Riskier currencies steadied on Wednesday and demand for safe-havens ebbed, as investors waited for more news on the likely economic damage from a virus outbreak spreading from China.
The offshore yuan - heavily sold in recent days - was marginally stronger at 6.9551 per dollar CNH=, off Monday's 6.9900 to the dollar, which was its weakest in almost a month.
The yen was a touch weaker at 109.2 yen per dollar JPY=, while the Swiss franc CHF= edged 0.1% softer to a two-week low of 0.9744 francs per dollar.
Elsewhere, the euro stood at $1.1013 EUR=, having hit a two-month low of $1.0998 on Tuesday, after a strong U.S. consumer sentiment reading buoyed the greenback.
Sterling was steady at $1.3018 GBP=D4, having also dropped overnight as the dollar rose to a two-month high against a basket of currencies .DXY.
In Asian hours, the dollar held below that peak at 98.027.
The U.S. Federal Reserve meets later on Wednesday and is expected to keep rates on hold with a wary eye to the economy. FEDWATCH
But some think a mere mention of risks from the coronavirus may spark speculation the Fed could dole out more stimulus in future, if the U.S. economy is hit by fallout from the outbreak.
· EUR/USD Price Analysis: Bullish hammer hints at bounce ahead
EUR/USD produced a bullish hammer candle on Monday, as it defended the psychological support at 1.10 and closed with marginal gains at 1.1022.
The hammer candle is warning of ebbing bearish momentum and hinting a turn higher may be ahead.
Put simply, the sell-off from the Dec. 31 high of 1.1240 looks to have run out of steam and the bulls could make their presence felt by challenging 1.1038-1.1050.
A bullish hammer reversal pattern would be confirmed if the pair closes Wednesday above the hammer candle's high of 1.1025.
On the other hand, a close below 1.10 would imply a continuation of the sell-off from 1.1240.
· China coronavirus could hit Beijing’s ability to meet US trade war deal import demands – SCMP
The South China Morning Post (SCMP) carried an article on Wednesday, citing the analysts’ assessment of the likely China coronavirus impact on the US-China phase one trade deal.
Key Quotes:
“As part of the phase one deal signed on January 15, China is obliged to buy US$200 billion in additional US imports over two years on top of pre-trade war purchase levels.
However, with the outbreak driving down commodity prices and placing huge swathes of Chinese territory on lockdown, analysts are warning that import targets that already seemed aspirational have become even tougher to reach.
The longer the crisis lasts, the worse the damage to China’s ability to meet the purchase target.
Analysts were already sceptical about the lofty purchase targets, since they would require a significant reshuffling of China’s trading practices and the stockpiling of commodities for which it may not have domestic demand. Beijing has maintained repeatedly in its statements on the trade deal that it would only buy US goods according to its domestic demand.”
· The Chinese territory of Macau has become a near-ghost town during what is typically the busiest time of year in the world’s biggest casino hub, after authorities announced a raft of measures to keep visitors away and contain the new coronavirus.
The local government late on Tuesday said it would curb its individual visit scheme through which visitors gain entry from mainland China, days after it suspended inbound package tours. Since Friday, arrivals have dropped 69%, latest figures showed.
· A team of scientists in Australia said on Wednesday they have successfully developed a lab-grown version of the new coronavirus, the first to be recreated outside of China, in a breakthrough that could help quicken the creation of a vaccine.
The researchers at the Peter Doherty Institute for Infection and Immunity in Melbourne said they would share the sample, which was grown from an infected patient, with the World Health Organization and laboratories around the world.
· More than 130 people have died from the mysterious new coronavirus, according to official Chinese statistics, but the real number is likely much higher. A dearth of test kits has hindered health officials ability to accurately diagnose and track the illness.
Here’s what we know about how the disease has spread:
◆ China said on Wednesday that 132 people had died from the virus, which is believed to have originated in the central city of Wuhan and is spreading across the country. The previous count, on Tuesday, was 106.
◆ The number of confirmed cases increased by nearly 25 percent to 5,974 on Wednesday, up from 4,515 on Tuesday, according to China’s National Health Commission.
◆ Thailand has reported 14 cases of infection; Hong Kong has eight; the United States, Taiwan, Australia and Macau have five each; Singapore, South Korea and Malaysia each have reported four; Japan has seven; France has four; Canada has three; Vietnam has two; and Nepal, Cambodia and Germany each have one.
