Japanese government will likely add a stimulus package

Forex Signals US Session Brief, March 5 – The Sentiment Turns Negative Again, As Governments Plan to Increase Fiscal Stimulus on Coronavirus

Posted Thursday, March 5, 2020 by
Skerdian Meta • 5 min read

The sentiment improved somewhat this week, after being pretty negative for a couple of weeks, since coronavirus broke out in Italy. Not that anything changed, but i suppose traders were tired of being scared. I can see this among the broader population almost everywhere, people have been scared of coronavirus for months now and they are just tired of being scared and so are traders, who of course are people too. Stock markets retraced higher as a result yesterday, but today fears have gripped markets again.

Risk assets such as commodity Dollars and stock markets have turned bearish again today, while safe havens such as Gold are climbing higher. For the time being, there’s no reason to be optimistic, as coronavirus spreads, hurting the global economy at a difficult time and all institutions are revising global GDP lower for this year. Japanese and Italian governments are planning on starting stimulus programmes, besides central banks easing rates and planning on QE as well. Today, OPEC said to have agreed on cutting Oil production by 1.5 million barrels/day and crude Oil climbed about $1 higher, but it has retreated back down, since Russia is not on board with plans.

The European Session

  • Coronavirus More Dangerous for the Economy That 2008 Crisis –  The coronavirus outbreak has scared the hell out of central bankers all across the globe. The RBA cut interest rates first by 25 bps and, from what we heard yesterday from RBA’s Debelle, another rate cut is coming and they are thinking about starting a QE programme. The FED delivered a sudden rate cut of 50 bps during a surprise meeting and markets expect another cut during the meeting later this month. The Bank of Canada also cut interest rates by 50 bps yesterday, while other major cventral banks are getting ready to do the same. A while ago, the Japan ruling party policy chief said that the virus response requires rate cuts larger than during ‘Lehman shock’.
    • The virus hit to the economy will be worse than during the ‘Lehman shock’
    • Requires interest rate cuts larger than what was seen at the time
  • Global Growth Revised Down from IMF – The IMF has cautioned that global economic growth could slow down in 2020 and fall below last year’s level as a result of the spread of the coronavirus. On Wednesday, the IMF announced an emergency funding of up to $50 billion for member countries trying to tackle infections, most of it set aside for emerging economies.Managing director at IMF, Kristalina Georgieva, stated that the outbreak was likely to disrupt global supply chains and have a greater impact on developing economies that lack adequate infrastructure to deal with the large scale of the epidemic. Global economic growth could slow down to the weakest pace seen since the 2008-09 financial crisis in the wake of the coronavirus outbreak. In 2019, the global economy was expected to have grown at 2.9%, according to IMF estimates.
  • UK won’t Delay Brexit Due to Coronavirus – Markets are totally focused on coronavirus now and the effects it is having/will have on the global economy. The Chinese economy might fall in contraction for the first time in decades, after witnessing the horrible manufacturing and non-manufacturing data over the weekend. But, there’s still life outside of coronavirus world. Britain is still heading out of the EU and they are saying that coronavirus won’t delay Brexit. Boris Johnson’s spokesperson was commenting a while ago and EU’s Brexit negotiator Barnier followed suit. below are their comments:

    UK PM Spokesman, James Slack Commenting

    • No delay to Brexit transition period due to coronavirus outbreak
    • UK is aware of potential impact of virus on the economy
    • Confident that Brexit will continue on schedule despite virus impact
    • If decision is made to move from containment to delay phase, will announce it publicly

    EU’s Chief Brexit Negotiator, Michel Barnier Commenting

    • Difficulties of end of transition period are being underestimated
    • UK has said it doesn’t seek a foreign policy deal
    • There are many serious divergences with the UK

    d that we will have to consider QE

    • January core CPI +1.1%
  • OPEC Agreet to Cut by 1.5M, But not Russia – OPEC has been pushing for another cut in production, after cutting it by 50k barrels/day in December last year. They were eyeing a 600k barrels/day cut, but then increased their target to 1 million barrels and now they are increasing their target further to 1.5 million barrels. Reuters reported a while ago, citing an OPEC source on the matter, that OPEC ministers said to have agreed on an Oil output cut of 1.5 mil bpd. But, that’s still conditional on Russia. From what we have heard all this time, Russia doesn’t want to cut production again, so I doubt they will go ahead with such a large cut. On the other hand, US Oil production has increased and now it accounts for about half of what OPEC produces now. So that will help keep Crude Oil bearish, which is not really buying the 1.5 million barrels cut from OPEC, not as long as Russia opposes it.

US Session

  • US Q4 Final Non-Farm Productivity – The US non-farm productivity report for Q4 of last year was released a while ago. These numbers aren’t going to impact the market but if we look out a year, an important question to ask is: Will the Fed hike rates back up to where they were? A big factor will be where inflation is.
    • US Q4 final non-farm productivity +1.2% vs +1.3% expected
    • Prelim was +1.4%
    • Unit labor costs +0.9% vs +1.4% expected (prelim +1.4%)
  • EU Commission Expects Lower GDP and Probably Recession – The US unemployment claims report was released a while ago. Last month’s report showed that claims jumped to 219k, from around 200k-210k average in the last few months.
    • Initial jobless claims 216K versus 215K estimate. Prior week remained at 219K
    • 4 week moving average to 213K vs 209.75K last week
    • Continuing claims 1729K vs 1738K estimate. Prior week 1722K vs 1724K initially reported
    • 4 week moving average 1721.25K vs 1728.75K last week
    • The largest increases in initial claims for the week ending February 22 were in Massachusetts (+3,871), Illinois (+3,767), Rhode Island (+925), Indiana (+423), and Iowa (+392),
    • The largest decreases were in California (-8,466), Georgia (-1,247), Pennsylvania (-952), Oregon (-770), and Texas (-743).
  • Coronavirus Update 

Trades in Sight

Bearish USD/JPY

  • The main trend has turned bearish
  • The retrace higher is complete on H4 chart
  • The 20 SMA provided resistance
  • The sentiment remains negative

The 20 SMA is stopping the climb for USD/JPY

USD/JPY turned bearish in the last week of February, as coronavirus spread outside of China and got out of control in Italy. The sentiment turned negative and safe havens such as the JPY rallied higher, which sent USD/JPY around 550 pips lower since then. Yesterday we saw a pullback for this pair, as the sentiment improved a little, for no particular reason. But, the pullback ended right at the 20 SMA (grey) on the H4 time-frame chart. This shows that the selling pressure is strong, since smaller moving averages are acting as resistance now.

Apart from many major central banks panicking and cutting interest rates in recent days. governments such as in Japan and Italy are also thinking of adding a stimulus package, which has increased fears that the global economy might fall into recession. So, USD/JPY is pretty bearish and it will remain so, as long as coronavirus stays.

In Conclusion

Stock markets again opened with bullish gap higher yesterday, but they have turned bearish again today, as the European session progressed. I think that the decline will stretch further in coming days, as coronavirus spreads across the globe. The CAD has just delivered a 50 bps rate cut as well, so the rate who cuts more is non now.

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