Analytics, News, and Forecasts for CFD Markets: currency news — 12-03-2020.

• Says he is not invoking emergency powers at this time

• Working with states on specific gathering restrictions
• Says he did not consult with Europe prior to travel ban
  
• UK was excluded from travel restrictions because they are doing a "good job" combating the virus
• Hopes he can lift China travel restrictions very soon
• Believes that markets will bounce back in big way

• House Democrats' bill proposes to increase sick leave and unemployment insurance, and to give free access to COVID-19 testing
  
  

FXStreet reports that economists at Rabobank believe that, given the current market panic and the slow progress in effective policy measures by the federal government, the FOMC is likely to decide to cut the lower bound of the target range for the federal funds rate back to zero this month.

“Our baseline forecast is now a 100 bps rate cut at the end of the March 17-18 meeting of the FOMC. However, we do not rule out an emergency cut prior to that meeting.” 

“If the Fed will have cut by less than 100 bps on March 18, we expect they will be forced to go to zero later in March.” 

“In the coming months we may also see the start of another round of quantitative easing.”

Carsten Brzeski, Chief Economist ING, notes the ECB just announced its first package to tackle the latest market turmoil and the economic fallout of Covid-19.

"What did the ECB decide? First of all, all interest rates remained unchanged. The ECB mainly focusses on providing additional liquidity and stabilizing markets by additional QE. In more details:

• The ECB announced additional long-term refinancing operations, at the average deposit rate
• The ECB will conduct a new kind of targeted longer-term refinancig operations aimed at bank lending to SMEs. These TLTROs will be conducted under even more favourable conditions than previous TLTROs. The TLTROs will be priced at the repo rate minus 25bp. If the banks keep their SME lending portfolio stable, the TLTROs will be priced at the deposit rate minus 25bp. In previous TRLTOs, banks had to show an increase of their lending portfolios.
• The ECB announced an additional 'envelope' of 120bn of net asset purchases until the end of the year.

The brief times in which ECB watchers could discuss the motive of ECB president Lagarde's brooch are over. The wise owl is all of a sudden confronted with a multi-layered shock: an unprecedented combination of supply-side and demand-side shock, together with financial market turmoil and the increased risk of a negative feedback loop back into the real economy. At the same time, however, the ECB is also well aware of negative side-effects of its monetary policy stance and more general the fact that there it has almost run out of ammunition.

Today's measures are an attempt to tackle market turmoil and support the economy. In a targeted manner and not with a 'whatever-it-takes' attempt. "

FXStreet reports that analysts at Nordea note the ECB announced a package of measures to shield the Euro area economy from the impact of the covid-19 virus, but left rates unchanged.

“The ECB did not deliver the rate cut that markets were anticipating and did not alter the forward guidance.”

“The initial market reaction was surprisingly muted, given the high expectations and the broad range of options the ECB had at its disposal. Equity prices fell, the EUR strengthened and longer bond yields fell.”

“President Lagarde will give her comments on the decision in the press conference at 14:30 CET, and further details on the new operations are published in press releases at 15:30 CET. Volatility in financial markets is likely to stay elevated during Lagarde’s press conference.”

• Says coronavirus is a major shock
• Even if temporary, virus will have significant impact on activity
  
• Calls for help from fiscal authorities
• Says governments, policy institutions need to take timely, targeted action
  
• Says ambitions, coordinated fiscal policy response needed
• ECB measures will help smooth provision of credit
• ECB stands ready to adjust all instruments
  
• ECB is determined to support households and firms
  
• Latest indicators point to a considerable worsening of the economic 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%, down from 1.1% seen in December, but numbers pre-date coronavirus
• Sees 2021 growth at 1.3%, down from 1.4% seen in December
• Sees 2022 growth at 1.4%, unchanged from December
• Sees 2020 inflation at 1.1%, unchanged from December
• Sees 2021 inflation at 1.4%, unchanged from December
• Sees 2022 inflation at 1.6%, unchanged from December

The European Central Bank (ECB) remained its main refinancing rate unchanged at 0.00 percent on Thursday but announced additional longer-term refinancing operations (LTROs) and a temporary envelope of additional net asset purchases of EUR120 billion.

