The coronavirus outbreak has been driving markets around since mid January. markets almost panicked last month, with risk assets such as crude Oil diving lower. But, as the pace of spread slowed the sentiment improved somewhat, but traders still remain pretty cautious. It seems like the virus outbreak is stabilizing in China, as the pace of spreading falls, although, no one really knows for sure what’s going on in China. Today though, fears increased again, as coronavirus cases in South Korea nearly doubled, which is the fastest spread outside of China.

As a result, there was a bit of panic early today and Gold surged higher for another day. Gold is up nearly $30 today, as traders turn to this safe haven before the weekend, just in case there is a jump in coronavirus cases over the weekend. We also had the service and manufacturing data being released from Europe today. Manufacturing showed some improvement,although it still remain in contraction, while services have finally stabilized and contraction seems far now for this sector, both in the Eurozone and the UK.

The European Session

• UK Services PMI – The UK economy weakened considerably last year, as the Brexit uncertainty hurt the investor sentiment, on top of the trade war between US and China. many sectors of the economy fell in contraction, including the broader economy. The service sector which makes up 80% of the British economy also fell in contraction for a few months towards the end of last year. But, the service sector posted a nice jump in January, after the UK elections produced a clear winner and Brexit finally took a direction, which improved the sentiment. Today’s services PMI showed a small cool off for February, but services remain above 53 points, which is a long way from contraction now.
  • UK February flash services PMI 53.3 vs 53.4 expected
  • Prior 53.9
  • Manufacturing PMI 51.9 vs 49.7 expected
  • Prior 50.0
  • Composite PMI 53.3 vs 52.8 expected
  • Prior 53.3
• German Manufacturing PMI – Manufacturing has been in recession in Europe for about a year now. The European Central Bank has eased the monetary policy further, cutting deposit rates to -0.50% and restarting the QE programme late last year. That seems to be having some positive effects already, as we have seen services and manufacturing stop weakening further.German Manufacturing Report
  • Germany February flash manufacturing PMI 47.8 vs 44.8 expected
  • Prior 45.3
  • Services PMI 53.3 vs 53.8 expected
  • Prior 54.2
  • Composite PMI 51.1 vs 50.7 expected
  • Prior 51.2
• Eurozone Manufacturing PMI – Today’s manufacturing report from the Eurozone showed further improvement, as did the German manufacturing figures. Below are the reports from Germany and the Eurozone:
  Eurozone Manufacturing Report
  • Eurozone February flash manufacturing PMI 49.1 vs 47.4 expected
  • Prior 47.9
  • Services PMI 52.8 vs 52.3 expected
  • Prior 52.5
  • Composite PMI 51.6 vs 51.0 expected
  • Prior 51.3
• Eurozone CPI Inflation – The final inflation report for January was released from the Eurozone this morning. Headline CPI (consumer price index) inflation ticked higher to 1.4% in the first reading for January, but core CPI lost two points, declining to 1.1% from 1.3% in December. This was the final reading and both numbers remained unchanged as in the initial reading.

US Session

• Canadian Retail Sales – The retail sales report from Canada was released a while ago. Headline sales fell flat in December, but core sales increased by 0.5%, which is more important. Below is the full report:
  • Canada retail sales for December 0.0% versus 0.1% estimate
  • Prior report was 0.9% (was better than 0.6% estimate) revised to 1.1% from 0.9%
  • Retail sales ex auto for December 0.5% versus 0.3% estimate.  Prior was revised higher to 0.5% from 0.2%..  October retail sales fell -1.0%
  • for the 4th quarter sales fell -0.2% despite higher prices with volumes down -0.5% on the quarter
  • Building materials biggest retail upside
  • gasoline was the biggest drag
  • share of online sales climbed to record 4.7% of Canadian total retail sales
  • cannabis sales rise 8.1% month on month. Total 1.2 billion in
• FED’s Bullard Not Sounding Too Dovish Now – The FED turned quite dovish last year, cutting interest rates three times, after being hawkish for several years. The global economy weakened considerably due to the trade war between US and China and the US economy was affected by it as well. So, the FED has been bearish since last summer, but it seems like they might be shifting their stance now. Bullard was speaking a while ago and his comments sounded more hawkish than dovish. He doesn’t have a vote at the FED, but his opinion matters nonetheless. Below are some of his main comments:
  • Low probability that virus outbreak will get much worse
  • Market expectations likely to return to “on hold” outlook
  • Fed is in great shape, don’t have to lower rates
  • Have been concerned by yield curve issues
  • Fed purchases in repo market are not QE
• Kudlow Still Fighting the Trade War, Despite the Coronavirus – White House economic advisor Larry Kudlow was speaking a while ago, making the following comments:
  • China needs US consumer goods
  • Shows goodwill
  • US Bond yields reflect flight to safety
  • Does not expect trade to be big part of Trump India visit
  • US to host 5G conference at White House
  • US showing allies many options on Huawei

  Will be on the lookout for anymore headlines from the White House economic advisor.
• Coronavirus Update –
  

  Country, Other	Total Cases	New Cases	Total Deaths	New Deaths	Total Recovered	Serious, Critical
  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

Bearish EUR/GBP

• 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.

In Conclusion

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.