· The yuan fell in offshore trade on Monday to its lowest level in three weeks as the death toll in China from the spread of a new coronavirus mounted, raising worries authorities are struggling to contain the outbreak and sparking a bout of risk aversion.
Japan’s currency, often sought as a safe-haven in times of uncertainty, initially jumped versus the dollar to the highest since Jan. 8 before erasing some of those gains as investors gauged public health officials’ response to the virus.
In the offshore market, the yuan CNH=D3 was under persistent pressure and slumped to 6.9776 per dollar, the weakest since Jan. 6.
The yen JPY=EBS rose to 108.73 per dollar, its strongest level since Jan. 8, before paring gains to trade up 0.16% at 109.09.
The dollar index .DXY against a basket of six major currencies was little changed at 97.881.
Sterling, the euro, and the dollar were subdued as traders awaited the release of economic data and two central bank meetings.
The pound GBP=D3 was little changed at $1.3060 on the dollar, and 84.46 pence per euro EURGBP=D3.
The Bank of England is closer to cutting interest rates this week than at any time in the last three years when it announces its policy decision on Jan. 30.
The U.S. Federal Reserve is expected to keep policy on hold at a meeting ending Jan. 29. Data on the U.S. housing market, durable goods, and consumer confidence will be released before the Fed’s decision.
· Fundamental Forecast for the US Dollar: Neutral
The forex economic calendar is supersaturated during the last week of January, leaving the US Dollar (via the DXY Index) exposed to greater event-based volatility over the coming days.
December US durable goods orders, January US consumer confidence, December US advance goods trade balance, the January Fed meeting, Q4’19 US GDP, and December US PCE core reports are all due out in the coming days.
Federal Reserve on Hold, but Rate Cut Expectations Creep Higher
With US Treasury yields drifting lower in recent weeks, it should be no surprise that Federal Reserve interest rate expectations have become less indicative of policy inaction for an extending period of time. Despite the fact that the US-China trade war phase 1 deal was signed, new concerns about global trade thanks to geopolitical tensions and the coronavirus outbreak have investors looking for safe havens.
· 'In the Event of an Emergency' Havens
Nuance is a perfectly valid consideration in markets where rational minds can still evaluate the risk-reward circumstances at play. However, where unchecked fear starts to infect the investing mass's calculus, there is a rudimentary demand for absolute liquidity. When market depth is the principle qualifier, there is arguably no other measure more ubiquitious than the US Dollar. The currency accounts for nearly two thirds of all transactions globally. It is difficult to escape it pull even if you tried. Where markets are concerned with the absolute stability of the instrument in which they are sheltering in place, there really is no substitute for the Greenback. It is a hedge to panic, but such a state is not exactly a far-fetched possiblity.
· EUR/USD risks further downside
EUR/USD’s drop to fresh YTD lows o Friday was accompanied by rising open interest, which should leave unchanged the idea of a deeper pullback to, initially, the 1.10 neighbourhood. However, the recent inconclusive trend in volume could spark some consolidation before the leg lower resumes.
Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, noted the pair could slip back to the 1.0980 region.
“Below 1.0980 will imply a retest of 1.0879, the October low.”
· The death toll from a coronavirus outbreak in China rose to 81 on Monday, as the government extended the Lunar New Year holiday and more big businesses shut down or told staff to work from home in an effort to curb the spread.
· A new virus that has killed 81 people in China can spread before symptoms show up, Chinese health authorities said, adding that its incubation period can range from one to 14 days.
Here are more facts on the virus, called 2019-nCoV, which can be transmitted among humans and belongs to the same coronavirus family as Severe Acute Respiratory Syndrome (SARS).
Many of those who died had pre-existing medical conditions or were elderly, authorities have said.
· Preliminary data show the scale at which the coronavirus outbreak is affecting the Chinese economy.
At a special press conference on Sunday, Chinese officials indicated the disease will remain an issue for the near future.
The immediate impact was visible in a drop in the flow of passengers. In an effort to prevent the virus from spreading, the government has encouraged people to stay at home, cancelled major public events and restricted travel for tens of millions. Travel plunges Overall travel on Saturday, the first day of the Lunar New Year, dropped 28.8% from a year ago, said Liu Xiaoming, vice minister of transport. Specifically, he noted declines of:
41.6% in civil air travel 41.5% in rail travel 25% for road transport.
On Sunday, China Railway Chengdu also announced it would halt several high-speed train routes — including some to Shanghai — for the next few days, into early February.
· There is an even balance in the share of U.S. businesses reporting decreases and increases in employment for the first time in a decade, a survey showed on Monday, the latest suggestion that the labor market has likely peaked and job growth could slow this year.
The findings of the National Association for Business Economics’ (NABE) fourth-quarter business conditions survey followed on the heels of a government report this month showing job openings falling by the most in more than four years in November.
“For the first time in a decade, there are as many respondents reporting decreases as increases in employment at their firms than in the previous three months,” said NABE Business Conditions Survey Chair Megan Greene.
“However, this may have been due to difficulty finding workers rather than a pullback in demand.”
· U.S. President Donald Trump is expected to disclose details of his long-delayed Middle East peace proposal to Israeli leaders on Monday, as he attempts to generate some momentum toward resolving one of the world’s most intractable problems.
On Tuesday, Trump will deliver joint remarks with Netanyahu at the White House, where the president may reveal details of his peace proposal.
· Big businesses across China are temporarily shutting stores or advising staff to work from home, to guard against the spread of a flu-like virus as the tally of deaths rose to 80, with more than 2,700 people infected.
Companies are also offering longer holidays, canceling events and imposing quarantine, as they brace for longer-term impact following China's weekend decision to extend the week-long Lunar New Year holiday by three days to Feb. 2, in a bid to slow the spread of the virus.
· The International Monetary Fund (IMF) said growth in Kuwait's non-oil sector had strengthened in 2019 but lower oil prices and output cuts weighed on its oil sector, resulting in overall economic growth of about 0.7% in 2019.
That was down from growth of 1.2% in 2018, the fund said in a statement describing its preliminary findings at the end of an official visit to the country.
Non-oil gross domestic product (GDP) is expected to expand 3% and inflation could pick up to 1.8% this year, it also said.
· The German economy grew by 0.6% last year, according to official figures, its weakest performance since 2013.
The German statistics office said growth was driven mainly by household spending.
Business investment in machinery and equipment was weaker, however. Exports did grow but more slowly than in previous years.
Industrial production, excluding construction, fell by 0.5%.
The statistics office has not yet published full data for the final quarter of last year, but has enough information to assess the impact on the year as a whole.
· WTI: Bears pile in on Coronavirus and ME threats
WTI is starting out the day on the offer, opening in a bearish gap and extending the bear trend to a low of $52.19 and lowest levels since October.
"We continue to expect follow-through selling in the complex, as trend followers further sap liquidity from the market, selling their length and adding shorts," analysts at TD Securities argued.”
· Crude prices fell more than 2% to multi-month lows on Monday as the rising number of cases of the new coronavirus in China and city lockdowns there deepened concerns over oil demand.
Brent crude LCOc1 fell by $1.28 a barrel, or 2.1%, to $59.41 by 0744 GMT, having earlier dropped to $58.68, its lowest since late October. U.S. crude CLc1 was down by $1.24, or 2.3%, to $52.95, having earlier eased to $52.15, the lowest since early October.
Reference: Reuters, CNBC, FX Street, Daily FX,Investing
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