The risk sentiment has improved this week, or at least, traders think that the outbreak of coronavirus, won’t turn into a global pandemic. There was a bit of confusion early this morning, after China reported a huge jump in reported cases, which owed to a reclassification in Hubei cases. Cases of infected people with the virus has gone above 60k, with more than 15k new cases today and deaths jumped by more than 200, bringing the total to around 1.200 so far. But, the situation calmed and the rick sentiment turned positive again, but only slightly.

As a result, risk assets such as commodity dollars and crude Oil have been grinding higher. Speaking of Oil, OPEC is waiting Russia’s response on cutting production by a further 600k barrels/day, which will send WTI crude surging higher, probably to $60 again. But, Russia hasn’t made up its mind, as Russian officials said today, so Oil traders are waiting to see if OPEC+ will cut production again or now. The US inflation report was released a while ago, before the US session started and it was a balanced one, so not much impact on markets.

The European Session

• Russia Evaluating Possibilities of Placing New Oil Quotas – As we mentioned above, the coronavirus outbreak has dampened the demand for energy and crude Oil in particular, especially from China. As a result, crude Oil has been bearish since early january, but OPEC is trying to cut production again by 600k barrels/day. Although, Russia hasn’t decided yet, as they repeated this morning, so OPEC and Oil traders are waiting for Russia to make a decision now.
• Japan to Through money at the Economy, Fighting the Virus Impact – Coronavirus cases in japan are increasing as well, as we heard about the first death today. The economy will likely be impacted negatively as well, so the Japanese officials are taking measures. Prime Minister Shinzo Abe made some comments earlier today, as below:
  • To take steps totaling ¥15.3 billion in spending to cope with virus outbreak
  • Cabinet will decide tomorrow on using ¥10.3 billion from budget reserve
  • Says will take the necessary measures to fight back again virus outbreak
• ECB Economic Growth Forecast – The ECB released its winter 2020 economic forecast. There are some revisions, slightly up or down, but overall, it doesn’t seem like much has changed. Surely, not much has changed in the Eurozone within a month, but the coronavirus outbreak has had a big impact on the sentiment during the past month or so. Below are the revisions:
  • European Commission keeps Eurozone growth forecast at 1.2% for 2020, 2021
  • Raises German GDP forecast to 1.1% for 2020, 2021 (previously 1.0%)
  • Cuts French 2020 GDP forecast to 1.1% (previously 1.3%), keeps 2021 forecast at 1.2%
  • Sees tentative signs of stabilization in manufacturing
  • Signs of decline in global trade flows is bottoming out
  • Coronavirus is a key downside risk to the growth outlook
  • Baseline scenario sees virus peaking in Q1 with limited global spillover
  • Eurozone economies are economy well placed to navigate external risks
• Coronavirus Update, Infected Cases and Deaths –  The NHC reports the national figures, scary:
  • Jan 17: 41
  • Jan 19: 62
  • Jan 20: 201
  • Jan 21: 291
  • Jan 22: 440
  • Jan 24: 830
  • Jan 25: 1,287
  • Jan 26: 1,975
  • Jan 27: 2,744
  • Jan 28: 5,974
  • Jan 29: 7,711
  • Jan 30: 9,692
  • Jan 31: 11,791
  • Feb 1: 14,380 (death toll 304)
  • Feb 2: 17,205 (death toll 361)
  • Feb 3: 20,438 (death toll 425)
  • Feb 4: 24,324 (death toll 490)
  • Feb 5: 28,018 (death toll 563)
  • Feb 6: 31,161 (death toll 636)
  • Feb 7: 34,564 (death toll 722)
  • Feb 8: 37,198 (death toll 811)
  • Feb 9: 40,171 (death toll 908)
  • Feb 10: 42,638 (death toll 1,016)
  • Feb 11: 44,653 (death toll 1,113)
  • Feb 12: 59,805 (death toll 1,367)

The US Session

• US CPI Inflation Report – The US inflation report for January was released a while ago. There were some misses and some positive numbers, so overall it was a balanced report.
  • US January CPI +2.5% vs +2.4% y/y expected
  • Prior was +2.3%
  • Ex food and energy +2.3% vs +2.5% expected
  • Prior ex food and energy +2.3%
  • CPI m/m +0.1% vs +0.2% expected
  • Ex food and energy m/m +0.2% vs +0.2% expected
• US Unemployment Report – The US unemployment report was released a while ago as well, and this was another positive report from the US.
  • initial jobless claims 205K versus 203K last week. The estimate was for 210K.
  • The four-week moving average 212K was unchanged from last week
  • continuing claims 1698K versus 1759K last week
  • 4 week moving average 1726K versus 1744.25K last week
  • The largest increases in initial claims for the week ending February 1 were in Pennsylvania (+2,534), New York (+1,523), Texas (+748), Oregon (+396), and Arizona (+332)
  • The largest decreases were in California (-2,138), Washington (-1,453), New Jersey (-1,021), Michigan (-809), and Ohio (-757).
• Mnuchin Speaks on Economy and Coronavirus – On Wednesday, US Treasury Secretary Steven Mnuchin sought to reassure markets about the health of the US economy and how the recent coronavirus outbreak could have only a momentary negative impact. While testifying before the Senate Finance Committee, Mnuchin stated that the outbreak will not have any long-term adverse impact on the US’s economic growth and he expected risks to fade within this year itself. Although Mnuchin sounded upbeat about the strength of the US economy to withstand the potential fallout of the coronavirus outbreak, he did confirm that his department was closely monitoring the situation. He also clarified that a better assessment about the extent of its impact can only emerge over the next three to four weeks.

Trades in Sight

Bullish USD/CAD

• The main trend is still bullish since early January
• Coronavirus cases are increasing
• The 100 SMA provided support
• The retrace down is complete on H4 chart

The 100 SMA has turned into support now

USD/CAD has been bullish since the beginning of this year, as crude Oil turned bearish, losing more than $16 and pulling the CAD lower with it, hence the uptrend since then. But, OPEC is thinking about cutting production again, this time by 600k barrels, so crude Oil has retraced higher in the last few days.The CAD has been pulled up from Oil, as well as from the improvement in the sentiment during this week., despite cases of coronavirus increasing exponentially. As a result, USD/CAD has retraced lower this week, breaking below the 20 SMA (grey) and the 50 SMA (yellow).

But, the decline stopped right at the 1200 SMA (green) on the H4 chart. Yesterday, the price reversed higher as the 100 SMA was approaching, but the 50 SMA turned into resistance. Today, sellers had another go at this moving average, but it held again as support and USD/CAD has bounced off of it again. Now, the pullback is complete on this time-frame, so we should see this pair resume the bullish trend. But, the price action in crude Oil will also affect USD/CAD.

In Conclusion

The US inflation report was sort of balanced, with inflation holding steady at 2.5%, while core CPI remains at 2.3%. So, inflation is steady in the US, not cooling off and not running away anywhere. Coronavirus sentiment is still driving markets around, so the data won’t have much impact, until it dies out.