In its policy statement, the ECB said:

• Additional longer-term refinancing operations (LTROs) will be conducted, temporarily, to provide immediate liquidity support to the euro area financial system;
• Considerably more favourable terms will be applied to TLTROs during period from June 2020 to June 2021;
• Rates on new TLTROs will be 25 basis points below the average rate applied in the Eurosystem's main refinancing operations;
• The maximum total amount that counterparties will henceforth be entitled to borrow in TLTROs is raised to 50% of their stock of eligible loans as at 28 February 2019;
• A temporary envelope of additional net asset purchases of €120 billion will be added until the end of the year, ensuring a strong contribution from the private sector purchase programmes;
• Governing Council continues to expect net asset purchases to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates;
• Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.
  
  

The Labor Department reported on Thursday the U.S. producer-price index (PPI) fell 0.6 percent m-o-m in February, following an unrevised 0.5 percent m-o-m gain in January. That was the biggest monthly decline in producer prices since January 2015.

For the 12 months through February, the PPI increased 1.3 percent, decelerating from 2.1 percent in the previous month.

Economists had forecast the headline PPI would decrease 0.1 percent m-o-m but climb 1.8 percent over the past 12 months.

According to the report, 60 percent of the February decline in the final demand index can be traced to a 0.9-percent m-o-m decrease in prices for final demand goods. Meanwhile, the index for final demand services fell 0.3 percent m-o-m.

Excluding volatile prices for food and energy, the PPI dropped 0.3 percent m-o-m and surged 1.4 percent over 12 months. Economists had forecast gains of 0.1 percent m-o-m and 1.7 percent y-o-y, respectively.

The data from the Labor Department revealed on Thursday the number of applications for unemployment benefits unexpectedly decreased last week, indicating the labor market remains strong even as the coronavirus outbreak starts to weigh on economic activity.

According to the report, the initial claims for unemployment benefits fell by 4,000 to a seasonally adjusted 211,000 for the week ended March 7.

Economists had expected 218,000 new claims last week.

Claims for the prior week were revised downwardly to 215,000 from the initial estimate of 216,000.

Meanwhile, the four-week moving average of claims rose by 1,250 to 214,000 last week.

FXStreet notes that Canada's Prime Minister Justin Trudeau announced first steps to help mitigate the impact of the rapidly spreading novel coronavirus (COVID-19). Colin Guldimann, an economist at the Royal Bank of Canada (RBC) describes the measures. 

“The federal government will allocate a little over $1 billion, largely devolved to the provinces and territories, and targeted to the health care system.” 

“We hope the government will announce funding and outline parameters for which firms would qualify in the upcoming budget, in recognition of the already meaningful economic impact the virus is having.”

“The Prime Minister suggested that the government would do more if needed. We hope to see an outline of what additional steps they plan to take, and a more significant scale of economic support, when the budget is tabled in the coming weeks.”

USD traded mixed against its major rivals in the European session on Thursday (it fell against EUR and JPY, but rose against the rest of major rivals) after the U.S. president Donald Trump announced a 30-day ban on travelers to the United States from Europe as part of the government’s response to the coronavirus outbreak. This disappointed market participants, who counted for a coordinated global policy response to curb potentially slower economic growth stemming from the coronavirus, and fueled fears of a global recession caused by widespread economic disruptions. 

Trump's Europe travel ban combined with the continued uncertainty surrounding the U.S. fiscal stimulus package to combat coronavirus impacts prompted money markets to bet on further aggressive easing by the U.S. Federal Reserve. 

Traders are now expecting the Fed to cut its interest rates by another 100 basis points at next week's meeting after a 50-basis point reduction last week.

FXStreet notes that with investor sentiment under intense pressure again after Trump's address overnight, the focus turns to Thursday's crucial ECB meeting. Analysts at TD Securities look at the EUR/JPY pair, which is trading at 116.33, and establish the key levels to watch. 

“We think it will be very difficult for EU policymakers to deliver the kind of coordinated and comprehensive action we saw from the UK this week.” 

“We expect a somewhat counterintuitive move in EUR in response to this disappointment, however.” 

“We are monitoring key support at 115.87. A break lower would target a move through 114.85 ahead of a potential test of 112.09 in the days ahead if sentiment deteriorates further.”

Chris Turner, Global head of markets at ING, thinks that President Trump’s prime time address has failed to calm asset markets. 

"Instead of a European travel ban, investors were looking for a co-ordinated policy response to soften the economic fallout of Covid-19."

"The lack of global policy co-ordination (and hints of US nationalism) look likely to weigh further on equities as Covid-19 cases continue to rise sharply in Western Europe and the US."

"Financial measures of stress are hitting extremes too. The 3m USD FRA-OIS spread has widened to levels last seen in 2009 and the US energy sector is very much under scrutiny, with high yield CDS widening sharply. It feels as though the Federal Reserve will have to be very aggressive next week in taking the policy rate closer to zero and seriously considering re-starting quantitative easing."

