The coronavirus virus continues to dominate the headlines and it greatly influenced the markets last week.
The European session on Friday finished higher as the World Health Organisation (WHO) said the coronavirus was not yet a ‘global emergency’. Equity benchmarks in Europe registered respectable gains but they closed off the highs of the day. US markets showed gains in early trading, but the positive sentiment was short lived, as the Dow Jones as well as the S&P 500 ended the day in the red as fears regarding the health situation took hold.
Before the coronavirus situation broke out, stock markets in Europe as well as the US were in a strong position. In mid-January the FTSE 100 hit its highest level since the summer, the DAX registered a record-high during the health crisis, and the major US indices set a series of record highs. Some traders were questioning the lofty valuations of stocks, so now the fear surrounding the health crisis has acted as an excuse to take money off the table. Last night it was announced there were five confirmed cases of coronavirus in the US, so sentiment is likely to remain sour.
Overnight, the Nikkei 225 fell on fears of the health crisis. In China more than 2,700 people have been infected by the virus, hence why traders dropped stocks. A number of stock markets in Asia remained closed on account of the Lunar New Year celebrations.
Oil endued big losses last week and that was largely down to the health crisis in China. The country is the largest importer of oil in the world, so traders are worried the situation will curtail economic activity, and in turn demand will fall. Last week the head of the International Energy Agency claimed the oil market was going to be in oversupply in the first-half of this year, and those comments were made before the health fears were ramped-up.
Gold and the Japanese yen pushed higher last week as dealers sought out assets that are considered to be lower risk. The upward move in gold wasn’t as big as the surge that was sparked on the back of the Iranian tensions so aren’t that fearful of the health situation yet.
The Bank of England will be in focus this week as the central bank will announce its interest rate decision on Thursday. Traders are pricing in a roughly 50% chance of an interest rate cut from the UK central bank, but keep in mind the markets were showing approximately a 70% about one week ago. In the latter half of last week the UK posted respectable unemployment as well as wages data, and Friday’s flash services and manufacturing PMI reports suggested that improvements were made on the month.
At 9am (UK time) the German Ifo business climate report will be posted at 9am (UK time) and economists are expecting the reading to tick up to 97.1 from 96.3.
EUR/USD – has been pushing lower since late December and while it holds below the 50-day moving average at 1.1096, the bearish move might continue. Support might be found at the 1.1000 area. A break above 1.1172 should pave the way for 1.1239 to be retested.
GBP/USD – while it holds above the 50-day moving average at 1.3036, the wider bullish move should continue. The 1.3500 area might act as resistance. A break below the 1.2900 area could bring 1.2689 – 200 moving average, into play.
EUR/GBP – remains in the wider downtrend and if the bearish move continues it might retest 0.8400. A rebound might run into resistance at 0.8600.
USD/JPY – has been pushing lower recently and while it holds below the 50-day moving average at 109.17, the bearish move should continue. 107.65 might act as support. If the wider positive trend resumes, it might retest the 110.00 zone.
"DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. "