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Here is what you need to know on Monday, 9th March:

In an unwind in the carry trade, the closing session of the week hammered down the coffin for the US dollar following a surge in risk-off flows into US Treasuries and additional all-time lows in US yields.

The moves of late (and drastically lowered Federal Reserve pricing) have stripped the dollar’s safe-haven status and pulled the rug out from beneath committed bull’s hooves. Bulls have now been squeezed out of the 2020 long position build from the depths of the 96 handle in the DXY. On Friday, the DXY closed at 95.71, the lowest level since Feb 2019. 

There was also a 10% fall out in oil prices, crippling the CRB index to the lowest levels since 2016. 

The coronavirus spreading across Europe and America, especially, is taking up the volumes in commodities and financial markets across the charts, pulling in liquidity at key volume areas and progressively threatening moves into deeper territories as investors move out of higher-yielding investments and flood into US treasuries.

On the worst day for oil prices in more than five years, the broad US stock indexes took another beating on Friday.

  • The Dow Jones Industrial Average DJIA, -0.98% was down 256.5 points, or 1%, to close at 25,864.78.
  • The S&P 500 index was down 1.7%, now extending 12.2% below its last closing record set on Feb 19th.
  • The Nasdaq Composite Index COMP lost 1.9%.
  • West Texas Intermediate crude oil for April delivery dropped 10.2% to settle at $41.28 a barrel.

Despite the threat of the coronavirus to oil demand, OPEC and Russia were still unable to come to an agreement on oil-production cuts, sending the yield on 10-year Treasury to 0.657%  – 50% below the prior lowest on record. 

The coronavirus is firmly embedded throughout the world, with a growing number of US states declaring a state of emergency. Milan is on the verge of lockdown and widespread panic is taking its toll on a global scale as the number of worldwide cases topples the 100k mark at 105,000 according to data compiled by Johns Hopkins University. 

  • Total deaths worldwide: At least 3,558, according to data compiled by Johns Hopkins University
  • Total US cases: At least 434, according to data compiled by NBC News. 
  • Total US deaths: At least 19, according to data compiled by NBC News. 

Amongst all of the market drama, you could be forgiven to have missed the US Nonfarm payrolls, Canadian February Employment and Fed speakers:

  • NFP: Payrolls beat expectations

  • NFP: Jobs report is old news – Wells Fargo

  • Canada: Employment better than expected – TDS

  • Fed’s Rosengren: Fed needs wider QE mandate to deal with economic downturns

  • Fed’s Bullard: Markets pricing in very worst outcome, not sure that’s warranted

  • Fed’s Bullard: Everything is on the table and willing to do more

Market price action and commentary

  • Gold Price Analysis: Breaking above $1,692 critical for next coronavirus-correlated bullish run – Confluence Detector

  • Gold Price Analysis: Harmonic patterns emerge in the gold market

  • EUR/USD looks to settle a dramatic week around 1.1300

  • EUR to strengthen further if ECB disappoints easing expectations – MUFG

  • USD/CHF rebounds from fresh 2-year lows, heads for strong weekly loss

  • USD/CAD pulls away from daily highs, stays above 1.3400 on crude oil selloff

  • EUR/CAD: Loonie vulnerable to further weakness as price of oil collapses – MUFG

  • AUD/USD consolidates the gains below 0.6650 amid falling oil, gold prices

  • USD/JPY fades a spike to 105.70, recovery mode still intact amid risk-off

  • GBP/USD Price Analysis: Unable to test 1.3060, losses momentum

  • Gold reverses dramatically and drops $40

Risks for Asia open

  • Saudis slash oil export prices by 10%, Middle Eastern stocks plummet

Editors thoughts

How much lower will the Fed take rates (?) is what we should be considering with respect to the US dollar and FX pricing.

Traditionally, the US dollar has always played out bid at times of unprecedented market turbulence. However, this time around, a proactive Fed has undermined the greenback and the yen is taking up the role of the market’s go-to hedge against falling global equities. The logic here is that the Bank of Japan is being scrutinised as far as it can manipulate FX without going unnoticed and is limited as to how it can react to economic pressures, so rate cuts are off the table. Therefore, there is little risk of a sudden weakening in the yen, yet there is still a risk of the Fed cutting rates by a further 50 basis points at the March 18th meeting, which would take the Fed’s target range to 0.50- 0.75%. This raises the prospects of QE – playing into the favour of the US president’s preferred monetary policy in a firm play on the global trade game of chess for the US.

However, the Fed will not likely wish to be seen to support the stock market, for that is not supposed to be its mandate. The US dollar can snap back, however, on a scramble to the market of dollars considering how short the offshore market is. If we are to see a repeat of the 2007 crisis (a Europan banking crisis for instance) coupled by recessions in other parts of the world and drastic measures taken by central banks, then bulls will grab hold of that lifeline, surely propelling the dollar higher again. On a technical basis alone, EUR/USD is ripe for a correction to 1.1220, potentially to as deep as 1.1220, which would harden DXY significantly. 

EUR/USD daily chart