"Capital preservation should be the priority through March, which favours core sovereign yields staying very low, high yield and commodity FX under pressure and a continued flight to safety into the Japanese yen and Swiss franc – given that Fed QE could easily and deliberately weaken the dollar. DXY looks a sell at 96.60/97.30."

FXStreet reports that after rebounding in the second half of 2019, the housing market in New Zealand started 2020 on a solid footing, economists at ANZ Research reports. NZD/USD trades at 0.6244.

"House prices rose a strong 2% m/m in February, to be up 8.6% y/y."

"With a significant global demand slowdown in train, it's hard to see strength in the housing market persisting for long."

"We now see a domestic recession as highly probable, with flow-on impacts to incomes and sentiment expected to weigh on the housing market into the middle of this year."

FXStreet reports that USD/CNH is likely to keep the range bound theme for the time being, suggested FX Strategists at UOB Group.

24-hour view: "Our expectation for USD to 'edge higher to 6.9800' did not materialize as it touched 6.9696 before ending the day little changed at 6.9689 (+0.08%). However, USD extended its advance after NY close and from here, USD is expected to strengthen towards 7.0000. For today, a sustained rise above this level appears unlikely. Support is at 6.9620 followed by 6.9500."

Next 1-3 weeks: "The rebound from Monday's (09 Mar) low of 6.9050 has been faster and more robust than expected. While our 'strong resistance' at 6.9700 is still intact (overnight high of 6.9668), the price action indicates that the weak phase that started in late February has found a short-term bottom at 6.9050. From here, USD is deemed to have moved into a consolidation phase and is expected to trade sideways for a period, likely between 6.9200 and 7.0000."

According to the report from Eurostat, in January 2020 compared with December 2019, seasonally adjusted industrial production rose by 2.3% in the euro area (EA19) and by 2.0% in the EU27. Economists had expected a 1.4% increase in the euro area. In December 2019, industrial production fell by 1.8% in the euro area and by 1.6% in the EU27.

In January 2020 compared with January 2019, industrial production decreased by 1.9% in the euro area and by 1.5% in the EU27. Economists had expected a 3.1% decrease in the euro area.

In the euro area in January 2020, compared with December 2019, production of intermediate goods rose by 3.2%, capital goods by 2.6%, non-durable consumer goods by 0.8% and durable consumer goods by 0.7%, while production of energy fell by 0.1%. In the EU27, production of intermediate goods rose by 3.2%, capital goods by 2.1%, durable consumer goods by 1.1%, non-durable consumer goods by 0.7% and energy by 0.1%.

In the euro area in January 2020, compared with January 2019, production of energy fell by 6.7%, intermediate goods by 2.3% and capital goods by 1.9%, while production of non-durable consumer goods rose by 1.3% and durable consumer goods by 2.6%. In the EU27, production of energy fell by 5.8%, capital goods by 2.0% and intermediate goods by 1.5%, while production of non-durable consumer goods rose by 1.5% and durable consumer goods by 2.6%.

Bloomberg reports, citing people familiar with the matter, that the BOJ will likely expand its stimulus measures at its policy meeting next week, with the central bank to show a more aggressive stance on ETF purchases.

BOJ is also likely to offer a set of measures including a loan program and adjust its purchases of corporate bonds to help firms. As for negative rates, the sources said that it is unlikely the BOJ will pursue that without sharper deterioration in markets.

• Russia has not had contact with US President Trump on oil price

FXStreet reports that UK monetary and fiscal authorities announced coordinated measures to cushion the economic blow from the coronavirus outbreak but economists at ABN Amro judge that more measures will likely be needed to combat the coronavirus fallout, both on the monetary and the fiscal front.

"We expect the Bank of England to restart QE as its next step. Previously, we had expected this to happen in April, but with the 50bp cut coming earlier, we now expect this to happen at the 26 March scheduled MPC meeting."

"On the fiscal front, we judge that the government's 2020 GDP growth projections are overly optimistic, at 1.1% (ABN AMRO: 0.8%, with downside risks), and that as the economic fallout intensifies, additional measures will become necessary."

CNBC reports that President Donald Trump announced that a ban on travelers to the United States from Europe would be in place for the next 30 days, in an attempt to stem the spread of the coronavirus pandemic.

