20-Mar-2020

1) EUR/USD: Getting More Bearish
2) Financial Markets Smelled Of Cordite
3) The Scramble for Dollar Continued At Pace Overnight

1) EUR/USD: Getting More Bearish

EUR/USD continues its bearish journey on the daily chart. The pair had another bearish day yesterday. Yesterday’s candle breached the last lowest low and closed well below it. Thus, the pair may continue its bearish journey in the coming days. The H4 and the H1 chart suggest that the sellers may go short below yesterday’s lowest low and drive the price towards the South further.

The daily chart shows that the price upon finding its resistance at the 1.14500 level has been heading towards the South. Yesterday’s daily candle breached the 1.07825 level and closed below it. The sellers on the daily chart may wait for the price to consolidate and produce a bearish engulfing candle closing below consolidation support to offer them a short entry. If that happens, the pair may head towards the level of 1.03400 with extreme bearish momentum.

The H4 chart shows that after being bearish, the price has found its support at the level of 1.06570. It has been on consolidation. The level of 1.07845 may work as consolidation resistance. If the level produces a bearish reversal candle, the sellers may go short below the level of 1.06570. The price may find its support at the level of 1.04625. Since the daily chart is bearish, the H4 sellers may consider taking partial profit and let the rest of the trade run to grab more pips. On the contrary, if the price makes a breakout at 1.07845 upon producing a bullish reversal, the H4 buyers may push the price towards the level of 1.09495.

The H1 chart shows that upon finding its support at the level of 1.06570, the price has headed towards the North. As of writing, it is trading around the level of 1.07440, which is a flipped resistance. The level may produce a bearish reversal candle. The sellers may go short below the level of 1.06570. In case of a bullish breakout at the 1.07440 level, the price may find its next resistance at 1.08820.

The H4 and the H1 chart are more bearish biased, but they make a little bullish move. However, the daily chart had made a significant bearish breakout. Thus, the pair may remain bearish in the coming days.

2) Financial Markets Smelled Of Cordite

The air above the world’s financial markets smelled of cordite and rang loud with the sound of artillery rounds, as fiscal and monetary bazookas kept up their barrage overnight. The Federal Reserve announced more US Dollar swap agreements with other central banks to alleviate the greenback shortage around the world. The US Senate is working on a follow-up one trillion-dollar stimulus plan and the Bank of England reiterated its do whatever it takes while trimming 15 basis points of its reference rate, dropping it to 0.10%.

That didn’t stop the US Dollars surge overnight, as the greenback crushed all before it under its tank tracks. The surge in US interest rates in the longer-tenors, and the ensuing rise in the Dollar, has sent shivers through emerging markets who have loaded up on Dollar-denominated debt in the past years. Falling currencies and an economic recession mean those payments will become increasingly hard to make in the months to come.

For now, though, the shoulder-launched artillery barrage from the worlds’ central banks and government treasuries seems to have stopped the rot sweeping the global economy for now. Markets enjoyed a relatively quiet, by recent standards, overnight session, with equities stabilising in particular. It should be noted though, we are only at the beginning, and not the end of the coronavirus recession, and the repricing of asset classes to the new reality, likely, still has a long way to run.

Most concerning to me currently is that the US Federal Government still has a headless chicken look about it with regards to its on-the-ground coronavirus response. That job seems to have been sub-contracted to state and local governments. President Trump appears to be devoting more energy to blaming China for the whole mess, instead of dealing with the problem in front of him in the hear and now.

Blaming China can wait until the election campaign. President Trump did spur a record 25% rise in oil prices overnight, after stating that at some stage, he might try to get Saudi Arabia and Russia back to the oil negotiating table. Thoughts of what an unholy Trinity around a table that would be aside, it is also essential to put the oil price jump overnight in context as well. Oil prices have collapsed, 25% of not a lot, is still not a lot.

Somewhat surprisingly, China has left its one and five-year Loan Prime Rates unchanged this morning at 4.05% and 4.75% respectively. It is unlikely to be overconfidence, rather an acceptance that direct fiscal stimulus measures will be more effective in China at this point. Companies don’t have a borrowing problem; they have a demand problem. Chinese authorities may also be aware that although new coronavirus cases in China have plunged, for now, they may want to keep some ammunition in reserve if a second wave occurs.

Overall, Asia looks like it will enjoy the respite granted by Wall Street overnight, easing into the weekend. We should all enjoy it while we can.

3) The Scramble for Dollar Continued At Pace Overnight

The scramble for Dollars continued at pace overnight, with the greenback crushing all before it and the dollar index rising a mammoth 1.60% to 102.80. Part of the Dollar’s strength is reflected by the desperation for Dollar funding internationally. Much of it though, reflects its status as a liquid haven, as evidenced by the 4-week, and 8-week bill auctions overnight, where yields plunged to 0.03%. Investors are clearly still moving into cash and parking it in the very short end of the US yield curve. That is unlikely to change anytime soon.

The EUR/USD fell 2.0% overnight to 1.0690, an astonishing fall from grace, given that is was testing 1.1500 11 days ago. EUR/USD has traced out a double bottom at 1.0650 which offers initial support. Such has been the velocity of the fall though, that a decent short squeeze is not out of the question from here. EUR/USD is already up over 50 points this morning.

The same can be said for the GBP/USD, which touched 1.1400 overnight, a post-Brexit low. The squeeze is already in full swing today in Asia as equities enjoy a respite, GBP/USD has risen by 1.45% to 1.1645, and it would not surprise me in the least, if we saw it trade back to 1.1800, such was the rapidity of its collapse.

Having traded to multi-year lows yesterday, both Antipodeans commenced their comeback yesterday after the RBA came out with its own “whatever it takes” and said intervention wasn’t off the table. AUD/USD is 2.0% higher this morning, rising to 0.5860 today, having traded as low as 0.5500 yesterday. Again, it would be of no surprise if the AUD/USD made its way back to 0.6000 before the week’s end. The NZD/USD has risen 1.40% to 0.5750 today, having traced a low of 0.5460 only 24 hours ago. The squeeze still has the potential to carry the flightless bird back to the 0.5900 regions, after the panic sell-off yesterday.

USD/JPY climbed from 108.00 to a high of 111.35 in the last 24 hours, before easing all the way back to 110.15 this morning. A Nikkei 225 stubbornly in the red this morning is likely to limit further moves lower in USD/JPY for now. It should find some support at 108.50, but Japanese Yen, more than most, looks vulnerable still to further losses against the greenback.

The strength of the US Dollar and Chinese Yuan in Singapore’s NEER basket, has seen the SGD remain weak, even as other major currencies stage strong short squeezes. USD/SGD remains near its highs, trading at 1.4500 this morning. With the PBOC controlling Yuan weakness, and the US Dollar the destination of choice for investors globally, any gains from here will be limited for the SGD. More than likely, a period of consolidation beckons around this region for USD/SGD.

Dollar strength is likely to reassert its dominance, once the correction of the panic selling has run its course. That applies equally to the major currencies, but most especially emerging markets; where the Dollar shortage will remain a serious issue in the months to come.