has the highest number of confirmed cases but the WHO said it saw ‘encouraging signs’ in Europe. G20 leaders issued a statement saying they would do “whatever it takes” to minimise the social and economic damage of the pandemic, although the statement was short on policy specifics. UK PM Johnson called for a worldwide effort to create a vaccine.

Currency wise, sterling made good gains yesterday. The currency may have been aided by the generally firmer tone to risk appetite yesterday. It was little impacted by the BoE’s policy meeting, with the central bank refraining from taking any further easing measures, but signalling a willingness to do more if necessary.

On fixed income markets, yields have fallen sharply in the Eurozone over the past 24 hours. Periphery bonds have outperformed, aided by the ECB’s announcement that it will not apply its self-imposed purchase limits in its latest round of QE. 

Today, attention will remain centred on coronavirus related developments. Of particular interest will be whether the improvement in risk appetite remains in place, with Asia-Pacific markets having moved higher again overnight

In a live television overnight, Fed Chair Jerome Powell said the recent initiatives the Fed has taken will help provide capital to businesses that need it and will be especially helpful once the virus is brought under control. Powell said the Fed is aiming at “places where credit is not being offered where it should be offered”, adding that the Fed will not run out of ammunition

With the US Senate having passed the $2tn stimulus package, the US House of Representatives is now expected to take up the stimulus bill later today, and then send it to US President Donald Trump’s desk for his signature. We could see a possible announcement by the Fed on its Main Street Business Lending program. 

The US economic docket on Friday will be a fairly busy one. February personal income and spending data will be released. The final reading of the University of Michigan consumer sentiment index for March will also be rolled out.

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

  • EURUSD: 1.0900 (1BLN), 1.0915-20 (480M), 1.0950 (375M), 1.1000 (1.1BLN) 1.1025 (600M), 1.1150 (570M)
  • USDJPY:  108.00 (250M), 108.35 (360M), 109.50-60 (1BLN) 110.00 (1.4BLN), 110.20-30 (900M)
  • GBPUSD: 1.1800 (311M), 1.1945-50 (500M)

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. UPDATE Initial test of the 50% retracement has seen some profit taking, as 1.0950 acts as support the next upside objective is 1.1150, a loss of 1.0950 opens a move to test pivotal bids at 1.08, aloos of this level would suggest the upside correction is complete and 1.0550 becomes the downside objective

GBPUSD (Intraday bias: Bearish below 1.20 Bullish above)

GBPUSD From a technical and trading perspective, 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 buyers have stepped back in at 1.08 if they can reclaim 109 there remains an opportunity for another cycle high a daily close above 110 would encourage this view

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 .6135 equality objective from here we should see sellers re-emerge

 

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