It looked like markets got used to coronavirus, as the sentiment improved in the first few weeks of this year. The virus was being confined within China until last weekend, with few cases outside, which were under control. But, the breakout in Italy, Iran and Japan over the weekend pushed the panic button again and markets opened with a bearish gap lower on Monday. Then, we saw new cases in other European countries yesterday, which kept the sentiment negative and risk assets sliding lower.

Today, we saw stock markets open with another bearish gap lower in the European session and continued lower int the first few hours, with German index DAX falling to 12,375 points. But, the sentiment improved as the session progressed and European stock reversed higher. Risk currencies are not making any gains, but the decline has stalled for now, while safe havens such as Gold have retreated lower.

The European Session

• Japan’s Abe Tries to Sound Optimistic – The Japanese economy is in a very difficult position. It has weakened considerably in the last two years as the rest of the globe slowed down and in fact, it was weak even when the global economy was recovering fast from the 2009 crisis, but now it has weakened further and will likely fall into recession this year. But, Japanese prime minister, Shinzo Abe, is trying to keep the confidence up, even though we know that the coronavirus will tip the Japanese economy into the abyss. Below are some of his main comments:
  • Economy remains in moderate recovery
  • Closely monitoring effects from coronavirus on the economy
  • Also monitoring market moves with a sense of urgency
  • Refrain from commenting on market moves
  • Will continue to closely communicate with IOC, proceed preparations for Olympics

• ECB’s Gabriel Makhlouf Speaking About Inflation – Last year, the Eurozone economy got pretty close to recession, as it was slowing together with the global economy. Inflation fell below 1%, which got the European Central Bank (ECB) panicked. They cut deposit rates further into negative territory and restarted the QE programme. Inflation improved somewhat, jumping to 1.3%, but core inflation fell to 1.1% again last month. Manufacturing has improved a bit too, but it still remains in contraction. Now that coronavirus has broken out and is also breaking out in Europe, the economy will start weaken again, I suppose. So, the ECB is getting worried again. ECB governing council member, Gabriel Makhlouf made some comments a while ago:

  • ECB will consider various options for inflation target
  • ECB must avoid deanchoring of inflation expectations
  • Inflation range may make ECB policy more credible
  • There continues to be uncertainty about exactly what “close to, but below” means
  • Have to consider whether current CPI data is helping to communicate the ECB’s objectives in the most effective way
• Two More Rate Cuts from the FED in 2020? – World Health Organization has been keeping pretty calm after the outbreak of coronavirus. They continue to remain calm, with only some mild recommendations, which seems like they are doing it on purpose to help spread the virus faster. Is it possible that a mafia organization has hijacked WHO? They made some more mild comments today:
  • WHO says that they are not planning a ‘big announcement’ on coronavirus outbreak
  • Many countries have pandemic plans ready
  • Some may act on them depending on their situation
  • But WHO itself does not plan a ‘big announcement’
  • Says countries have to be prepared for the virus that is ‘literally knocking at the door’

US Session

• ECB’s Lagarde Calls for Trust in the Euro – ECB’s president Christine Lagarde was speaking in Germany a while ago. She sounded a bit like the Euro is in question now, or is it really?
  • ECB will reach out to people during strategy review
  • level of trust in the euro is critically important

  • Welcomes latest German plans to pause debt brake
  •  measures intended to support the economy are certainly very welcome particularly under present circumstances
• US New Home Sales – Big beat in the New home sales for January in the US. The report was released a while ago, showing a higher revision for December as well, so it’s a positive report.
  • New home sales 764K versus 718K estimate
  • prior month revised higher to 708 versus 694K previously reported
  • The gain is at 7.9% versus 3.5% estimate.  Prior month up 2.3% versus -0.4% initially reported
  • Northeast 44K versus 42K
  • Midwest 99K versus 76K last month
  • South 369K versus 386K last month
  • West 252K versus 204K last month
  • month supply 5.1 months versus 5.5 months
  • median price $348,200 versus $324,100 +7.4%
  • mean price $402,300 versus $373,300. +11.4%
  • the sales paces the highest since July 2007
• Coronavirus Update –
  

  Country, Other	Total Cases	New Cases	Total Deaths	New Deaths	Total Recovered	Serious, Critical
  China	78,073	+415	2,715	+52	30,049	8,745
  S. Korea	1,261	+284	12	+1	24	18
  Diamond Princess	705	+14	4		10	36
  Italy	383	+60	12	+1	3	35
  Japan	172	+11	2	+1	23	13
  Iran	139	+44	19	+3	25
  Singapore	93	+2			62	7
  Hong Kong	89	+4	2		18	6
  USA	57				6
  Thailand	40	+3			22	2
  Taiwan	32	+1	1		5	1
  Bahrain	26	+3
  Kuwait	25	+14
  Australia	23	+1			15
  Malaysia	22				20
  Germany	19	+1			15	1
  France	17	+3	2	+1	11	1
  Vietnam	16				16
  U.K.	13				8
  U.A.E.	13				3	2
  Canada	12	+1			3
  Spain	12	+3			2
  Macao	10				6
  Iraq	5
  Oman	4
  Philippines	3		1		2

Trades in Sight

Bearish EUR/CHF

• The main trend is bearish
• The retrace higher is complete on H4 chart
• the sentiment remains negative

EUR/CHF reversed below the 100 SMA

EUR/CHF has been bearish for a long time, as the sentiment in financial markets has been mostly negative, due to the trade war between US and China, as well as from the slowing global economy. The CHF has benefited from that as a safe haven, hence the long term bearish trend in this pair. During this time, moving averages, such as the 50 SMA (yellow) and the 100 (green) have been pushing the price lower. When the trend picked up pace, the smaller MAs have provided resistance, when the trend slowed, the 100 SMA has come to rescue.

Yesterday we saw a retrace higher, despite the deterioration in the sentiment and EUR/CHF broke above the 50 SMA on the H4 chart. But, it wasn’t enough to push to the 100 SMA. The price reversed after forming an upside-down pin candlestick which is a reversing signal. I opened a sell forex signal yesterday at the 50 SMA, so we are in profit already with this trade now.

In Conclusion

The pace of the spread of Coronavirus was slowing last week, which calmed traders down. But, the jump in new cases over the weekend, especially in Italy, increased fears that the virus might turn into a pandemic in Europe as well, so the sentiment has been negative again this week, although not as bad as in the last two days and markets will likely follow the news in the following session about how coronavirus is progressing.