Market Overview
And still the central bank monetary easing measures continue to come. After the remarkable shunning of an opportunity to act last week, the ECB has stepped up with an emergency €750bn of asset purchases. “The Governing Council will do everything necessary within its mandate”. The Reserve Bank of Australia has also cut rates to a record low of +0.25% overnight. The trouble is, financial markets simply look at these measures now with a view of “wow, how bad could it really become?”. Subsequently any intraday rallies on any risk assets are just continually getting smashed. Forex markets have just become a scene of carnage. Of the major currencies yesterday, sterling was sold off to multi decade lows against the dollar, and to it lowest levels since 2009 against the euro. The dollar is like a colossus in this market. As pretty much everything else is getting sold (equities, commodities, even Treasuries), the US dollar is the one asset that is attractive, even against the yen. The euro bounced initially after the ECB action, but even that is beginning to drift lower against the dollar again. Unfortunately, it would appear that central banks and governments can do “whatever it takes” but until markets can see light at the end of the Coronavirus tunnel, there is no way to see how dark the outcome will truly be. With that in mind, any hint of recovery continues to quickly be stamped out.
Wall Street managed to claw its way from session lows, but still closed sharply lower with the S&P 500 -5.1% at 2398. Furthermore, US futures are again lower today by -1.0% currently. Asian markets closed lower with the Nikkei and Shanghai Composite both -1.0%. European futures are tentatively higher early today but can it last? The flood of USD strength is once more a feature of forex markets into the European session. GBP continues its slump, whilst AUD and NZD are also the whipping boys after the RBA rate cut. Even JPY is struggling today. In commodities, there is still weakness in the gold price (albeit less pronounced), whilst after a rout of over -20% yesterday on oil, an intraday rebound is setting in, but for how long?
There is another central bank decision early on the economic calendar today with the Swiss National Bank monetary policy. The announcement is at 0830GMT which is expected to see no change to SNB monetary policy. The question is how significantly the SNB views CHF valuation, if it deems it to be “significantly overvalued” then markets will begin to expect intervention again. Into the afternoon the US data at 1230GMT will be interesting. The Weekly Jobless Claims may come with more interest than usual, as numbers could begin to increase now. Expectation of 220,000 is only slightly up from last week’s 211,000. The Philly Fed Manufacturing at 1230GMT is expected to deteriorate back to +9.5 (from 36.7) but given the sharp deterioration in the New York Fed data recently, a downside surprise is surely the risk. The US Current Account is at 1230GMT which is expected to see the deficit improving to -$109.0bn in Q4 2019 (from -$124.0bn in Q3).
There are no central bankers expected to speak today.
Chart of the Day – EUR/GBP
Sterling sold off to record levels against the dollar amidst huge strength in the greenback. However, the sterling woes did not end there as it is being sold across the spectrum of the majors. An enormous acceleration of sterling weakness against the Euro has driven EUR/GBP to through resistance at £0.9325 to levels not seen since 2009. The volatility of the selling has driven the RSI to all-time record levels at 88. Clearly this is stretched and overbought and at risk of a retracement, but volatility will remain huge. The upside pressure has continued early today and highs from early 2009 at £0.9490/£0.9520 are the only barrier between the all-time high of £0.9800. Today’s initial high is £0.9500. However, in terms of potential retracements from overbought, given the volatility, if one sets in, the move could be sharp. A MACD bear cross on the hourly chart is threatening this morning and could at least be a signal of respite, even if this is just consolidation. Initial support is at £0.9325 (the breakout level) but a back below would open support on the hourly chart at £0.9195/£0.9275. More considerable support is at £0.9150.
Once more yesterday, we saw an initial stabilization of dollar during the Asian session resulting in a massive acceleration lower once the Europeans took hold. A huge bear candle with the market eyeing a full retracement back to $1.0775. For that reason, we need to view this morning’s early bounce as the European session approaches, with caution. On the daily chart, momentum of the move continues to extend lower, whilst also showing downside potential (especially on RSI and Stochastics), in addition to a recent bear cross on MACD. In the past month, the RSI has gone from being the most oversold (c. 21) since March 2018 (on the low at $1.0775) to the most overbought (c. 81) since 2008. Once more it is accelerating lower and there is little reason for 30 to limit moves right now. Yesterday’s low at $1.0800 is initial support, but intraday rallies continue to be sold into. The 76.4% Fibonacci retracement (of $1.0775/$1.1492) at $1.0945 is an initial basis of resistance, with the recent reaction low at $1.0955 adding to initial overhead supply. A close above $1.0950 would be a start for the bulls, but ideally a move above $1.1050 would come in a series of positive closes, not just one spike.
