Forex Signals US Session Brief, Feb 20 – The Impact of Coronavirus on Chinese Economy Is Affecting Markets Now
Skerdian Meta • 4 min read
The coronavirus started in December last year, as Chinese officials have now showed after hiding it for a month, but the panic set in by mid January. Although, the panic from the coronavirus outbreak has abated now, as it seems to be under control outside of China, at least. In China, the virus continues to spread, but the pace of spreading has slowed down, which improved the sentiment. But, the Chinese economy is surely going to suffer, as most major names in the industry such as Moody’s, have revised economic growth forecasts in China for 2020.
In the last two days, we have seen the Chinese government take in some major companies in China, trying to save them from bankruptcy, it seems. These companies were posting billion in revenue until recently, but now they are being saved from the government, which shows that they weren’t as healthy as it appeared. This has hurt the sentiment today, sending risk currencies lower, despite some decent figures from the UK retail sales and US Philly FED manufacturing index. But, they didn’t have much impact on markets.
The European Session
- There’s High Volatility for BOJ’s Kuroda – The Bank of Japan governor, Kuroda made some comments this morning in an interview, seeing high volatility in financial markets.
- Paying maximum attention to economic impact of coronavirus outbreak
- Market has faced big fluctuations since the outbreak began
- Investor risk aversion grew last month due to the coronavirus outbreak
- Volatility remains high in global markets
- UK Retail Sales Report – The UK retail sales report for January was released earlier today. It was a positive report, showing some decent increase in sales last month and beating expectations. Yet, the GBP is still declining, with GBP/USD having lost around 200 pips in the last few sessions. Below is the retail sales report:
- UK January retail sales +0.9% vs +0.7% m/m expected
- Prior -0.6%; revised to -0.5%
- Retail sales +0.8% vs +0.6% y/y expected
- Prior +0.9%
- Retail sales (ex autos, fuel) +1.6% vs +0.8% m/m expected
- Prior -0.8%
- Retail sales (ex autos, fuel) +1.2% vs +0.5% y/y expected
- Prior +0.7%
- ECB’s De Guindos Feeling Optimistic – The European Central Bank vice president, Luis de Guindos made some remarks this morning, sounding more optimistic than pessimistic.
- Eurozone growth supported by underlying strength of domestic activity
- Bolstered by strong labour markets, favourable financing conditions
- International trade remains weak
- Uncertainty surround future trade relationships remain elevated
- But forward-looking survey indicators show tentative signs of mild improvements
- Eurozone economy still needs strong support from monetary policy
- ECB is attentive to possible side effects of current policy measures
- Philly FED Manufacturing Index – Manufacturing has been suffering worldwide in the last two years, mainly due to the trade war between US and China. Manufacturing was holding up well in the US until summer last year, but it started to weaken considerably back then and it fell in contraction for several months, until December. But, we have seen some improvement this year, In January, the Philadelphia manufacturing index jumped higher from 0.3 points to 17 points and it jumped even higher today. Below is the report for this month:
- Philadelphia Fed business index for February 36.7 versus 11.0 estimated
- Prior month 17.0
- The index is the highest since February 2017
- Employment index 9.8 versus 19.3 last month
- Prices paid 16.4 versus 22.1 last month
- New orders 33.6 versus 18.2 last month
- Prices received 17.1 versus 14.7 last month
- Future index 45.4 versus 38.4 last month
- Shipments 25.2 versus 23.4 last month
- Unfilled orders 7.4 versus -3.7 last month
- Inventories 11.8 versus -2.3 last month
- Average workweek 10.3 versus 5.2 last month
- ECB Meeting Minutes – The ECB released its account of the January policy meeting. They want to see the glass half full, from what I read.
- Data points to positive but modest growth ahead
- Need more data to see if tentative signs of stabilisation provide firmer ground for optimism
- Manufacturing may be bottoming but not clear if services slowdown is over
- Model suggests growth is stabilising, but below potential
- Encouraged by countinued gradual upward trend in some core inflation indicators
- Important to acknowledge positive signs without being too optimistic
- FED’s Clara Also Sounding Optimistic Today – FED member Clara was speaking on CNBC a while ago and said the following:
- The fundamentals of the US economy remain solid into 2020
- There’s been a decline in trade policy uncertainty
- That decline in tensions from trade should be a positive for business investment
- He is getting daily email briefings on the impact of the coronavirus
- Says it is still too soon tell the impact of the coronavirus outbreak on the US economy
- Financial stability risks in the United States are moderate
- Coronavirus Update –
China 74,579 +394 2,119 +115 16,707 12,017 Diamond Princess 634 +13 2 +2 17 27 S. Korea 104 +46 1 +1 16 Japan 94 +10 1 20 4 Singapore 85 +1 37 4 Hong Kong 67 +2 2 6 6 Thailand 35 17 2 Taiwan 24 +1 1 2 1 Malaysia 22 17 Germany 16 9 Vietnam 16 14 Australia 15 11 USA 15 3 France 12 1 7 Macao 10 6 U.K. 9 8 U.A.E. 9 3 1 Canada 8 2 Iran 5 +3 2 Philippines 3 1 2 India 3 3 Italy 3
Trades in Sight
- The main trend is still bearish
- The retrace higher is complete on H4 chart
- The 100 SMA has turned into resistance again
EUR/GBP failed to push above the 100 SMA today
EUR/GBP has been on a bearish trend since August last year, after manufacturing fell deep in contraction in the Eurozone that month, increasing fears of a recession. The ECB turned dovish the following month, cutting deposit rates further to -0.50% and reintroducing the QE programme again. As a result, EUR/GBP has been bearish since then, although we saw a bounce off the 0.8280 level by the middle of last month, as the sentiment from coronavirus outbreak hurt the GBP more than the Euro.The price returned back down, but it bounced again from that area, so it seems like a support zone has formed around 0.8280s.
But, the bounce stopped right at the 100 SMA (green) on the H4 chart. This moving average has been acting as resistance before, reversing EUR/GBP lower several times in 2019. Now, it seems like 100 SMA has turned into resistance again for this pair. This looks like a good selling opportunity, so we will try to open a short signal below the 100 SMA, if the EUR/GBP tries it again and it gets rejected for the second time.
The spread of Coronavirus is slowing the pace, which should have helped improve the sentiment, but the fact that major Chinese companies are being bailed out by the government, shows that the virus will have a big impact on the economy. We’ll see how big the impact will be, but it is already hurting the sentiment.