Yesterday turned out to be a game of two halves for markets in the US, starting with a strong first half, which helped markets in Europe post their second daily gain in succession with sentiment largely predicated on optimism that Covid-19 infection and death rates had reached the peak of the crisis, and were on their way back down across Europe.

Certainly, in respect to Italy that does appear to be the case, however sentiment started to level off a little as it became clear that any turnaround in infection rates wasn’t going to be a one-way street.

The rot started to set in soon after Spain announced an increase in its death and infection rate with the release of its latest numbers, while authorities in France warned that they still expected the number of deaths and infections to continue to rise in the coming days.

This change of tone gained more traction after the European close when New York posted its latest numbers, which showed its worst day of the crisis in terms of fatalities, even as overall infections slowed down.

As the day wore on the Dow went from being almost 900 points up at one stage to finish the day 26 points lower, a remarkable intraday reversal if ever there was one, though further declines in the oil price didn’t exactly help either.

While the turnaround itself was surprising, when set against where we were at the end of March, we’ve still rallied over 20% from the lows, in the space of a fortnight.

That’s still a fairly decent rebound at a time when we know the upcoming economic data is likely to be hideous, and where the economic impact is expected to be profound. No amount of fiscal stimulus is likely to change that, and with that the expected sizeable impact on company earnings.

Against that backdrop markets here in Europe are expected to open lower a little this morning, after a mixed Asia session, which saw the Nikkei rebound, while the rest of Asia struggled.

Investors are now gearing up for the publication of the latest Fed minutes from the emergency rate cut meeting in mid-March, as well as looking to digest another dollop of fudge from European leaders at yesterday’s Eurogroup meeting.

The meeting was supposed to be about arriving at a roadmap for an exit strategy from coronavirus later today, which would include how to unlock the power of the European Stability Mechanism, the EU’s bailout fund to help those most affected by the pandemic. France, Spain and Italy want to make progress on plans for a joint debt instrument, however the more fiscally conservative countries like Germany are more sceptical, and reluctant to sign blank cheques.

Italy wants no conditions to be set on money that is forthcoming, while the Dutch want a say in where the money is spent in terms of funding a recovery plan, not an unreasonable position to have.

When we came into the month of March many had expected the Fed to wait until their 18th March meeting to cut rates, as concerns about the health of the global economy started to grow.

As it turns out the spread of the Covid-19 virus starting to work its way across Europe tipped their hands. The decision to slash rates by 50bp three days into March surprised a lot of people and spooked the markets over concern that the US central bank was acting a little prematurely.

If that decision was a surprise, the resulting decision to act again, this time three days before the official meeting, marked a stepping up of central bank action on a global scale. The Fed slashed rates again by a full 100bp, as well as restarting its QE program as it became apparent that the financial system was on the cusp of a sudden stop as economies across the globe started to go into lockdown.

This week’s minutes to that emergency meeting on the 15th March are likely to make for interesting reading given there wasn’t complete unanimity in that decision, even though since then events have moved on quickly.

It is hard to imagine that all Fed board members aren’t now on the same page as the coronavirus death toll rises across the US and the economy shuts down. The most recent jobs number saw payrolls decline by a record 701k, and that’s even before two weeks of jobless claims that are likely to see an April jobs report look like a scene out of the Texas Chainsaw Massacre.    

EURUSD – found some resistance at the 1.0920/30 area yesterday. This needs to break to target a move towards the 1.1000 area. Pullbacks are likely to find support at the 1.0770/80 area, and the lows this week. If we break below this level, we could slip back towards the previous lows at 1.0630.  

GBPUSD – slipped back to the 1.2165 area before rebounding strongly, pushing back towards the 1.2400 area. We need to take out the 1.2410 level and the highs this week to retarget last week’s high at 1.2475. The 1.2500 area remains a key resistance, and obstacle to a move 1.2775.

EURGBP – having failed to break below the 200-day MA at 0.8740 earlier this week, we could see a squeeze back up towards the 0.8900 area. A break of 0.8720 has the potential to retarget the 0.8600 area. Rebounds need to stay below the 0.8900 area to keep downside momentum intact.

USDJPY – failed to follow through much beyond the 109.20 area, slipping back once more. The failure to move up through 109.30 suggests we could well see a move back towards 108.20 area. Long term support remains down near the 106.80 area which we saw last week.