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Markets hopeful that Thursday's coronavirus spike in China was a "one-off" event

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ANALYSIS

USDCAD

Theres a mild risk-off tone to global markets this morning as Chinas National Health Commission reported a staggering 15,152 increase in the number of new coronavirus cases and 254 more deaths, bring the totals now to 59,804 and 1,367 respectively. Were being told that the Hubei province has now started including clinically diagnosed cases into the number of confirmed cases for publication. Chinas CCTV reported that Hubei has removed its two top health officials from their posts. What is more, China's chief biochemical weapons expert, major general Chen Wei, is now to be stationed in Wuhan to take control of the situation. All these headlines are adding further fuel that the allegation that Chinese authorities are covering things up and that the virus was somehow released from the Wuhans P4 bioweapons lab.

We were told on Monday that Taiwans Foxconn, a major electronics manufacturer, got the green light to re-open two major plants in China but the company is now saying the reports were not factual. The TomTom traffic app is not showing meaningful evidence of Chinese citizens returning to work in Beijing, according to Bloomberg. Huanggang, a neighboring city to Wuhan, has announced measures including sealing residential complexes. The Dawu Country in Hubei has announced a wartime lockdown that will prevent people from leaving their homes without permission. Hubeis work suspension has been extended to at least February 20th. Can we really honestly believe the China is getting back to work theory that has been lifting risk sentiment all this week? We dont.

Equity futures, oil prices, US yields and USDJPY all re-priced lower overnight to reflect these new headlines, but the negative effect on the Chinese yuan and commodity currencies has been rather muted. USDCAD buyers showed up yesterday amid the markets test of the 1.3240-60 support zone (which was technically positive), but they havent benefitted from todays risk-off tone (which should disappoint them). This mornings slightly higher than expected CPI figures out of the US for January led to slight uptick for yields and the broader USD, but this is not meaningfully helping USDCAD. We think the market needs another positive catalyst quickly in order to deter yesterdays buyers from giving up.

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USDCAD HOURLY

MAR CRUDE OIL DAILY

MAR CRUDE OIL DAILY


EURUSD

It was a puke fest for EUR yesterday as rampant coronavirus optimism punished the negative yielding currency with nothing fundamentally positive on the horizon. Euro/dollar resumed lower after the 10amET option expiries and collapsed to new 2 year lows at the 1.0860s. Last nights shocking upward revision to the number of coronavirus in China helped the market bounce 20pts, but sellers pounced when EURUSD couldnt regain Tuesdays support level in the 1.0890s. The 1.0860s support level gave way at the NY open and this mornings slightly hotter US CPI read is not helping a market thats grasping for straws at this point. EURUSD is now down over 250pts in just two weeks and its scary accurate how well Januarys bearish head & shoulders pattern foretold all this on the charts.

EURUSD DAILY

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EURUSD HOURLY

APRIL GOLD DAILY

APRIL GOLD DAILY


GBPUSD

A big cabinet reshuffle from Boris Johnson is wreaking havoc on the sterling shorts thatre-entered the market in early February. UK finance minister Sajid Javid has resigned and Rishi Sunak has taken his place; which is leading to speculation that this now clears the path for the Johnson government to announce larger than expected stimulus measures in its upcoming budget in March. More fiscal stimulus would also take some of the recent pressure off the Bank of England to cut rates, which we think is also contributing to GBP outperformance here.

GBPUSD has blasted through yesterdays chart resistance in the 1.2980s and is threatening a break above its next resistance level in the 1.3040-50s. If such a breakout were to occur on a closing basis today, we think this would flip the markets chart structure decisively more positive. Seehere, from Sky News, for more on Sajid Javids departure.

GBPUSD DAILY

GBPUSD DAILY

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GBPUSD HOURLY

EURGBP DAILY

EURGBP DAILY


AUDUSD

The Australian dollar fell lower last night following the surprisingly higher coronavirus case numbers announced by Chinas Hubei province but, like the yuan and the Canadian dollar, it is also shrugging off the negative news. Its almost as if global markets are believing the spin the Chinese officials attached to last nights news namely that these broader diagnoses procedures are now in place so that patients can receive standardized treatment according to confirmed cases as early as possible to further improve the success rate of treatment. Um ok.

AUDUSD is now threatening a break above the 0.6740s; a level it struggled with yesterday. We have no idea why the markets are seemingly giving China the benefit of the doubt here, but its a difficult trend to fight this morning.

AUDUSD DAILY

AUDUSD DAILY

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AUDUSD HOURLY

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USDCNH DAILY


USDJPY

Dollar/yen probably showed the most pronouncedreaction to lasts night surge in the Chinese coronavirus case count. It pulled back swiftly off trend-line chart resistance in the 110.10s and then made a bee line for Mondays support zone in the 109.60s. However, it too is now bouncing as the US 10yr yield retracesmost of its overnight losses. We could argue some of this is a delayed reaction to this mornings higher than expected US CPI figures, but again we feel like markets desperately want to believe China here. Perhaps traders want to see another day of Chinese coronavirus statistics before jumping to conclusions. Stay tuned tonight.

USDJPY DAILY

USDJPY DAILY

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USDJPY HOURLY

US 10YR BUND YIELD DAILY

US 10YR BUND YIELD DAILY

Charts: Reuters Eikon

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