Calling coronavirus a "foreign virus," Trump attacked Europe for not taking the same actions to control the disease that he had. "As a result" of Europe's inaction, Trump said, "a large number of clusters" of coronavirus "were seeded by travelers from Europe."

Trump also announced that he would ask Congress for legislative action to provide payroll tax relief, as well as other measures for several groups impacted by the virus.

In addition to legislation, Trump said he would instruct the Small Business Administration to "provide capital and liquidity" to small businesses.

Trump said the ban would apply only to countries in the Schengen economic and travel zone, and that the United Kingdom and Ireland would be exempted. He also later clarified in a tweet that cargo and goods would not be affected by the ban.

FXStreet reports that commodity prices remain at risk, weighing on NZD/USD, although the weaker USD will obscure the true impact, in the opinion of strategists at Westpac Institutional Bank.

"Although technically stretched, NZD/USD could have another go at breaking below 0.6200 during the week ahead if pandemic fears remain high."

"Commodities have fared poorly during the pandemic, clearly weighing on NZD/USD, although the sliding USD has provided some support."

"The RBNZ today reiterated, via an interview with Assistant Governor Hawkesby, that government action was far more important than monetary policy action."

CNBC reports that the price of oil is likely to fall "much lower from here," according to Bob McNally, who was energy advisor to former U.S. president George W. Bush.

The oil rout started on Monday, plunging over 20% following a disagreement on production cuts between OPEC and its allies. Russia declined to lower output last week, and Saudi Arabia announced Saturday that it will offer discounts to its official selling prices next month. The kingdom, the de facto leader of OPEC, is also planning to raise production, together with the United Arab Emirates.

Despite the market turmoil and resultant losses, Saudi Arabia will not cut production unilaterally, said McNally, founder of oil consultancy Rapidan Energy Group.

"Prices of oil are going much lower from here," said McNally told CNBC. "Everybody's got a pain point and we're going to go down and test it."

Oil prices are going to fall until they hit a "political-financial pain point" for Saudi Arabia or Russia - or if North American production is significantly curtailed, said McNally. He did not give a price forecast.

Prices will test a point well below Russia's break-even price - at 42.4 euros ($47.90) a barrel, said McNally.

FXStreet reports that investors are reluctant to add long positions on AUD/USD, in the opinion of Karen Jones from Commerzbank, who takes a look at the technical picture and set the targets for the AUD/USD pair.

"Dips lower should find initial support at .6433 for immediate upside pressure to be maintained. But it should be noted that the intraday Elliott wave count is neutral to negative and we cannot dismiss a possible retest of the .6312 low."

"To confirm the low is in place at .6312, a close above the .6671 October low is needed. This will alleviate immediate downside pressure and target the 200-day ma at .6824."

eFXdata reports that NAB Research discusses USD/JPY outlook and maintains a structural bearish bias.

"Our bias for a lower USD/JPY remains in place and moves over the past fortnights have vindicated our view that JPY is still the preeminent safe-haven currency. After trading above ¥112, the pair was due for a correction and the move lower has now accelerated alongside a deterioration in the global growth outlook and a fall in both global equities and US Treasuries yields," NAB notes.

"While the BoJ has run out of conventional policy ammunition, the Bank still has plenty of room to buy more EFTs and JREITs without breaching its ¥6trn and ¥90bn respective annual targets. At its meeting, we think the Bank will increase its ETF purchasing target alongside the introduction on new lending programs. If USD/JPY breaks below ¥100, then the risk of FX intervention increases and if the Fed slashes the funds rate by 50bps on March 18, then the BoJ may look to lower the deposit rate by 10bps to counter a dovish Fed," NAB adds.

FXStreet reports that FX Strategists at UOB Group noted EUR/USD could be losing some upside traction.

24-hour view: "Our view from yesterday was that 'there is room for EUR to move below the overnight low of 1.1273 but prospect for a break of the strong support at 1.1230 is not high'. Our expectation was correct as EUR dipped to 1.1256 before ending the day on a soft note (NY close of 1.1267). While downward momentum has not improved by much, the risk is for further EUR weakness towards 1.1230. A breach of this level would not be surprising but the next level at 1.1200 is a strong support and may not yield so easily. Overall, EUR is expected to stay under pressure unless it can recover above 1.1320 (minor resistance is at 1.1290)."

