The USD looks to finish the week stronger against the EUR and CAD, but has given back a bit against the GBP and JPY. After an initial sell-off yesterday morning the Dow rallied to finish roughly 125 points higher. As investors continue to monitor the Coronavirus, Dow Futures this morning show the US equity markets opening around 70 points lower. Concerns remain high as the virus has spread to at least 18 other countries. On the data front, Chicago PMI will be released later this morning and the forecast is for that number to remain at 48.9.
The EUR remains under pressure as the week ends, testing technical support levels, but for the moment bouncing off them. Economic data in the Eurozone continues to disappoint and the strength of the USD has put selling pressure on the single currency. EU Q4 came in at 1.0% missing expectations. There could be some upward movement in the currency as the week ends, due to market sentiment showing the EUR being “oversold." The end of the week's short-covering could see a move slightly higher, but traders are expected to resume selling if the EUR bounces higher.
The GBP is higher this morning, reaching weekly highs as the U.K. officially leaves the European Union today. Great Britain will now enter a “transition period”, until the end of the year as there is hope for the UK and EU to negotiate a free trade deal. During this transition period, the UK remains a member of the EU. GBP also benefitted by the Bank of England leaving rates unchanged at their meeting yesterday. There had been some speculation of a rate cut. Only two members voted for a cut while market observers had expected three to vote this way. That pushed traders to cover short positions and move higher.
JPY remains well bid against the USD as traders continue to take risk of their books and move into JPY as a safe-haven alternative. In economic news coming out of Japan, Industrial Production for December grew 1.3%, but the 3-month October-December factory output contracted -4.0%. This is the worst decline since they began recording this date in 2013. Retail sales also fell-2.6%, down for the third straight month. The fact that JPY remains bid, shows the concern traders have of the Coronavirus, as it has traders ignoring economic data that would normally see JPY selling.
Oil prices rebounded somewhat overnight but are still expected to show a loss for the fourth straight week. USD/CAD has reached weekly highs and market sentiment remains “Canadian negative”. According to the Bank of Canada, “financial vulnerabilities will make it harder to hit inflation targets”. High household debt seems to be the main problem that will hinder the bank from keeping inflation in check. Look for the negative trend in CAD to continue.
The Coronavirus continues to be the main story, as confirmed cases in China have risen to just below 10,000 at 9,962. The death toll has risen to 213 people. The WHO finally declared the virus a global health emergency, due to the fact that the virus has spread to other countries. After two cases were confirmed in Italy, the Italian Prime Minister stopped all air traffic between Italy and China. The United Kingdom has confirmed its first case of the virus.