⏳ Final hours! Save up to 60% OFF InvestingProCLAIM SALE

FX Kicks Off With Big Losses, Fear Trade To Spread

Published 2020-01-27, 04:14 p/m
EUR/USD
-
GBP/USD
-
USD/JPY
-
AUD/USD
-
USD/CAD
-
NZD/USD
-
CL
-

Daily FX Market Roundup 01.27.20

By Kathy Lien, Managing Director of FX Strategy for BK Asset Management

Between the Federal Reserve and Bank of England’s monetary policy announcements, investors had been bracing for a big week in the financial markets. However nothing matters more right now than the Wuhan virus. Currencies and equities sold off hard as investors worry about the mounting deaths in China, growing cases abroad and the impact on the Chinese economy. Here in the U.S., travel stocks have been hit particularly hard but few asset classes have been spared as investors liquidate in fear of more losses. Panic and fear are powerful drivers of market flows and typically when the sell-off begins it can be faster and deeper than most can anticipate. Today’s decline in U.S. equities was the strongest in 4 months and without a positive turn in China’s health crisis or an attempt by President Trump to drive up stocks through promises of another tax cut or further tariff relief for China, additional losses in currencies and equities are expected.

Asia is ground zero for the coronavirus, so it should be no surprise that the Australian and New Zealand dollars were hit the hardest today. AUD/USD and NZD/USD lost nearly a percent of their value as they dropped to their weakest level in 7 weeks. If the virus isn’t contained quickly and economic activity in China grinds to a halt, it could lead to another rate cut by the Reserve Banks. New Zealand data has taken a turn for the worse and it should only be a matter of time for Australian data to follow suit. Business confidence numbers are scheduled for release this evening and there’s a very good chance that sentiment deteriorated, adding pressure on A$. By comparison, the losses in the Canadian dollar were modest despite the continued decline in oil prices. Unfortunately, with oil demand and oil prices expected to fall further, the loonie is vulnerable to additional losses.

USD/JPY dropped to a low of 108.73 at the U.S. open before rebounding back to 109. New home sales declined for the third month in a row but FOMC and Q4 GDP will be the main focus this week. These are 2 of the most important economic reports on this week’s calendar and despite market jitters, the Federal Reserve is widely expected to maintain their outlook for steady policy. Trade tensions have eased and the limited cases of coronavirus in the U.S. (thus far) will encourage the central bank to maintain their current outlook. With that said, there’s no doubt that they are carefully watching risk appetite and the sell-off in stocks.

The other big events on this week’s calendar are Chinese PMIs, the Bank of England’s monetary policy announcement, Australian inflation data and the Eurozone’s Q4 GDP report. Chinese PMIs are expected to slow but they won’t show the extent of the Wuhan virus. Australian inflationary pressures are expected to rise given the uptick in consumer inflation expectations but any increase isn’t expected to lend much support to the currency. The BoE’s rate decision will be one if not the most impactful events on this week’s calendar. When the central bank last met, 2 members voted in favor of lower interest rates. There’s a very good chance that more will follow in January with Governor Carney reinforcing their dovish bias. Rate cuts are on the table and despite better PMIs, we expect GBP/USD to fall below 1.30 before the rate decision.

Lastly, EUR/USD is hovering just above 1.10 after an unexpected decline in German business confidence. For the better part of this month, Eurozone data has been strong but the cracks are showing with business confidence weakening. With more cases of coronavirus expected and further losses in stocks likely, we don’t expect any immediate improvements. With that said, Eurozone Q4 GDP could still surprise to the upside because the region’s economy stabilized toward the end of the year.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.