Next 1-3 weeks: "We highlighted yesterday (10 Mar, spot at 1.1410) that 'while there is no sign of a top just yet, EUR has to close above 1.1500 in order to indicate it has enough momentum to move to 1.1580'. We added, 'meanwhile, EUR could consolidate for a couple of days'. Instead of consolidating, EUR surrendered all of Monday's (09 Mar) strong gains as it plummeted to an overnight low of 1.1273. Upward momentum has been dented and EUR has to move and stay above 1.1390 within these 1 to 2 days or a break of 1.1230 (no change in 'strong support' level) would indicate that the rally that started in late February has found a top at Monday's high of 1.1496."

During today's Asian trading, the US dollar and the euro fell significantly against the yen. Concerns about the spread of the coronavirus remain on the market. Investors were also concerned about US President Donald Trump's decision to close entry to the US for 30 days for EU citizens amid the pandemic.

The ICE Dollar index, which shows the value of the dollar against six major world currencies, fell by 0.22% compared to the previous day.

Trump in his address to citizens announced the decision to ban travel from Europe to the country from March 13. He said that " exceptions will be provided for Americans who have passed the appropriate testing (for coronavirus)." "These restrictions will not apply to the UK," trump said.

Trump also announced financial support for small businesses and vulnerable segments of the population, as well as tax breaks in connection with the spread of the coronavirus in the country.

The World health organization on Wednesday declared a pandemic in connection with COVID-19. According to who criteria, a pandemic is the spread of a new disease on a global scale.

The Bank of England on Wednesday urgently lowered its benchmark interest rate by 0.5 percentage points to 0.25% from 0.75%, and unveiled a package of additional measures to help businesses and homeowners cope with the negative consequences of the spread of the coronavirus.

Australian authorities will spend 17.6 billion Australian dollars to support the economy in the face of the spread of the coronavirus, in an effort to prevent a recession.

Australian Prime Minister Scott Morrison said on Thursday that the stimulus measures include subsidies for small and medium-sized businesses, as well as support for the unemployed and pensioners. Earlier this week, the country's authorities announced $1.56 billion in health spending.

FXStreet reports that Rahul Bajoria, India economist at Barclays, believes that the Reserve Bank of India (RBI) cut rates by at least 65 basis points (bps) till June 2020.

"We sense that the RBI will need to reconsider large rate cuts, especially given steeply dropping energy prices, which will ultimately depress inflation in coming months.

While India's economy remains relatively closed and dependent on domestic demand, we continue to monitor downside risks from a rapidly evolving global backdrop.

We think rate cuts would have little impact on near-term activity without accompanying steps to keep liquidity conditions ample and possibly increased LTROs or even outright OMOs."

eFXdata reports that Bank of America Global Research discusses its expectations for ECB policy meeting.

"The ECB is in a very difficult position this week, in our view. The market reaction to the Fed shows that monetary policy is not the answer to COVID-19. The market has already priced an ECB cut and the EUR is strengthening, but we argue that more negative rates will be counterproductive, and in any case, the ECB policy ammunition is very limited. Lagarde has to follow up on her warning that the ECB is not on autopilot, but her options are very limited, in our view. It is hard for the ECB to surprise markets positively, and we see risks for a disappointment," BofA notes.

"An ECB rate cut is unlikely in our view, but cannot be ruled out, particularly given recent EUR strength. Monetary and fiscal policy tools cannot avoid the supply shock in 1H, but could help minimize persistent demand effects. That, to us, means changes to QE and/or LTROs from the ECB, including a handover of the responsibility for a policy response to fiscal. We run scenarios to estimate the scope for a temporary increase in QE purchases, depending on the ECB's reliance on private assets/temporary divergence from cap keys. Even if the ECB is to act, we would treat any EUR dip as an opportunity to buy," BofA adds.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1432 (2631)

$1.1408 (2604)

$1.1389 (3224)

Price at time of writing this review: $1.1289

Support levels (open interest**, contracts):

$1.1213 (437)

$1.1191 (717)

$1.1165 (842)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date April, 3 is 74111 contracts (according to data from March, 11) with the maximum number of contracts with strike price $1,1000 (4889);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3102 (1585)

$1.3066 (968)

$1.3032 (893)

Price at time of writing this review: $1.2783

Support levels (open interest**, contracts):

$1.2751 (2858)

$1.2729 (2289)

$1.2702 (1375)

Comments:

- Overall open interest on the CALL options with the expiration date April, 3 is 17671 contracts, with the maximum number of contracts with strike price $1,3200 (2564);

- Overall open interest on the PUT options with the expiration date April, 3 is 19335 contracts, with the maximum number of contracts with strike price $1,2900 (2858);

- The ratio of PUT/CALL was 1.09 versus 1.13 from the previous trading day according to data from March, 11

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.