Donald Trump announced closing travel to Europe last night, which turned the sentiment even more negative today, especially for European stock markets. They opened with yet another bearish gap lower and in total, the German index Dax30 has lost around 1,000 points today, as the decline continued in the European session after the bearish gap. Treasury yields also stayed pressured for the most part, with 10-year yields down by over 15 bps, but that did not stop the dollar this time around from posting gains today.

The decline in Gold and the climb in USD/JPY give you the idea that the sentiment must have improved, but that’s not the case, since stock markets and commodity currencies continue to decline. It is more of a case of the USD, which has been gaining ground, after suffering considerable losses in the last two weeks, especially against the Euro. The ECB didn’t cut repo/deposit today as almost all other major central banks have done, but they will increase the stimulus package, but I don’t think money will make people go to work when governments are enforcing a complete shut-down, with good reason. The only way is quarantining the whole country (any country) in their homes for about a month or two, until the virus dies out and then get on with the economy, after the disaster.

The European Session

• Eurozone Industrial Production – Manufacturing in particular and industrial production have been in a difficult position in the Eurozone during the last couple of year. The trade war was between US and China, but all the world took the hit and manufacturing in particular has been in deep contraction for a year in the Eurozone now. Industrial production also declined in the last few months of last year, but it jumped higher in January. Below is the report for January:
  • Eurozone January industrial production +2.3% MoM vs +1.5% expected
  • December stood at-2.1%; revised to -1.8%
  • Industrial production WDA -1.9% YoY vs -2.9% expected
  • Prior stood at -4.1%; revised to -3.6%
• ECB Meeting – The European Central Bank held its usual meeting earlier today. Forex calendars weren’t showing rate cut expectations, but traders were, after all major central banks have cut rates aggressively recently. But, the ECB and the BOJ, as well as the SNB already have rates in negative territory. So, the ECB left refinancing and deposti rates unchanged, at 0.0% and -0.50% respectively. But, they said to increase the stimulus measures.
• ECB’s Lagarde Press Conference – The European Central Bank (ECB) held its meeting a while ago. There were no expectations for a rate cut, but they could have as well delivered a surprise cut, like most other major banks have done. They didn’t but, Christine Lagarde speech sounded sort of worried today, but not as much as she should be. Although, they increased the stimulus measures. She made the following comments in her statement, following the rate decision from the ECB:
  • The virus is a major shock
  • Virus will slow down production and reduce demand
  • Calls for help from fiscal authorities
  • Ambitions, coordinated fiscal policy response needed
  • ECB measures will help smooth provision of credit
  • ECB stands ready to adjust all instruments
  • Latest indicators suggest considerably worse outlook
  • Necessary containment measures are adversely affecting activity
  • Growth moderated before the virus outbreak in manufacturing
  • Growth expected to regain traction in medium-term
  • Sees 2020 growth at 0.8% vs 1.1% but numbers pre-date coronavirus
  • Risks skewed ‘clearly’ to the downside for 2020 notably and also for 2021
  • Sees 2021 growth at 1.3% vs 1.4% prior
  • 1.4% in 2022 vs 1.4% prior
• The World Goes into Shut-down – First it was China which shut large parts of the country down, then it was Italy, South Korea and Japan, now all European countries are starting to shut down parts too. Ireland officially announces closure of schools and limit mass gatherings due to coronavirus. Irish prime minister, Leo Varadkar, announced:
  • Schools, universities to be closed from this evening to 29 March
  • To limit mass gatherings and indoor gatherings
  • Shops, cafes can stay open but should look at how to operate social distancing

US Session

• US Unemployment Claims – The initial claims continue to show strength, but the market is expecting those numbers to expand going forward as businesses shut down. The sports world is leading the way. There are a lot of employees that will be out of work who work at arenas across the country.
  • initial jobless claims 211K vs 220K estimate
  • 4-week average 214K vs 213K last week
  • continuing claims1722K vs 1733K estimate
  • 4-week average 1727K vs 1721.25K last week
• US PPI Inflation Report – The US PPI (producer price index) report was released a while ago. PPI inflation has been increasing lately, coming up at 0.5% in January, but the decline in crude Oil prices has turned PPI negative.
  • US February PPI -0.6% m/m vs -0.1% expected
  • January stood at +0.5%
  • PPI YoY +1.3% vs +1.8% expected
• Coronavirus Cases –
  

  Country, Other	Total Cases	New Cases	Total Deaths	New Deaths	Total Recovered	Active Cases	Serious, Critical	Tot Cases/ 1M pop
  China	80,796	+18	3,169	+11	62,826	14,801	4,257	56.1
  Italy	12,462		827		1,045	10,590	1,028	206.1
  Iran	10,075	+1,075	429	+75	3,276	6,370		120.0
  S. Korea	7,869	+114	66	+6	333	7,470	54	153.5
  Spain	3,003	+726	84	+29	189	2,730	126	64.2
  Germany	2,502	+536	5	+2	25	2,472	9	29.9
  France	2,281		48		12	2,221	105	34.9
  USA	1,380	+79	38		15	1,327	10	4.2
  Switzerland	867	+215	6	+2	4	857		100.2
  Norway	713	+84			1	712		131.5
  Diamond Princess	696		7		325	364	32
  Japan	643	+4	16	+1	118	509	26	5.1
  Sweden	635	+135	1		1	633	2	62.9
  Denmark	615	+101			1	614	2	106.2
  Netherlands	614	+111	5		2	607	1	35.8
  UK	590	+130	10	+2	18	562		8.7
  Belgium	399	+85	3		1	395	2	34.4
  Austria	302	+56	1	+1	4	297	1	33.5
  Qatar	262					262		90.9

Trades in Sight

Bearish EUR/USD

• The main trend is still bearish
• The retrace up is complete
• The 100 SMA acting as resistance
• The ECB will increase stimulus

EUR/USD reversed at the 100 SMA

EUR/USD made quite a climb in the last two weeks, despite the outbreak of coronavirus in Europe, particularly in Italy. Italian economy has been shut down and the rest of Europe will follow, which will hurt the economy and probably put it in recession, so the climb seemed strange. But, the climb ended at the 100 SMA (green) on the weekly time-frame chart. Buyers pushed above that moving average for a while, but that doesn’t quite count as a break, since the candlestick didn’t close above it. So, EUR/USD failed to break the 10 SMA and it seems like buyers gave up. After all, it was a respectable retrace, climbing from 1.07 lows to 1.15.

But, the price reversed on Monday this week and it has been going down since then. Today, the decline picked up considerable place, after the ECB announced it would increase QE by 120 billion Euros/month and announce new LTRO. The USD has also played a part in this, since it has been strengthening considerably today, so we have a bearish bias for this pair.

In Conclusion

There wasn’t much panic today, but the sentiment remained negative after US President Donald Trump decided to close flights with Europe. Stock markets continue to decline, but safe havens have also turned lower. The Euro is the biggest loser though, after the ECB decided to increase the stimulus package.