Global markets receded during last week’s trading sessions and analysts and market commentators wasted no time in blaming the approximate 3% falls in the SPX, the worst fall since August 2019, on the outbreak of the Coronavirus. The SPX VIX index, which measures volatility and is often referred to as the “fear index”, rose by 4.28% during the week. The current fear and illogical media frenzy, appears to be disproportionate to the facts. Approximately 12,000 Coronavirus cases are so far confirmed and the airborne disease (similar to influenza) appears to be deadly in one percent of cases.
According to WHO, an average of 389,000 people die of influenza each year during the period examined (in this report) up to 2017. A single year peaked at 650,000 and according to the 2019 study, an extra 200,000 deaths were caused by respiratory complications as a consequence of influenza. Page 50 of this U.K. government report suggests up to 26,000 U.K. citizens died of influenza in 2018/2019.
Why point these forensic details out? To stress the important point that Traders and Investors in the ZuluTrade community should always research their own facts, rather than accept the simple narrative delivered by the mainstream media. And members of our community should recognise the profitable trading opportunities such news events create and ensure they’re in a position to take advantage.
Undoubtedly, China’s personal and trade movement restrictions, could impact on global trade over the short-term, however, the state of irrational exuberance, which USA equity markets experienced from Q3 2019 onwards, was always likely to be derailed by any rumour or general nervousness. In fact, what the Coronavirus over-reaction has illustrated is just how sensitive markets are to any bad news, suggesting that many participants are prepared to cash out and choose safe-haven options in a heartbeat. If the virus and hype regarding the outbreak is contained, then the returning Investor exuberance may cause USA equity market indices to bounce back and take out fresh record highs, which will have a correlated reaction on FX markets. Therefore, it’s advisable for the ZuluTrade community to remain focused on how the all encompassing virus story develops over the coming week.
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Chart to watch, AUD/USD falls by -4.15% in January
Last week’s equity market sell-off offered up significant short selling opportunities for Traders and Investors, the correlated impact on currency markets caused many major currency pairs to trade in wide ranges, allowing Traders who remained vigilant to bank substantial profits. The antipodean currencies, NZD and AUD, sold off sharply due to the respective countries over-reliance on trade with China; AUD/USD fell by -1.98% and NZD/USD by -2.15%. AUD/USD has fallen by -4.15% in January and is currently trading down -7.68% yearly. Price fell through the 200 DMA in early January and the currency pair has subsequently failed to recover. As illustrated by the expanding Bollinger Bands the selling volatility increased last week. Over the weekend China’s central bank, the PBOC, announced that they were injecting circa $22b liquidity into China’s banking system, in order to limit any market falls when Chinese financial markets open after their holiday closure.
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GPB/USD rises sharply as the U.K. finally leaves the European Union.
Sterling rose versus its peers during the final week of Great Britain’s, E.U. membership. Currency Traders reacted to the initial positive news coming from both sides of the ongoing negotiations, as neither the U.K. government or the European Union wants commerce to be unnecessarily impacted. However, the cordial break-up narrative has quickly faded, as representatives from both sides quickly hardened their stance.
As can be clearly seen by analysing the four hour time-frame, several of the most popular technical indicators favoured by day and swing traders, perfectly aligned while developing strong trading signals as bullish GBP/USD sentiment increased. The major pair also rose due to the Bank of England keeping its powder dry (for now) and not lowering the U.K. base rate.
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The U.K. economy could be 10% smaller by 2025
The E.U. have confirmed the four tenets of free movement will never be compromised and the U.K. government have insisted that the country will no longer enjoy access to the single market, or customs union. As a consequence, if the situation remains deeply entrenched, then a hard Brexit will follow as the U.K. will lose frictionless trade. And as an island 80% reliant on services and retail for its economic performance, the impact on U.K. GDP could be devastating with a loss of over 10% predicted by certain analysts.
Full trade negotiations are scheduled to commence in March. Between now and the end of the transition period, December 2020, the subject of Brexit will remain high on FX analysts’ agenda. Traders and Investors will need to retain focus on GBP pairs over the coming days and weeks as negotiations continue. Analysis of the ZuluTrade leader board will reveal which Traders in the community specialise in trading GBP pairs.Engaging with fellow Traders and Investors on the Trade Wall encourages healthy dialogue based around strategies.
Economic calendar events which are likely to impact on forex and equity markets this week
Monday February 3rd starts the week with the publication of the latest manufacturing Markit PMI for Germany. The forecast is for a rise to 45.2 from 43.7, a figure which (if met) could indicate that Germany as a manufacturing powerhouse, is once again rising from its recent slump. The U.K. manufacturing PMI is forecast to come in at 49.8, representing a significant improvement from figures in the low 40’s which were recorded in the final six months of 2019. In the afternoon the latest ISM manufacturing figure for the USA economy will be printed, the expectation is for a rise to 48.5 a figure which could have a positive impact on both equity markets and USD.
Tuesday February 4th begins with the RBA, Australia’s central bank, revealing their latest interest rate decision at 3:30am. There is no expectation for a change from the current rate of 0.75%. Focus will quickly turn to the statement from the RBA committee, to ascertain if their dovish stance has increased as a consequence of the current virus issues in China. AUD is likely to experience increased speculation during the RBA announcement. In the London-European session the latest U.K. construction PMI will be published, forecast to show a modest improvement to 46 from 44.4. a figure which could cause GBP to rise versus its peers. Employment data for New Zealand could impact on the value of NZD when the data is published in the evening at 9:45pm.
CopyTrade Economic News at ZuluTrade
Wednesday February 5th witnesses the publication of a raft of PMIs for the Eurozone in the morning, naturally, Germany’s figures will be scrutinised most, based on the country’s position as the globe’s third/fourth largest economy. The services PMI, the largest sector for the UK, will also be published, the forecast is for no change from the previous 52.9 reading. The ADP employment change number for the USA economy is published at 13:15pm, the forecast is for a fall to 159k from 202k. The trade balance deficit for the USA is expected to come in at -$48b. The ISM non manufacturing PMI is predicted to show a modest rise, from 55 to 55.1.
Thursday February 6th begins with Australia’s retail sales, predicted to show a fall which could negatively impact on the value of AUD, as could a reduction in imports and exports when the figures are revealed during the Sydney-Asian trading-session. Thursday’s unemployment claims data will be published for the USA in the afternoon, thereafter, the main focus will be on Japan’s latest household spending data, expected to show a modest rise which could increase the value of JPY versus its peers.
Friday February 7th starts with focus on antipodean currencies as the RBA publishes its monetary policy statement and from New Zealand we receive the latest CPI inflation expectation metrics. In the London-European session the latest German industrial production figure will be published, expected to show a negative figure of -0.2% MoM, with Germany’s trade balance expected to come in at €18.4b. Germany’s export and import data is expected to reveal a significant improvement which could positively affect the value of EUR. In the afternoon focus turns to Canada and the USA as the latest job numbers and unemployment data are published. CAD might come under pressure if Canada’s unemployment rises to 5.7%, with fewer jobs created since the last numbers were revealed. The latest USA NFP job figure will be published at 13:30pm, the prediction is for a modest improvement to 161k from the shock 145k figure published in January.
Disclaimer
The views expressed do not constitute investment or any other advice /recommendation /suggestion and are subject to change. Reliance upon information in this material is at the sole discretion of the reader. Opinions expressed in the report do not represent the opinion of ZuluTrade Copy Trading Platform and do not constitute an offer or invitation to anyone to invest or trade.