EURUSD falls to new week low and below lower trend line

Falls below Thursday low at 1.11851. Close risk.

It was just a short two or so hours ago that the EURUSd was breaking higher above 1.12256 and running to the 100 hour MA (currently at 1.1255). The price stalled against that MA level (it did the same on Wednesday) and then fell back below the 1.12256 level again.
Falls below Thursday low at 1.11851. Close risk.
The selling has not let up as the clock ticked toward the London fixing at 11 AM ET/1600 GMT.  That took the price below the low from yesterday at 1.1185 and a lower trend line at 1.1178. The low reached 1.11673 and has since bounced back higher.
It’s Friday. It’s the 4 PM London fixing which can lead to increased volatility and liquidity issues. Nevertheless, the holding of the 100 hour moving average just a few hours ago and the subsequent fall continues to show that the bears are more in control. Resistance at the 1.1200 to 1.1206 area now.

Flood of Japanese money rushing to USD assets

Bloomberg report on Japanese investors, facing ongoing negative rates domestically, are buying dollars and risk assets

  • “The presence of the Japanese as the main carry trade driver seems to be growing as they must turn to overseas investments”
Demand for higher-yielding American assets growing
  • In April, Japan’s money managers bought the most U.S. corporate debt in eight years and the second-highest amount of equities in five years
  • “Japanese investors use yen to fund purchases of Treasuries or U.S. corporate bonds, for instance, to seek credit spreads and these flows are continuing,” said Koichi Sugisaki, a strategist at Morgan Stanley MUFG Securities Co. in Tokyo.
Check out USD/JPY … its net more or less unchanged, even a little lower, since November last year …. Without all the Japanese money leaving yen into USD it’d have to be lower I guess?
Bloomberg report on Japanese investors, facing ongoing negative rates domestically, are buying dollars and risk assets 

Dollar selling creeps in, S&P 500 futures higher

Risk on the theme

The new week is starting where the last one left off.
S&P 500 futures are up 0.5% to start the week after a massive rally in global equities last week, including +10% in some European equities.
Protests didn’t slow down the market last week and they aren’t having an effect today. In FX, the US dollar and yen are sagging, which is a classic risk-on stance.
So far the moves are modest with the commodity currencies up 15-20 pips. The pound was especially soft late in the day Friday but it’s got some life early, up 27 pips to 1.2695.

Bank of England looking more urgently at negative rates

The Bank of England is looking more urgently at options such as negative interest rates and buying riskier assets to prop up the country’s economy as it slides into a deep coronavirus slump, the BoE’s chief economist was quoted as saying.

The Telegraph newspaper said the economist, Andy Haldane, refused to rule out the possibility of taking interest rates below zero and buying lower-quality financial assets under the central bank’s bond-buying programme.

“The economy is weaker than a year ago and we are now at the effective lower bound, so in that sense it’s something we’ll need to look at – are looking at – with somewhat greater immediacy,” he said in an interview. “How could we not be?”

Top BoE officials have previously expressed objections to taking rates below zero – as the central banks of the euro zone and Japan have done – because it might hinder the ability of banks in Britain to lend and hurt rather than help the economy.

But with the BoE’s benchmark at an all-time low of 0.1% and Britain facing potentially its sharpest economic downturn in 300 years, talk of cutting rates to below zero has resurfaced.

Governor Andrew Bailey said on Thursday the BoE was not contemplating negative rates, but he declined to rule it out altogether.

ICYMI – US Senate moves to punish China on coronavirus

From the US afternoon, when equities and risk currencies dropped away …. or more accurately, continued to drop away …

US Senator Lindsey Graham, (persistent brown nose to Trump), weighing in yet again to try to cover up from the disastrous US fumbling of the crisis:
  • accused China’s Communist Party of deception over the virus
  • “I’m convinced China will never cooperate with a serious investigation unless they are made to do so.”
Graham proposed a “COVID-19 Accountability Act”
  • requiring China provide “a full and complete accounting to any COVID-19 investigation led by the United States, its allies or UN affiliate such as the World Health Organization
  • require certification that China had closed all wet markets
  • bill would authorize the president to impose a range of sanctions
all within 60 days.
It weighed on markets and there is a little more follow through in early Asia.

AUD/USD months-ahead view – below 0.59

  • outlooks for their respective main commodities, posing downside risks over the medium term
  • Oil prices have plunged over the past year, partly due to excess supply, but also due to a dire economic outlook
  • metals tend for follow (or co-move with) oil
  • iron ore prices have help up … mainly due to supply bottlenecks .. Once those have been cleared, there’s potential for iron to more closely reflect the deterioration in demand. So too for coal
For the AUD
  • multi-month, we hold a negative bias … targeting as low as 0.59. 

Goldman Sachs analyst on downside risk for US equities

Goldman Sachs’s chief equity strategist, David Kostin spoke Tuesday with CNBC

  • “There’s a little bit of asymmetry in terms of the downside risk toward a level in the S&P 500 of around 2,000, which is down almost 25%, and upside of around 10% to a target at the end of the year of 3,000”
Unpicking/deciphering that – he thinks lower is more likely.
  • important investors not get too keen to buy
  • during the 2008 financial crisis the market took several months of violent moves up and down before ultimately putting in a lasting bottoming on March 9, 2009
  • “I would just remind you that in 2008 in the fourth quarter there were many different rallies…but the market did not bottom until March of 2009” 

World Bank cuts global growth forecasts for 2019 and 2020

They see some upside risks as trade risks cool

  • Cuts 2019 to 2.4% from 2.6% (lowest since crisis)
  • Cuts 2020 to 2.5% from 2.7%
  • Cuts 2020 emerging markets forecast to 4.1% from 4.6%
  • Forecasts 2020 trade growth at 1.9% vs 1.4% in 2019
  • Says growth in less developed regions far below levels needed to meet poverty-reduction goals

In a deeper breakdown, they boosted the 2020 US growth forecast while cutting China and Europe. On the whole, this isn’t great news for the global economy but it’s nothing surprising.

10% corrections in S&P 500

It has been more than a year since the S&P 500 went down 10%. In the nearly 17 years since March 2003, there have been 19 declines of 10% or more. There have been 82 declines of 5% or more.

Drawdown  Qty    Trading days Days since last
5%      82            4234              64
10%      19            4234             298
20%       5            4234             259
25%       2            4234            2731
33%       1            4234            2831

Nikkei 225 closes lower by 0.85% at 23,319.87

Asian equities slump amid some caution in the risk mood

Nikkei 13-11

Japanese stocks are lower as tariffs continue to be a niggling issue in US-China trade talks. We had Trump threaten more tariffs – should talks not go well – in his speech before a WSJ report noted that both sides are still struggling to find common ground on the matter.

Meanwhile, the civil unrest in Hong Kong is continuing to affect the risk mood in the region as well, with the city continuing to descend into total chaos. The Hang Seng is down by 2.2% on the day as it sinks to session lows at the moment.
US futures are also a tad softer and that is keeping risk trades on edge as we begin the session. The franc is among the better performers with USD/CHF approaching 0.9900 though the yen has given up some of its earlier gains with USD/JPY still around 109.00.
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