◆ Cases recorded in Taiwan, Germany, Vietnam and Japan involved patients who had not been to China. There have been no reported deaths outside China.
· British Airways cancels all flights to and from China amid fears of the outbreak.
British Airways has indefinitely suspended all flights to and from China, the airline said on Wednesday, citing advice from Britain’s Foreign Office that cautioned against all nonessential travel to China.
“We apologize to customers for the inconvenience, but the safety of our customers and crew is always our priority,” the company said in an emailed statement.
· Chinese gaming giant Tencent Holdings said on Wednesday it will extend the Lunar New Year break for mainland China employees to Feb. 9, and will no longer require them to work from home from Feb. 3 till that date.
· Fed decision, Boeing earnings and McDonald’s results: 3 things to watch for on Wednesday
Fed decision
The Federal Reserve will discuss its first meeting of the decade on Wednesday. Investors will likely be looking for signs of how global growth and the coronavirus outbreak may influence future rate decisions, and for any hints of operational changes by the central bank.
The market also will pay close to attention to Fed Chair Jerome Powell’s speech and what he says about the Fed’s repo program. The central bank has been active in the overnight funding market since September, leading to rapid build-up of its balance sheet as it tries to keep overnight lending rates stable.
Boeing earnings
The beleaguered aerospace company has welcomed a new CEO, pushed back its tentative projections for the return of the 737 Max and secured over $12 billion in financing from banks in just the last month.
Stallard said Boeing’s fourth quarter results will give the company a full-year adjusted loss of $5.44 per share and $81.482 billion in revenue for the year. That translates to an adjusted loss of $4.26 per share for the fourth quarter alone, according to FactSet.
McDonald’s earnings
Another key consumer company reports results tomorrow: McDonald’s will announce its fourth quarter earnings before the bell.
KeyBanc projects the fast-food company will post $1.99 in earnings per share and 5% growth in same store sales for the fourth quarter. KeyBanc has an overweight rating on McDonald’s.
· The Federal Reserve will conclude its latest policy meeting on Wednesday with interest rates almost certainly to remain on hold but officials likely to discuss possible changes to how they manage the U.S. central bank’s key overnight borrowing rate.
U.S. data since the Fed’s last policy meeting in December have done little to shift expectations for continued economic growth this year of around 2% and steady, low unemployment.
Some risks may have risen - with China’s economic growth now in the spotlight after a coronavirus outbreak - and U.S. Treasury bond yields have fallen as a result.
· U.S. President Donald Trump on Tuesday proposed creating a Palestinian state as part of a Middle East peace plan, drawing Palestinian condemnation for imposing strict conditions and agreeing to let Israel maintain control of long-contested West Bank settlements.
Trump announced his plan for Israeli-Palestinian peace at a White House event with embattled Israeli Prime Minister Benjamin Netanyahu standing at his side. It includes what Trump called a four-year freeze by Israel on new settlement activity.
Although Trump’s stated aim was to end decades of conflict, the plan he advanced favored Israel, underscored by the absence of Palestinians from Trump’s announcement.
· “This is the probably the greatest political challenge that (President Xi Jinping) has faced since taking office in 2012,” said Allison Sherlock, China researcher at the Eurasia Group, a risk consultancy.
· Growth in China’s sprawling manufacturing sector likely stalled in January after two months of modest gains, with an outbreak of a new virus adding to risks facing the already struggling economy, a Reuters poll showed.
The official Purchasing Managers’ Index (PMI) for January is expected to fall to a neutral 50.0 from 50.2 in December. The 50-mark separates expansion from contraction on a monthly basis, according to the median forecasts of 29 economists. The data is expected to be released on Friday.
· Oil prices rose for a second day on Wednesday, recouping some losses after a five-day rout on talk that OPEC could extend oil output cuts if a new coronavirus hurts demand, while data showing a decline in U.S. stockpiles helped steady prices.
Brent crude LCOc1 rose 58 cents, or 1%, to $60.09 a barrel by 0730 GMT. U.S. crude was up 55 cents, or 1%, at $54.03 a barrel.
· The potential economic fallout from the coronavirus outbreak in China could dent oil demand and push oil prices lower, analysts at Barclays said on Tuesday.
The bank sees a $2 per barrel downside to their full-year Brent and WTI forecasts of $62 per barrel and $57 per barrel, respectively, according to Reuters.
Reference: Reuters, CNBC, FX Street,Daily FX
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