USDJPY and EURGBP

US Markets reached new all time highs in yesterday’s session. The rally was part of an attempt to test resistance round numbers, such as 3400.00 on the US 500 Index. The rally in the index failed to carry price to this level yesterday before the close but the level remains a significant target area for participants. The market is running on the assumption that the coronavirus is largely contained within China however there are pockets of cases outside the borders of that country. Two of the confirmed cases from the cruise ship docked in Japan have succumbed to the virus. The number of cases in South Korea is also rising, with 82 total cases, along with other reported outbreak areas. Chinese authorities have once again reclassified the designation for “confirmed cases” thereby adjusting the number of reported cases in the press. However the Chinese media outlet, the Global Times, has said that at this point the actual number of overall infections remains unknown. The piece said that “Wuhan was still confronted with a severe situation with slow progress and the actual number of overall infections in the city where the virus originated in December 2019 remained unknown; the number of reported cases in the city accounting for a large portion of total infections in China”. The article goes on to suggest that “despite over three weeks of city lockdown, the human-to-human transmission still continued and many patients could still not be treated in time, according to medical experts and observers”. Medical personnel in the area are also contracting the virus with two senior doctors, including the doctor who initially discovered the outbreak, having died from the virus. It is believed that the area around the city will remain in quarantine for an extended period, with a devastating toll on the population and little chance of a return to normal conditions anytime soon. The province of Hubei is reporting 349 new cases and 108 new deaths, taking the death toll to 2029. The PBOC has set the USDCNY reference rate at 7.0026 versus 7.0012 yesterday. China’s 1 –year loan prime rate has been reduced to 4.05% from 4.15% and the 5-year reduced to 4.75% from 4.80%, the latter disappointing markets in the scale of the cut and adding somewhat to risk off sentiment. The Standard and Poors Rating agency has said that the impact from the virus could double the amount of China’s problem loans. They expect China’s 2020 growth to fall to 5% with a recovery taking place in Q3. Gold has pulled back from the high at 1612.70 to currently trade around 1607.50. Australian Unemployment has ticked up to 5.3% from 5.1% with a notable impact from the recent bushfires in the country.

Coming up on the calendar today, UK Retail Sales are expected to rise to 0.7% from -0.6%. In the afternoon, ECB Monetary Policy Meeting Accounts are to be released. US Philly FED Manufacturing Index is set to fall to 10.1 from 17.0. After the Holiday on Monday, US Crude Oil Inventories are set to be released a day later than usual today.

USDJPY 

The USDJPY has rallied and broken out through the 109.930 level with a move that has taken price up to resistance at 111.550. The pair has rallied as the impact of the coronavirus takes hold, leading to a spike in the price of the pair. In the short term the 111.000 area is providing support, which may be tested if price retraces. Below this level the 110.000/109.950 area is acting as deeper support, where buyers pushed price higher from. The 109.000 has seen price consolidate around it in recent months. A test of this level and a failure to find support may open the way to the 108.000/107.900 area, which might lead to further selling taking hold and pushing price into the support area around the 107.450 mark followed by 107.000. This was used in June at 106.780 and in August and September at 107.000 as both support and resistance. A selloff in early October found support at 106.500 and produced the rally to the current high.

In the short term the 111.550 area is now acting as resistance, with the 111.650 level above it. A consolidation above the 111.000 level may seek to take price up to engage the area around the 112.000 round number. This area has acted on price in the past and was retested as resistance at the end of that month. A break above this area may open the path to the pair potentially attempting to gain a foothold above this resistance and establish a base to engage the 112.140 area as the highs from spring 2019. A break above this level may seek to test the April 2019 high at 112.450. The trend line is in position at 113.000.

EURGBP

The EURGBP chart shows the pair is now testing its falling trend line as support at 0.8355. The fall through support around 0.8500 to the next area of support around 0.8424 has left the pair trading around the current level of 0.8360. The pair used the support at 0.8282 on Tuesday. Price recovered somewhat to retest the trend line and is now attempting to retrace more of the selloff. Below the current level, the 0.8300 area may be supportive again, followed by the 0.8280 area, the low at 0.8276 from December and potentially the 0.8250 level.

Resistance may have potentially formed around the trend line at 0.8360 and the previous support at 0.8390 in conjunction with 0.8400. The 0.8475 level may also now form as resistance going forward, followed by the round number level of 0.8500. A break higher may seek to test the lower high at 0.8596/0.8600. Further resistance around the trend line at 0.8620 is followed by the 0.8680 area which might be used to hold price under 0.8700. A retracement up to the former resistance and support area at 0.8725 might leave price shy of the 0.8750 level. The September low at 0.8786 may also be used as resistance to any potential move higher, while above the area the 0.8850 area may further resist attempts to push price up to the 0.9000 level. The 0.8890 level was used as the July low and price increased in value from there to the high in August.

Phillip Konchar