Oh sterling! Pick the bones out of that one. Utter carnage in a major currency such as sterling is extremely rare, but simply reflects what an absolute car crash financial markets have become right now. Breaking below $1.1957 support (effectively the post Brexit low, outside a flash crash of October 2016), Cable is now trading at levels not seen since the 1980s against the dollar. Desperately oversold technically (no massive surprise) but also significantly bearish too. With such enormous volatility, and no serious resistance until $1.1950/$1.2000 the market is open to a prospective retracement. On the plus side, yesterday’s low of $1.1460 survived an initial test overnight and incredibly, hourly indicators are suggesting a potential rebound today. A move above overnight resistance at $1.1665 actually would open the door towards $1.2000 (given there is no resistance of note). The question is though, who would trust a sterling rally right now? A close below $1.1460 and we are in round number territory, at $1.1000.
Even against the most safest of safe havens (the yen), the dollar is king. Volatility of intraday moves is still massively elevated, but the uptrend channel is holding firm and breaking higher. We still see a curious conformity to the Fibonacci retracements of the 112.20/101.20 sell-off. Yesterday’s low came around the 50% Fib at 106.70, whilst this morning, we have seen the rally turn back from the 23.6% Fib at 109.60 (today’s high is currently 109.55). Subsequently, having moved clear of the 38.2% Fib at 108.00 this is now a good basis of support. With the continuation of the channel in mind, we are buyers into weakness, and will remain so whilst the market remains supported above 106.70. A close clear of 109.60 opens a full retracement to 112.20. The hourly chart shows support initially at 107.70 and more considerable at 106.75.
Gold
We began discussing the potential for the end of the selling pressure on gold yesterday. An initial attempt at recovery faltered at $1553 before falling consistently during the session to leave yet another strong negative candle. However, coming into the European session today, there has been a pick up off the lows once more. There is still an appetite to support gold between $1450/$1465, but this is just a near term situation right now. How the bulls respond today will be interesting. The hourly chart shows that resistance has started to form between $1500 and the mini neckline at $1519 (turning into a pivot). If the bulls can mobilise and push through this resistance then the prospect of a recovery may not be so fanciful. Hourly momentum indicators are slightly encouraging but nothing yet to suggest a sustainable rebound though. Given how the market responded yesterday with renewed selling pressure, the risk remains to the downside and a breach of $1445 (the November low) would open the floodgates once more.
WTI Oil
The floodgates opened once more on oil yesterday. Once WTI broke the support at $26.05 which was the February 2016 low, the bottom fell out of the market. Oil is now at levels not seen since 2002. An intraday bounce from $20.05 prevented a move into the teens. However, below the psychological $20 level, the 2002 low at $17.90 is the next “meaningful” support, but a massive low at $16.70 comes in from 2001. The RSI is desperately oversold and has picked up from 15 this morning. Of course, after falling more than -20% in one session, there could be a volatile retracement today. Coming into the European session, WTI is almost +14% higher, but as yet this is hardly even scratching the surface. Given the hugely fast moving market, the move could unwind quickly but $26.05/$27.35 is now key overhead supply and resistance. There is little reason to believe that another rebound won’t simply be sold into.
We talked yesterday about the fact that one day rallies are failing to be turned into two. Gaps are never “closed” (and are often not even “filled”). Every time there is a rebound, the market is just smashed again. Technicals remain deeply negative, but we will live in hope that at some stage there will be a signal for recovery. Yesterday’s intraday rebound from 18,917 prevented a disastrous session (of -6.3%) from being a catastrophic one (-10.9% at the session low). We also hang to the fact that (very) old support at 19,668 held into the close. However, we see futures already down another -2.6% today and little let up for the bulls. Rallies remain an opportunity to sell. Resistance at 21,380 (Tuesday’s high) is now key.
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