China slowly returning back to work, but markets yet not convinced worst of virus is behind us
Erik Bregar of Exchange Bank of Canada - InsideFutures.com - Mon Feb 10, 9:59AM CST

USDCAD

There was a cautiously optimistic tone to global markets last night after the Chinese government encouraged millions of people to gradually return to work today. President Xi Jinping was also seen in public for the first time since the coronavirus crisis broke out; which we think is also helping to improve the optics of a national effort to desperately try and return things back to normal to China. The PBOC announced the first batch of special lending programs (300bln yuan) for banks, who have in turn be ordered to issue loans quickly to businesses that have been affected by the coronavirus. Chinas Ministry of Finance confirmed on Saturday that it has allocated $10bln to efforts to contain the outbreak and President Xi said the government will take measures to prevent large-scale layoffs. The Shanghai Composite responded positively to all these headlines by closing 0.5% higher. The Chinese yuan rallied as well and we think todays better than expected January CPI figures out of China helped with this (+5.4% YoY vs +4.9%). The S&P futures, crude oil prices, US yields and commodity currencies all traded moderately higher as well during Asian trade, dragging USDCAD a touch below the 1.3300 level.

Some of this optimism is now being tempered back however as fringe reporting shows no sign of the coronavirus outbreak slowing down. There are now over 40k confirmed infections in China, with 908 deaths (which now surpassed the SARS death toll). There are now 66 new cases aboard the quarantined Diamond Princess cruise ship docked at Yokohama with 3k+ passengers. WHO Director General Tedros Ghebreyesus said ominously over the weekend that we may only be seeing the tip of the iceberg and we wonder too how many eyes tuned into Chinese billionaire Guo Wengui over the weekend and his shocking revelations about the how bad things really are in China. Moreherefrom CCN.

The tone to global markets is now more guarded as NY trade gets underway. US yields are trading back near their session lows, the Chinese yuan and the Australian dollar haveslipped lower again, and USDCAD is once again challenging Fridays highs in the 1.3320s. Canada reported a moderately better than expected Housing Starts figure for January this morning (213.2k vs 205k), but traders seem more focused on potential coronavirus and OPEC+ updates at this hour.

The latest COT report released from the CFTC late Friday showed the leveraged funds adding modestly to their net short USDCAD position during the week ending February 4th. Were surprisedthat this speculative short length hasnt come down more given the markets recent breakout to a new uptrend on January 29th, and so we think these losing positions could add fuel to USDCADs rally at some point.

USDCAD DAILY

USDCAD DAILY

USDCAD HOURLY

USDCAD HOURLY

MAR CRUDE OIL DAILY

MAR CRUDE OIL DAILY


EURUSD

Euro/dollar has finally broken chart support in the 1.0950s this morning as the risk mood turns sour once again. The funds at CME piled back into short positions during the week ending February 4th, bringing their net short EURUSD position back to the level it was near the markets September 2019 lows. This weeks economic calendar is relatively quieter and more back end loaded, with US January CPI out on Thursday and German Q4 flash GDP, US January Retail Sales and US Industrial Production all out on Friday. We'll getplenty of Fed-speak before then though, including two speeches from chairman Powell on capitol hill (Tuesday & Wednesday). We think EURUSD will continue to struggle here.

EURUSD DAILY

EURUSD HOURLY

EURUSD HOURLY

APRIL GOLD DAILY

APRIL GOLD DAILY


GBPUSD

Sterling is seeing a mild bounce this morning as Reuters reports 1.2850 barrier options as in play. This followed some seller failure below the 1.2880s this morning and is leading some to speculate that dealer hedging of this option structure is behind the spot markets bounce. This is difficult to verify however but it appears this is all traders have to go bythis morning as UK economic news flow is non-existent. This all changes tomorrow however when the UK reports its December figures for GDP, Industrial Output, Manufacturing Output, and Trade. The reports come out all at 4:30amET and traders are very much expecting MoM upticks in this hard data, after the recent uptick in the UK soft PMI data. The funds remain net long GBPUSD as of February 4th, but they have continued to scale back on this net positioning for the 3rdweek in a row.

GBPUSD DAILY

GBPUSD DAILY

GBPUSD HOURLY

GBPUSD HOURLY

EURGBP DAILY

EURGBP DAILY


AUDUSD

The Australian dollar enjoyed a bit of a relief rally in Asia last night as traders initially bought the state-supported China back to work narrative, but we can feel the coronavirus skepticism start to creep back in here as NY trade gets underway. The US 10yr yield has just breached its Friday lows and the off-shore Chinese yuan has given up half of its overnight gains. Australia will report its January NAB survey tonight at 7:30pmET, but with no other major Australian data releases set for this week we think this will leave traders focused on the US calendar and of course, coronavirus updates. The leveraged funds at CME scrambled back into short positions during the week ending February 4th, and we suspect they used AUDUSDs RBA-driven bounce up to the mid-67s to re-accumulate.

AUDUSD DAILY

AUDUSD DAILY

AUDUSD HOURLY

AUDUSD HOURLY

USDCNH DAILY

USDCNH DAILY


USDJPY

Dollar/yen recorded a rather mixed NY close on Friday and we think todays post-Asia coronavirus skepticism is adding to the markets directionless tone here this morning. The funds were busy adding new short USDJPY positions during the week ending February 4th, which tells us theyre not believing last weeks positive US data and Chinese stimulus narratives. We think the markets attention could switch to Jerome Powells upcoming testimony on capitol hill this week if the coronavirus headlines dont get demonstrable worse. We see near-term support at 109.50-60 and near-term resistance at 110.00.

USDJPY DAILY

USDJPY DAILY

USDJPY HOURLY

USDJPY HOURLY

US 10YR BUND YIELD DAILY

US 10YR BUND YIELD DAILY

Charts: Reuters Eikon

Interested in creating a custom foreign exchange trading plan?Contact usor call EBC's trading desk directly at1-888-729-9716.

About Exchange Bank of Canada
Exchange Bank of Canada, EBC Canadas Foreign Exchange Bank, is the only Schedule 1 Canadian bank specializing in foreign currency exchange and international payments for financial institutions and corporations. EBC provides innovative foreign exchange management and integrated international payment solutions tailored to meet business needs on a global scale. Leveraging industry leading technology and a client-focused team of experts EBC delivers comprehensive, cost-effective and trusted payment processes and foreign exchange currency solutions to create financial and operational efficiencies. To learn more, visit:www.ebcfx.com.

Disclaimer:All product names, logos, and brands are property of their respective owners. All company, product and service names used in this website are for identification purposes only. Use of these names, logos, and brands does not imply endorsement.This publication has been prepared by Exchange Bank of Canada for informational and marketing purposes only. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable, but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the information nor the forecast shall be taken as a representation for which Exchange Bank of Canada, its affiliates or any of their employees incur any responsibility. Neither Exchange Bank of Canada nor its affiliates accept any liability whatsoever for any loss arising from any use of this information. This publication is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any of the currencies referred to herein, nor shall this publication be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The general transaction, financial, educational and market information contained herein is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a "call to action" or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. You should note that the manner in which you implement any of the strategies set out in this publication may expose you to significant risk and you should carefully consider your ability to bear such risks through consultation with your own independent financial, legal, accounting, tax and other professional advisors. All Exchange Bank of Canada products and services are subject to the terms of applicable agreements and local regulations. This publication and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced in whole or in part, or referred to in any manner whatsoever nor may the information, opinions and conclusions contained in it be referred to without the prior express written consent of Exchange Bank of Canada.