11-Feb-2020

1) Dollar trades mixed on risk aversion
2) USD/JPY bulls stepping in as USD remains in demand, 110 handle targeted
3) Gold reports losses as equities trade in the green
4) WTI Price Analysis: Pierces three-day-old resistance trendline

1) Dollar trades mixed on risk aversion

The greenback ended mixed against its major G4 peers on Monday as fears about the coronavirus spreading triggered risk-aversion. Euro fell across the board following last week’s poor eurozone data together with political uncertainty in Germany.

Versus the Japanese yen, although dollar initially fell to session lows at 109.57 ahead of Asian open, price found renewed buying and rallied to intra-day high of 109.87 in Asian morning on cross-selling in jpy and later moved narrowly in New York session with a soft bias due to falling U.S. Treasury yields before moving sideways.

Although the single currency found renewed buying at 1.0943 in New Zealand and recoevred to 1.0957 in Asia, price met renewed selling and dropped to 1.0945 in European morning. Intra-day fall later accelerated in New York morning and the pair tanked to a fresh 4-month low at 1.0909 due to broad-based selling in euro on political uncertainty in Germany.

Reuters reported Annegret Kramp-Karrenbauer, leader of Chancellor Angela Merkel’s Christian Democrats (CDU), on Monday confirmed she would not run for chancellor in next year’s federal election but added that she would remain party chair until another candidate is found.    Kramp-Karrenbauer told a news conference that she would remain defence minister until the end of this legislative period, which is due to run until autumn 2021. She said she did not believe her decision would not impact the stability of Merkel’s ruling coalition with the Social Democrats (SPD).

On the data front, Reuters reported investor morale in the euro zone fell for the first time in four months in February over fears that China will not be able to contain the coronavirus outbreak, a survey showed on Monday.    Sentix’s index for the euro zone fell to 5.2 from 7.6 in January. The Reuters consensus forecast was for a fall to 4.1.    The slight drop reflects the fact that investors think the economic damage from the novel virus has been mostly limited to China, said Sentix chief Manfred Huebner, adding that the global economy was getting impetus from the United States.

The British pound went through a volatile session. Although cable traded with a firm bias in Asia and gained to 1.2908 in Asia, price then dropped to +a 10-week low at 1.2873 shortly after European open on continued concern over EU-UK trade talks. However, the pair then erased its losses and rallied to session highs of 1.2946 at New York open on active cross-buying in sterling before retreating in tandem with euro to 1.2907.

Reuters reported Scotland is already taking steps to hold a referendum on independence and believes it is a matter of when rather than if the country separates from the rest of Britain, Scotland’s First Minister said on Monday. “We should agree a process between ourselves and the UK government for a referendum in line with the clear mandate given by the people of Scotland,” Nicola Sturgeon told a conference in Brussels on her first foreign trip since Britain left the European Union.    “We are taking in Scotland the steps required to ensure that a referendum can be held that is legal and legitimate so the result can be accepted and agreed both at home and internationally,” she continued, adding one such step was testing the potential question to put to voters.

2) USD/JPY bulls stepping in as USD remains in demand, 110 handle targeted

USD/JPY ranged between 109.65 and 109.85 overnight and is currently trading between 109.81 in a tight range ahead of major events. The market remains in a risk-off mode which is supportive of the yen, but the US dollar is taking up the flack overall with solid data and the coronavirus.

Before getting into the latest developments of the virus, there is a major focus again on US yields and the Federal Reserve this week. The US 2-year treasury yields fell from 1.41% to 1.38%, while the 10-year yields moved from 1.59% to 1.55%. Markets have been pricing a 10% chance of easing at the next Fed decision on 18 March, and a terminal rate of 1.12% (vs Fed’s mid-rate at 1.63% currently), as noted by analysts at Westpac. While stock markets remain solid, with the US benchmarks rising to new highs, there is an underbelly of discontent in the bond markets which could be a warning that investors are complacent still. Gold prices are another telling sign that despite the rise in equities, prices there are rising as well.

For the US dollar, this is probably good news as it is usually considered as the cleaners of shirty shirts in the laundry basket at times of risk-off and considering its recent run of positive data, there could still be upside to come yet. Overnight, Fed governor Bowman said the economic backdrop looks “very favourable”, and that the economy should continue to grow at a moderate pace, with low unemployment, and an expected rise in inflation to its 2% target.

3) Gold reports losses as equities trade in the green

Gold is reporting losses in Asia amid gains in equities and could snap the four-day winning streak on sustained strength in the dollar index.

The yellow metal is currently trading at session lows near $1,567, representing a 0.25% loss on the day. Prices have dived below the trendline rising from Feb. 5 and Feb. 6 lows, as seen on the hourly chart, signaling an end of the bounce from recent lows below $1,550.

While gold is losing ground, the equities are showing signs of risk reset. At press time, the futures on the S&P 500 are reporting a 0.3% gain and major Asian indices like Hang Seng and Kospi are adding over 1%. The Shangai Composite index is also gaining 0.55%, however, Japan’s Nikkei is reporting moderate losses.

The dollar index, which tracks the value of the greenback against majors, rose to 98.88 during Monday’s US trading hours. That was the highest level since Oct. 10. Notably, the US dollar has risen from 97.37 in a near-90 degree rally over the last six trading days.

Gold, therefore, may have a tough time extending its four-day winning streak. The metal closed on a positive note for the fourth straight day on Monday.

4) WTI Price Analysis: Pierces three-day-old resistance trendline

WTI trades 1.2% positive to $50.35 during the early hours of Tuesday. In doing so, the black gold breaks a short-term falling trend line stretched from Friday.

As a result, the quote is likely rising towards 23.6% Fibonacci retracement of its fall from January 29 to February 04, at $50.60.

However, a confluence of 200-bar SMA, a descending trend line since January 29 and 38.2% Fibonacci retracement could challenge the bulls around $51.30, if not then the current month’s top near $52.30 will be their favorite.

Meanwhile, the energy benchmark’s drop below the latest lows surrounding $49.50/40 could recall December 26, 2018 top near $47.00.