While China’s Wuhan coronavirus outbreak remained a major focus last week and triggered much volatility. But overall, stocks investors seemed not too bothered, with US indices continuing record runs. Other major markets are mixed only FTSE and Nikkei ended the week lower only. Gold closed higher but is well short of 1600 handle. WTI crude oil also recovered after repeated testing 50 handle.
In the currency markets, weakness in Euro is overwhelming. A major concern is that the coronavirus outbreak could kill the already weak Eurozone recovery early. In particular, the export-led German economy could face renewed recession risks. There were also some speculations that ECB could be forced to cut interest rate cut in the latter half of this year. Upcoming February PMI released from Eurozone could reveal how far sentiments were hurt. Weakness in Euro also dragged down Swiss Franc. While Dollar index extended recent rise, the greenback actually ended as the third weakest together with Yen.
Wuhan coronavirus outbreak continues, next two weeks crucial to world economies
China’s Wuhan coronavirus remained a major theme in the markets and would continue to be so for the near term. Confirmed cases in China exceeded 68,500, partly due to a change in counting method. Death tolls also top 1,600. Globally number of cases in Japan surged pass 355, mainly because of the hundreds of cases in the Diamond Princess liner. Singapore came second at 67 with Hong Kong at 56. Fourth death outside of China was record in France, first outside Asian, in addition to one Hong Kong, Japan and the Philippines.
Global supply chain disruptions could continue as the Hubei province, an industrial center, remains locked-down. Factories in other provinces are still struggling to resume production too. IMF Managing Director Kristalina Georgieva warned that the next two weeks will be crucial in determining the economic impact of the coronavirus. The reopening of factories would give a “better understanding on the resilience of China and on that basis, the spillover for the rest of the world”.
Dollar index heading to 99.66 but beware of topping there
Dollar index’s rise from 96.35 extended to as high as 99.16 last week. Further rally is expected as long as 98.18 resistance turned support holds, for 99.66 key resistance next. At this point, outlook in Dollar in general is a bit mixed, and the rally in Dollar index is mainly attributed to broad based weakness in Euro. USD/JPY’s rally is somewhat capped below 110.28 near term resistance. AUD/USD lost some downside momentum while USD/CAD lost upside momentum too. Hence, we’d be cautious on topping at around 99.16 to bring another fall to extend range trading.
EUR/CAD resumes medium term down trend as selloff intensifies
Talking about Euro, both EUR/USD and EUR/CAD resumed medium term down trend last week. The outlook in EUR/CAD is rather bearish with prior recovery limited comfortably below 55 week EMA. Long term trend line support is also taken out firmly already. Structure of the fall from 1.6151 (2018 high) so far argues that it’s a corrective move. Yet, further decline is expected in the medium term, as long as 1.4719 resistance holds. Next target is 1.3782 support zone, 61.8% retracement of 1.2126 (2012 low) to 1.6151 at 1.3664.
EUR/USD Weekly Outlook
EUR/USD dropped to as low as 1.0827 last week and break of 1.0879 low confirms down trend resumption. Initial bias remains on the downside this week for 161.8% projection of 1.1172 to 1.0992 from 1.1095 at 1.0804 next. On the upside, above 1.0888 minor resistance will turn intraday bias neutral and bring consolidations first. But recovery should be limited by 1.0992 support turned resistance to bring fall resumption.
In the bigger picture, down trend from 1.2555 (2018 high) has just resumed and prior rejection by 55 week EMA affirms medium term bearishness. Sustained break of 78.6% retracement of 1.0339 (2017 low) to 1.2555 at 1.0813 will pave the way to retest 1.0339 low. For now, outlook will remain bearish as long as 1.1239 resistance holds, in case of strong rebound.
In the long term picture, outlook remains bearish for now. EUR/USD is held below decade long trend line that started from 1.6039 (2008 high). It was also rejected by 38.2% retracement of 1.6039 to 1.0339 at 1.2516 before. A break of 1.0039 low will remain in favor as long as 55 month EMA (now at 1.1512) holds.