The Coronavirus outbreak has hit the world equity markets quite hard as we begin the week, with all major indices in the red in both Asia and Europe and the US equity market set to fall 1,300 points according to Dow Futures when the US markets open later this morning. The USD is lower against all currencies, except the Canadian Dollar, as US Treasury yields continue to fall, dropping to record lows. The 10-year Treasury note fell below the 0.4% level for the first time in history hitting an all-time low of .3469%, while the 30-year Treasury bond fell to a historic low of .7104%, falling below the 1% level for the first time. The fall in oil price has added to this massive sell-off world-wide after OPEC talks collapsed and Saudi Arabia lowered oil prices over the weekend.
EUR/USD is also trading higher this morning reaching levels not seen since last January. As the fall in US debt continues to weigh heavily on the dollar, traders are moving into the single currency. This has some traders concerned as the spread of the Coronavirus has very much spread throughout Europe. Italy has locked down many parts of the northern part of the country, which is the main industrial area, and this is hurting their economy. According to officials, the death toll in Italy has risen from 233 to 366, as there are now over 7,000 cases reported. Analysts had already expected the Italian economy to head towards recession, followed by other countries in the Eurozone. The European Central Bank will meet on Thursday and may announce some new stimulus, but any move on the deposit rate which is currently at -0.50% is expected to be minimal. After testing overnight highs, the EUR has settled back towards the lower end of the overnight trading range.
GBP/USD is trading near five-week highs, despite the outbreak of cases in the UK, as the overall USD weakness is benefitting the pound at the moment. After trading at overnight highs as the European session opened, GBP has moved back to the middle of its overnight trading range. EU-UK Brexit negotiations continue but these talks have been pushed to the back page as Corona takes center stage. The UK’s new budget will be announced this Wednesday and that may change some sentiment on the currency.
USD/JPY was the main mover overnight falling over 3% to it’s lowest level in three years and the biggest daily move since 2016. Safe-haven buying, as well as USD stop loss selling, are the main factors for the JPY strength. Short term stop loss trades, as well as longer-term stop loss trades, are being triggered and there is no bottom in sight at the moment. The currency pair has fallen through all major support levels and at the present is in an oversold position, but any upward move at the moment would be considered a fresh level to sell USD. According to spokesmen, the Japanese government is closely watching the moves in the Fx market, as volatility is undesirable, but refused to comment if the Bank of Japan had intervened in the currency markets.
USD/CAD is trading higher having spiked overnight as oil prices fell. Saudi Arabia, as mentioned earlier, lowered oil prices after talks collapsed between the OPEC and non-OPEC countries. US West Texas crude is trading at $31.73 per barrel, after hitting a low of $27.34. As oil prices are expected to continue to fall, with some analysts predicting a $20 per barrel level, commodity currencies are taking the hardest hit. The loonie is trading at its lowest levels since January 2019. As oil prices fall, the USD/CAD will continue to rise as the oil price will have a definite effect on the Canadian economy.
Coronavirus cases are easing in China and South Korea while picking up steam in Europe. Over the weekend China reported on 40 new cases on Sunday and an additional 22 fatalities. Total cases in China are now at 80,738, with 3,210 deaths. As the spread of the virus continues worldwide, market volatility will be the main focus. China was to release its February Balance of Trade over the weekend and the fall from $47 bio to $13.0 bio was not expected to have much effect on the markets as the numbers were already priced in. Hong Kong economic releases show their economy in recession, but presently all eyes remain on the spread of the Coronavirus.