· The euro was pinned near a three-year low versus the dollar ahead of a highly watched German survey on Tuesday, which is expected to show a sharp slump in investor confidence and fuel growing pessimism about the outlook for Europe’s largest economy.
Among Asian currencies, the Australian dollar slipped below the 67 U.S. cent level after minutes from the central bank’s last meeting revived the prospect of policy easing, while the Chinese yuan was weighed by worries about the economic fallout from the coronavirus epidemic.
“The euro is close to testing an important support level at $1.08 due to the diverging economic outlook between the euro zone and the United States,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo.
“It looks a little oversold, so in the very short-term there could be a bounce, but the euro’s fundamentals still point more to the downside.”
The euro traded at $1.0831, close to its lowest since April 2017.
The pound held steady at $1.2998 in Asia on Tuesday following a 0.3% decline in the previous session.
The onshore yuan fell 0.2% to 6.9956 versus the dollar, unsettled by a decline in Chinese shares after Apple Inc said it will not meet sales targets because the virus epidemic has slowed production and demand in China.
The yen, which initially gained on safe-haven flows as the outbreak unfolded last month, nudged higher to 109.73 per dollar but remained in a narrow range.
The Australian dollar fell 0.35% to $0.6693 after minutes from the Reserve Bank of Australia’s first meeting of the year showed policymakers discussed easing policy.
· USD/JPY: Yen finds takers as equities turn red
The bid tone around the Japanese Yen strengthened in Asia, pushing USD/JPY lower from 109.90 to 109.70, possibly tracking the risk-averse mood in the equity markets.
Technical levels
The pair has formed a big head-and-shoulders pattern on the hourly chart with the neckline support at 109.67. An hourly close lower would confirm a breakdown and open the doors to 109.21 (target as per the measured move method).
· EUR/USD Forecast: Bears paused ahead of next catalyst
The EUR/USD pair has spent most of this Monday consolidating in the 1.0830 price zone, a few pips above 1.0826, the multi-year low pasted last Friday. Market players struggled to find a catalyst, as the EU macroeconomic calendar was empty, while the US celebrated Presidents’ Day. The shared currency’s weakness has been driven by tepid or null growth in Germany throughout the last year. And news from this Monday suggest that the economy has not yet found its bottom, as the Bundesbank said in its monthly report that there are no signs the currency situation is set to change in the first quarter of the year, while coronavirus’ uncertainty adds a new layer of risk.
This Tuesday, Germany will release the February ZEW Survey, and the Economic Sentiment for the country is seen contracting to 21.4 from 26.7 previous. The assessment of the current situation is also seen worsening, to -10.3 from .9.5. For the EU, Economic Sentiment, however, is seen bouncing to 30 from 25.6. If the outcome misses the market’s expectations, fresh yearly lows for EUR/USD are likely. The US macroeconomic calendar will include the NY Empire State Manufacturing Index for February and December TIC Flows.
EUR/USD short-term technical outlook
The EUR/USD pair is technically bearish despite holding on to a tight range, with no signs of downward exhaustion, at least in the short-term. The 4-hour chart shows that a bearish 20 SMA retains its downward slope above the current level and below the larger ones, which also head south. Technical indicators have corrected oversold conditions, the Momentum advancing within negative levels, while the RSI stands pat around 33. The immediate support is 1.0810, en route to a more relevant one at 1.0770.
Support levels: 1.0810 1.0770 1.0725
Resistance levels: 1.0850 1.0895 1.0930
· Analysts at TD Securities (TDS) offer a sneak peek at what to expect from Wednesday’s FOMC January meeting’s minutes due at 1900 GMT.
Key Quotes:
“Minutes are unlikely to include any major new revelations on the near-term outlook relative to what was said in the press briefing and (Powell's) testimony.
However, they will likely include an update on the review being conducted by the Fed.
We expect the review to result in the adoption of some form of average inflation targeting, which is dovish given sub-2% inflation.”
· HSBC is scheduled to report its earnings for the full year of 2019 this afternoon — and investors are expecting the largest bank in Europe to warn of challenging times ahead.
Analysts have expected HSBC’s report card for last year to largely match that of 2018, when reported pre-tax profits were $19.89 billion and revenue was $53.78 billion.
· Europe’s largest bank, HSBC, reported a 33% fall in 2019 pre-tax profit to $13.35 billion after it took a goodwill impairment of $7.3 billion.
The bank warned that the ongoing coronavirus outbreak could pressure its business in Asia.
· China to accept tariff exemption requests on 696 U.S. goods from March 2
China said on Tuesday it would accept applications for new tariff exemptions for 696 products imported from the United States including pork, beef, soybeans, liquefied natural gas and crude oil.
Firms seeking exemptions on the additional tariffs on U.S. products, imposed during the escalation of the China-U.S. trade dispute, can submit applications from March 2, the finance ministry said in a statement.
· China regulator says epidemic's impact on industry 'major' in February
The impact of the coronavirus outbreak on China’s various industries will mainly show up in February, a vice chairman of the country’s state assets regulator said on Tuesday, as containment measures disrupt production and supply chains.
Capital Economics said in a report that it is now all but certain that China’s economy will contract in quarter-on-quarter terms in the first quarter. “We have penciled in a fall in output of 2.5% q/q,” Neil Shearing, group chief economist, wrote.
• The Wuhan Municipal Health Commission confirmed Liu Zhiming, the director of Wuchang Hospital in Wuhan, died Tuesday morning.
According to an online report from state news broadcaster CCTV, medical staff sent from Beijing Xiehe Hospital said Liu died of the new coronavirus at 10:30 a.m. after an all-out rescue effort failed.
