Tiomarkets Daily Commentary 10 Feb 2019

A new week begins with a familiar focus. While there are a few interesting economic events this week, most notably Fed Chairman Powell’s testimony to the Joint Economic Committee, it will be Coronavirus developments that take center stage. New cases are still on the rise and the prior 24 hours saw the largest number of deaths in a single day. The fall out from restricted travel to China as well as the direct affect on Chinese GDP is anyone’s guess. Keep in mind many tech producers use China as a hub for manufacturing key parts, so every day the Chinese economy is adversely affected has a follow-on effect.

So how would the new week begin? For FX a somewhat muted start in Asia although AUD would rally from 10-year lows as bargain hunters entered the market. A rally from 0.6665 to 0.6705 would be short-lived though and the lows would be tested once again. EURUSD could barely must a 16-point combined range in Europe and Asia, but the US session would see a continuation of the recent trend, dropping from 1.0950 to a low of 1.0910. However, GBPUSD would go the other way. There was no real news to drive the move, more of a technical play. The rally from 1.2875 to 1.2945 was driven as much by GBP cross buying than against the USD. There is always a relative value play out there somewhere! However by the NY close GBPUSD was back at 1.2910. USDJPY would be directionless under 110.00 despite equities in the US making modest gains by the time Europe went home. This was against a backdrop of losses in Asia and Europe. USDCAD had one brief dip below 1.3300 but refused to go any lower. XAU chopped around but ended near where it started around 1,572. US equities would continue their push higher in the US afternoon, with the S&P and Nasdaq both closing at record highs courtesy of Amazon. The DJ would close up 174 points. All this amid the uncertainty of the Coronavirus and some economist’s estimates that US Q1 GDP could drop as low as +1.2% as a result. Go figure.

Today was really another day of USD strength with only GBP putting up a determined fight. EURUSD leads the way as it continues to slide towards the all important 1.0880 level. But to really see the current USD strength, which has been a theme for all of 2020, it’s best to look at a USD Index chart (DXY). On this 4H chart I have drawn an up-channel which conveniently begins on Dec 31 2019. Over the past couple of sessions USD strength has been so prevalent, we have broken out of the top of that channel. A test of last September’s high of 99.67 now seems quite possible. Definitely worth keeping an eye on over the coming days.