Yesterday, the decline in stock markets stalled after being pretty bearish for two days, following the outbreak of coronavirus outside of China. It seemed like traders were exhausted from too much selling, so the decline stopped. But we knew it wouldn’t last too long, as coronavirus spreads in Europe, with new cases all over the continent.  New cases in other European countries have been increasing today as well, although WHO said that the jump in italy is due to testing errors. I hope it’s that since I’m pretty close to Italy at the moment.

As a result, we have seen stocks resume the bearish trend and take a tumble once again with US futures down by over 1% now and Treasury yields sinking, with 10-year yields down to record lows under 1.30%. The tumble in yields also weighed on the dollar earlier today, with the market now aggressively pricing in Fed rate cuts – fearing that the virus outbreak will dampen the US economy. An April rate cut is more or less fully priced in with the next one seen in July and a third rate cut slowly being priced in for December currently. hence the climb in EUR/USD this week, because the Euro doesn’t really have anything to be optimistic about right now.

The European Session

• German Government to Start Fiscal Spending? – The ECB has been calling for European governments to increase fiscal spending to help the economy, but we know it is directed at the German government, since they have a lot of surplus. Handelsblatt reported earlier that the German government is considering various scenarios and plans to outline potential measures should be ready in a few days. The stimulus programme is largely to combat the virus epidemic if it hits the German economy hard. Let’s hope they start spending a bit more.

• Eurozone Final Consumer Confidence – The final reading of the consumer confidence report for February was released earlier this morning from the Eurozone. Consumer confidence and investor sentiment deteriorated last year and turned quite negative, as the Eurozone economy slowed down, although they have been increasing in recent months. Investor sentiment has turned positive, but the consumer confidence remains negative still. Below is the report with the components:

  • Eurozone February final consumer confidence -6.6 vs -6.6 prelim
  • Economic confidence 103.5 vs 102.8 expected
  • Industrial confidence -6.1 vs -7.2 expected
  • Business climate indicator -0.20 vs -0.25 expected
  • Services confidence 11.2 vs 11.0 expected
• Seems Like UK-EU Trade Deal Will be Tough to Reach – The main hopes for the UK after pushing ahead with Brexit, is to reach a trade deal with the EU by the end of the year. But, the EU refused a quick template for a trade deal with the UK, such as Japan, Norway or Canada style deals yesterday, as I highlighted earlier today. Now, UK officials are playing tough, saying that they can go on without a deal. This seems similar to the Brexit negotiation, so deja vu much anyone? Today, the UK affirmed that it is willing to trade on no-deal basis if talks with EU fails. The UK published its negotiating mandate for trade talks with the EU:
  

  UK’s negotiating mandate with the EU

  • Trade deal should be based on Canada, Japan-style deals
  • UK will not extend Brexit transition period with the EU
  • To decide by June if a deal is possible before December deadline
  • To start no-deal preparations if an accord is not clear by June
  • Wants broad outline of trade deal to be clear by June
  • Will not sign up to alignment on EU rules, regulations

  UK Cabinet minister, Michael Gove, comments

  • There is ample time to strike a deal with the EU
  • We want the best possible trading ties with the EU

US Session

• US Durable Goods Orders Report – The US durable goods orders report was released a while ago. At first glance, it looked negative, as headline goods orders declined in January, but they missed expectations nonetheless, which were for a big decline of 1.5%. Core orders on the other hand, posted a decent increase, beating expectations too. Below is the report with the components:
  • Durable goods orders fall -0.2% versus -0.1% estimate. The prior month was revised to 2.9% from 2.4% previously reported
  • Core durable goods, ex transportation +0.9% versus +0.2% estimate. Prior month revised to +0.1% from -0.1% previously reported
  • Durable goods capital goods orders, nondefense, ex air +1.1% versus +0.1% estimate. Prior month revised to -0.5% versus -0.8% previously reported
  • Capital goods shipments, nondefense ex air 1.1% versus 0.0% estimate. Prior month revised to -0.1% from -0.3%
• US Q4 2019 GDP Report, Second Estimate – The second estimate of GDP report for Q4 of last year was released together with the durable goods orders report. The GDP remained unchanged at 2.1%, but some of the components, apart from business investment were positive.
  • Advance reading was +2.1%
  • Prior quarter was +2.1%
  Details:
  • Personal spending +1.7% vs +1.7% expected (+1.8% initially)
  • GDP price index +1.3% vs +1.4% expected (+1.4% initially)
  • Core PCE q/q +1.2% vs +1.3% expected
  • Business investment -2.3% vs -1.5% initially
  • Home investment +6.2% vs +5.8% initially
  • Business investment in structures -8.1% vs -10.1% initially
  • Exports +2.0% vs +1.4% initially
  • Imports -8.6% vs -8.7% initially
  • Annual growth in 2019 +2.3%, slowest in three years
  • Excluding trade, inventories and gov’t, the economy grew at 1.3%
• Coronavirus Update –
  

  Country, Other	Total Cases	New Cases	Total Deaths	New Deaths	Total Recovered	Serious, Critical
  China	78,514	+450	2,747	+32	32,954	8,346
  S. Korea	1,766	+505	13	+1	24	18
  Diamond Princess	705		4		10	36
  Italy	528	+58	14	+2	42	35
  Iran	245	+106	26	+7	54
  Japan	207	+35	4	+1	32	13
  Singapore	96	+3			66	7
  Hong Kong	92	+3	2		18	6
  USA	60				6
  Kuwait	43	+17
  Thailand	40				22	2
  Bahrain	33
  Taiwan	32		1		5	1
  Germany	27				15	2
  Australia	23				15
  Malaysia	22				20
  France	18		2		11	1
  Vietnam	16				16
  Spain	15	+2			2	2
  U.K.	15	+2			8
  U.A.E.	13				3	2
  Canada	12				3

Trades in Sight

Bearish AUD/USD

• The main trend is bearish
• The retrace higher is complete on H1 chart
• The sentiment remains negative

The 20 SMA is stopping the climb for AUD/USD

AUD/USD has turned bearish since early this year. Tensions in the Middle East, and then the outbreak of coronavirus proved to have a bigger impact on markets, than the Phase One trade deal. Since then, the trend has been completely bearish, as the sentiment remains strongly negative. During this time, moving averages have been doing a great job in providing resistance and pushing this pair down. AUD/USD has lost around 500 pips since early January and it doesn’t seem like the decline is going to top anytime soon, not as long as coronavirus spreads, especially in East Asia.

On the other hand, if the virus spreads further in US and around the globe, the world economy will likely weaken and the FED will start cutting interest rates again. Anyway, the main trend still remains bearish and MAs are still providing resistance. The 20 SMA (grey) was rejecting the price earlier, so we decided to open a sell signal in this pair.

In Conclusion

The second estimate for the US GDP report for Q4 of last year and the durable goods orders for January leaned towards the positive side. That helped the USD, which was retreating, as odds of the FED cutting interest rates again increase, with the increase in coronavirus cases around the globe.