• The time needed for nucleic acid testing for the new coronavirus has been cut down drastically — from two days to just four to six hours, according to a press release from the Chinese Ministry of Foreign Affairs.
· The number of new coronavirus cases in mainland China fell below 2,000 on Tuesday for the first time since January but the virus remains far from contained, as its economic impact spreads globally with South Korea announcing an economic emergency.
· Moody’s says economic growth to slow across Asia Pacific
Moody’s Investors Service said Tuesday the coronavirus outbreak adds to other pressures on growth in Asia Pacific. The impact of the disease will be felt mainly through trade and tourism, the firm said, adding for some sectors, there would also be supply chain disruptions.
“This shock comes on the back of a marked slowdown in 2019 as decelerating global trade hit the region,” Moody’s said in a statement.
The firm lowered its growth forecast for China from 5.8% to 5.2% for 2020, which would reflect “a severe but short-lived economic impact, with knock-on effects for economies across the region.” It added that lower Chinese import demand would be the primary reason for slowing growth.
Macao and Hong Kong are expected to face the biggest hit given their close economic integration with China, Moody’s said.
· Singapore on Tuesday announced financial packages worth around $4.5 billion to help contain the coronavirus outbreak in the city-state and weather its economic impact.
· China to grant tariff exemptions on 696 U.S. goods to support purchases
China will grant exemptions on retaliatory duties imposed against 696 U.S. goods, the most substantial tariff relief to be offered so far, as Beijing seeks to fulfill commitments made in its interim trade deal with the United States.
Tuesday’s announcement comes after the Phase 1 trade deal between the two countries took effect on Feb. 14 and is the third round of tariff exemptions China has offered on U.S. goods.
· HSBC Holdings PLC (HSBA.L) said on Tuesday it would shed $100 billion in assets, shrink its investment bank and revamp its U.S. and European businesses in a drastic overhaul that will mean 35,000 jobs cut over three years.
· WTI Crude Oil Forecast: Testing Resistance Above
The West Texas Intermediate Crude Oil market has rallied during the day on Friday to test the $52.50 level, an area that I think is crucial. If we can break above that area, then a lot of short sellers will suddenly find themselves in trouble. There is a lot of noise between there and the $54 level, so I don’t necessarily think that it is going to be an explosive move to the upside but it certainly is a market that is technically oversold so we could get a bit of a short covering rally, nonetheless.
Furthermore, keep an eye on the headlines coming out of China because the oil market has sold off in basically has priced in Armageddon when it comes to demand coming out of the mainland. If the coronavirus gets contained somewhat, oil will be thought of as cheap, and it should bounce at least a few dollars. Ultimately, the $54 level should be rather resistive, but breaking above there will probably accelerate the move higher. That being said, there does come a point where the Chinese getting back to work will drive oil higher and should make it an explosive market. The GDP contraction due to the coronavirus will be somewhat damaging, but at the end of the day when China gets back to work full force, it’s going to be a sudden jolt to the marketplace.
To the downside, I believe that the $49 level is now offering a very hard floor the market, so breaking down to a fresh new low would be extraordinarily negative and could open up the move to the $47.50 level, possibly even the $45 level. The market is most certainly negative as of the last couple of weeks, but we are still basically in the consolidation area from the longer-term standpoint. Note that most of the selling has been due to the coronavirus situation but was preceded by the idea of the Iranians not reacting to the killing of Soleimani. Having said that, the market was at roughly $60 before all of this started. To imagine a bounce back to the $55 level if the coronavirus gets to be somewhat under control really is in a stretch of the imagination at all. Nonetheless, you will need to be very cautious about your positioning, but if you are trying to sell crude oil now, you are most certainly chasing the trade.
· Brent markets also would have been very thin, but you can see that the market initially fell but then turned around to show signs of strength again. If the market can break above the $57.50 level, it could send this market looking towards the $60 level. If the market was the pullback from here there should be plenty of support though, and therefore I think it is trying to build up enough momentum to go higher. If the market was to clear the $60 level, then it’s likely that the market could go looking towards the 200 day EMA. Looking to the downside, the market should see plenty of support at the $55 level and it’s not until we break well below that level until the market falls apart. All things being equal, this is a market that is overdone, and I think we are starting to see it turn the corner a bit.
· Oil prices fell by more than 1% on Tuesday, tracking losses in financial markets on lingering concerns over the economic impact of the coronavirus outbreak in China and its effect on oil demand.
Brent crude LCOc1 was at $56.88 a barrel, down 79 cents, or 1.4%, by 0746 GMT, while U.S. West Texas Intermediate crude CLc1 fell 57 cents, or 1.1%, to $51.48 a barrel.
“Oil prices remain heavy as energy traders may have been overly optimistic as to the crude demand impact of the coronavirus, and on fading optimism that OPEC+ will come through with deeper production cuts in March,” said Edward Moya, senior market analyst at OANDA.
“Optimism that China would see a return to normalcy in travel and trade next quarter was probably wrong... The rest of the world is exercising caution on virus spreading fears and that will do no favors for crude’s demand outlook.”
U.S. stock futures slipped from record levels on Tuesday after Apple Inc (AAPL.O), the most valuable company in the United States, said it would not meet its revenue guidance for the March quarter as the virus outbreak slowed production and weakened demand in China.
The number of new infections in mainland China fell below 2,000 on Tuesday for the first time since January, health officials said, although global experts warn it is too early to say the outbreak is being contained.
The International Energy Agency (IEA) said last week the virus was set to cause oil demand to fall by 435,000 barrels per day (bpd) year-on-year in the first quarter, in what would be the first quarterly drop since the financial crisis in 2009.
Reference: Daily Forex, Reuters ,CNBC, FX Empire
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