· The euro hovered near a seven-week low against the dollar on Friday after the European Central Bank was seen as more cautious than expected, while anxiety over China’s coronavirus outbreak propped up the safe-haven yen.
The euro changed hands at $1.1055 EUR=, having touched a seven-week low of $1.1036 on Thursday.
Concerns about the spread of the new disease bolstered the yen, which traded at 109.45 yen to the dollar JPY=, having risen to a two-week high of 109.26 on Thursday.
“The Lunar New Year holiday in China has just begun and they say the virus could be latent for about a week. So at least for the next couple of weeks it will be difficult to gauge how much the new disease will have spread,” said Shinichiro Kadota, senior FX strategist at Barclays.
“That suggests the yen is likely to have a strengthening bias during this period,” he added.
The offshore yuan was little changed at 6.9275 per dollar CNH=D4, after touching a two-week low of 6.9423 on Thursday.
· EUR/USD Fresh 2020 Lows
Probably the most notable event from this morning has been a breakdown in the Euro. This morning brought an ECB rate decision into the mix; and Christine Lagarde didn’t really say anything either hawkish or dovish (she does identify as an owl, after all), but the single currency was able to push down to a fresh 2020 low after holding at a key area of support over the past couple of trading days.
Bearish continuation approaches could be complicated by a big batch of support sitting underneath current price action, running around the 1.1000 psychological level that had come into play to help hold the lows in December of last year.
· China’s National Health Commission said as many as 25 people have died from a fast-spreading coronavirus and the total number of confirmed cases in the country rose to 830.
South Korea on Friday confirmed a second patient has been infected. Japan also confirmed a second case.
The World Health Organization (WHO) on Thursday said at a press conference the outbreak did not yet constitute a global public health emergency.
· China stepped up measures to contain a virus which has killed 25 people and infected more than 800, with public transport suspensions in 10 cities, temples shutting, and the rapid construction of a new hospital to treat those infected.
· As China’s Wuhan virus spreads, it is expected to continue slamming Chinese and other financial markets, but economists say it may ultimately have more impact on sentiment than be a lasting negative for the economy or markets.
Strategists also point to the reaction in Chinese and other Asian markets following the SARS virus, which declined as the outbreak spread but bounced back once it was contained.
“What happened here is everybody was shocked they would shut down a city of 11 million people. That made it sound like they were more worried about it. It’s still a factor,” said Art Cashin, director of floor operations at UBS. Cashin said if the outbreak is large in China and hits its economy, that weakness would spread globally. If the outbreak reaches the U.S., “it would be a larger hit.”
· The German finance minister said he isn’t pessimistic over threats of tariffs on the car industry as he believes an agreement on free trade and digital taxes is possible.
Soon after calling for a fresh trade deal with the European Union, President Donald Trump raised the specter of car tariffs should European nations implement a digital tax on big U.S. tech firms.
Trump’s comments align with a similar warning from U.S. Treasury Secretary Steven Mnuchin, who said on CNBC panel in Davos this week that tariffs could come if EU members don’t back off from their digital tax plans.
· U.S. President Donald Trump said on Thursday he will release details of his long-delayed peace plan for the Middle East before Israeli Prime Minister Benjamin Netanyahu and his election rival Benny Gantz visit the White House next week.
· With employment growth picking up pace in November/December, the Reserve Bank of Australia is unlikely to cut interest rates in February. However, the employment growth is likely to slow over the first half of 2020, forcing the central bank to take action, ANZ analysts mentioned in their weekly research note.
Key quotes
We no longer expect a rate cut in February. We think the Bank will want to see data on consumer spending over Q4 and January before acting.
April is the likely date for the next rate cut, with another a few months later. We see the cash rate at 0.25% by the end of the third quarter at the latest.
· Oil prices climbed on Friday, following a drawdown in U.S. crude stocks, but were set to fall heavily for the week amid worries that a new coronavirus in China that has killed 25 so far may spread, curbing travel, fuel demand and economic prospects.
Brent crude futures LCOc1 were up 31 cents, or 0.5%, at $62.35 a barrel by 0741 GMT after falling 1.9% the previous session. For the week, Brent is down about 4%.
U.S. West Texas Intermediate futures CLc1 were up 27 cents, or 0.5% higher at $55.86 a barrel. The contract fell 2% on Thursday and is 4.6% lower for the week.
· WTI bounces off 12-week low to $55.60 amid risk reset
WTI pulls back from early-November lows while taking the bids to $55.60 during the Asian session on Friday. Downbeat inventory levels, fears of demand slowdown and an end to global production cut have recently weighed on the black gold. However, fresh headlines from the Middle East suggest the geopolitical tension to prevail.
Be it Libya Gen Khalifa Haftar’s warning to target civilian planes as the top US-Iran envoy’s threat to kill late Iranian commander Soleimani’s successor are the top headlines that signal the fears of oil supply outage is still on the cards.
Technical Analysis
Sellers look for fresh entry below the latest low of $54.79 whereas buyers will avoid entering any positions unless the quote rises past $57.50 that comprises the mid-month low.
Reference: Reuters, CNBC, FX Street, Daily FX
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