Updates

Equity rebound set to continue, Fed in focus

Yesterday there was a turnaround in sentiment despite a worsening of the coronavirus situation. 

European as well as US equity markets rebounded from the brutal declines of Monday. The positive moves took place despite a deepening of the health crisis. In China, the situation has claimed the lives of at least 106 people and more than 4,500 people have been infected. The rebound in stocks might be attributed to short-term bargain hunting as the situation did not get any better.

During yesterday’s session the Chinese central bank claimed it was willing to use the tools it has at its disposal in order to counteract any negative impact on the economy. The institution made it clear it would only intervene should action be required. The update helped ease some of the fears that traders had.

Stocks in Hong Kong were playing catch-up overnight as it was the first day back after the Lunar New Year holiday, and the market sustained heavy losses, but it is now off the lows of the session. Airline and hotel stocks were some of the biggest fallers.

The US dollar index gained ground yesterday, it hit its highest level since late November. The chatter about a possible rate cut from the Bank of England this week, has put the greenback in a more positive light. It wasn’t that long ago the European Central loosened it monetary policy so some dealers are taking the view the US dollar is attractive on the grounds the Fed won’t be cutting rates any time soon.   

The Federal Reserve will reveal its interest rate decision at 7pm (UK time). Rates are currently 1.5%-1.75%, and dealers are expecting them to remain on hold. The press conference will follow at 7.30pm (UK time). The US central bank is likely to give off the impression they are content to keep monetary policy on hold for some time.  

The unemployment rate is at a fifty year low. Wages are growing at 2.9%, while the CPI rate is 2.3%, so workers are getting an increase in real wages. With stats like these, there is a good argument to be made the Fed should just keep things on hold.       

At 7am (UK time) the German GfK consumer climate will be posted and the reading is tipped to hold steady at 9.6. At the same time the import prices report will be announced, the consensus estimate is 0.3%, which would be a dip from the 0.5% posted in November.

French consumer confidence is expected to remain at 102. The figure will be revealed at 7.45am (UK time).  

At 3pm (UK time) the US pending home sales will be announced, and it is expected to show an increase of 0.5%.

Oil has seen high volatility this week on account of the coronavirus. China is the largest importer of oil in the world so the commodity has suffered greatly on fears that demand will wane. On Monday, OPEC tried to calm the market by stating it would consider extending production cuts in a bid to stabilise the energy market. Oil gained ground yesterday, but that was after a few days of losses. At 3.30pm (UK time), the EIA report inventory report will be posted. US oil and gasoline inventories are expected to increase by 460,000 barrels and 1.16 million barrels respectively.

EUR/USD – has been pushing lower since late December and while it holds below the 50-day moving average at 1.1096, the bearish move might continue. Support might be found at the 1.0900 area. A break above 1.1172 should pave the way for 1.1249 to be retested.

GBP/USD – while it holds below the 50-day moving average at 1.3052, the bearish move should continue. Support might be found in the 1.2900 area. 1.3284 might act as resistance.  

EUR/GBP – remains in the wider downtrend and if the bearish move continues it might retest 0.8400. A rebound might run into resistance at 0.8600.   

USD/JPY – has been pushing lower recently and while it holds below the 50-day moving average at 109.18, the bearish move should continue. 107.65 might act as support. If the wider positive trend resumes, it might retest the 110.00 zone.     

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