Market quietened down considerably in December last year after the UK elections and the Phase One deal agreement between US and China. But, since the last few days of last year things have been very interesting for traders who like volatility. The last few days of 2019 were horrible for the USD, as year-end cash flows went against the USD and into safe havens, just in case a world war broke out. The first week was also quite volatile, as tensions between US and Iran escalated and the sentiment in financial market turned negative, sending safe havens surging and risk assets tumbling lower.

Markets quietened down in the following week, after WW3 was avoided. But, the coronavirus outbreak in China might be a bigger threat than another world war. Already there are many dead in China and many more infected, while there have been exported cases in other places, such as in France. This has hurt the sentiment further and the decline in risk assets such as commodity dollars and stock markets doesn’t seem to be ending. The decline in German Ifo economic sentiment didn’t help matters either.

The European Session

• German Ifo Business Climate – The Ifo Institute for Economic Research has just released. In the second half of last year, the business climate was weakening, but it showed some slight improvement in the last couple of months. Although, today’s report for the German Ifo Business Climate missed at 95.9 rate, which failed to meet the economists’ expectations of 97.1. It softened instead, compared to December, so the softening trend is not over yet.
  
• Ifo Economists Seem Optimistic Nonetheless – Ifo economist, Klaus Wohlrabe, commented after the report earlier, saying that there is reason to be cautiously optimistic on German economy. I bet he missed the Ifo business climate report earlier. he made further comments:
  • Industrial sector is slowly emerging from crisis
  • Uncertainty has decreased in the last two to three months
  • Helped by Brexit clarity and settlement in US-China trade conflict
  • Says that Iran crisis did not play a big role in the survey earlier
  • Expects German economy to expand by 0.2% in Q1, probably 0.1% in Q4 2019
• Irish PM Thinks It Will Be Hard for a UK-EU Trade Deal This Year – The UK is going to officially be leaving the EU on 31 January this week. They will go for Boris Johnson’s Brexit deal, which he reached with the EU in October last year. The UK parliament voted it down back then, but Conservatives won a strong majority in the December elections, so his deal went through.Although, the prime minister of Ireland thinks it will be a difficult task to reach a trade deal by the end of the year. He made some comments a while ago, as below:
  • Very challenging to reach a trade deal with UK by end of the year
  • We have a short time to reach a new trade deal with the UK
  • There will always be a seat at the EU table for the UK
• Frost to Be UK’s EU Negotiator – Earlier this morning, it was confirmed by UK PM spokesman, James Slack that David Frost will lead UK team on future relationship talks. UK will engage with EU like any other diplomatic partner. Tim Barrow will become the UK ambassador to the EU.

The US Session

• Belgian Business Sentiment – The business sentiment deteriorated last year, bottoming in summer, as we saw in Germany and the Eurozone. But,. it has improved in recent months, with German and the Eurozone ZEW economic sentiment coming back to positive territory. But, Belgian business sentiment remains negative, although it has improved as well. Today it improved further to -2.0 points from -3.4 previously.
• US Flash Manufacturing and Services – The trade war and the global slowdown has also affected negatively the US manufacturing sector, as it fell into contraction last August. But, it came back in expansion in the following month and has improved slightly since then. Last month, US manufacturing PMI increased to 52.5 points, but was revised a tick lower to 52.4 points this week. Services also improved to 52.2 points last month, from 51.6 in November, which was revised even higher to 52.8 points this week and it is expected to improve further to 52.9 points this month.

Trades in Sight

Bearish EUR/JPY

• The retrace higher is over on H1 chart
• The trend has turned bearish in the last 2 weeks
• The 20 SMA has turned into resistance
• The sentiment has turned negative

The 20 SMA has turned into resistance now

EUR/JPY has also had quite a roller-coaster ride in the last two months. In the first week of this year, we saw a 00 pip dive lower, as tensions between US and Iran increased, but then buyers came in after the tensions abated and they sent the price nearly 300 pips higher. But, the outbreak of the corona-virus in China has turned the sentiment negative again, sending risk assets lower and safe havens higher. The Euro as a risk currency and the JPY is a safe haven asset, so this pair has had a double reason to turn bearish in the last two weeks.

We can see that the 20 SMA (grey) has been providing resistance, ending pullbacks higher during the last two weeks and pushing this pair lower. Today we saw this moving average being tested twice, once in the morning during the European session and once a few hours ago. Both times, buyers failed to push above it. We missed the first chance, but took the second opportunity and now we are short n this pair.

In Conclusion

The sentiment continues to be pretty negative this Monday, following in last week’s footsteps. The corona-virus outbreak in China, which has spread into other countries as well, is keeping traders on their toes, so they are running for safety if safe havens once again. So, we are trading epidemics now, right?