Mild coronavirus optimism leads risk sentiment higher overnight
Erik Bregar of Exchange Bank of Canada - InsideFutures.com - Tue Mar 24, 10:41AM CDT

ANALYSIS

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Global risk sentiment continues to edge higher overnight and it all started yesterday afternoon with some positive signs in Italys daily coronavirus statistics. The Milan region reported just an 8% rise in new cases, versus +10% on Sunday and +14% on Saturday, which prompted headlines about a slowing trend for the outbreak in Italy. This optimism carried over into Asian trade last night, where talk circulated that the US coronavirus economic relief package (still not voted upon) could be upwards of $2.5 trillion in size. The flash March PMI data out of Europe today looked horrible, but one could make the argument that we knew this was coming. What is more, were waking up to reports now that Wuhan plans to end its historic lockdown on April 8. We feel all this mild coronavirus optimism has done more to create the green on the equity screens this morning than anything the Fed announced yesterday.

Dollar/CAD hit chart resistance in the 1.4540s heading into the release of Italys coronavirus statistics yesterday, and it slipped lower in overnight trade amid the optimism that drove May crude oil prices 5% higher. All of this is reversing now however as traders adopt a more cautious approach ahead of the North American news cycle. It will be interesting to see if market participants shrug off the US flash PMIs for March as well, to be released at 9:45amET.

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EURUSD

Euro/dollar broke above the 1.0820s earlier this morning after the 3-month EURUSD cross currency basis swap opened tighter (now just -8bp). Are the global USD swap lines doing their magic or are we seeing mild optimism on the coronavirus front? Wed argue the latter. The European flash PMIs for March were released earlier this morning (see below) and while they now point to guaranteed recession, one could make the argument that markets already priced this in, so there was no reason to overreact.

The swift move for EURUSD back below the 1.0820s now is rather concerning though as NY trade gets underway. It tells us to be on guard for more negative headlines that could bring back dollar demand. A close below the 1.0820 would be disappointing from a technical perspective as it would show clear buyer failure to arrest the markets downtrend.

June gold prices have gone bonkers over the last 24hrs as the continued demand for physical now far exceeds the markets ability to supply it. Coronavirus lockdowns are making it difficult for refineries to produce and for physical metal to be transported. The Royal Canadian Mint has shut down for 2 weeks due COVID-19. Were also hearing talk that theres been a breakdown in the CMEs Exchange for Physical mechanism (ie. some banks not providing pricing in the spot market). The spot market premium over the June futures contract traded as high as a $40/oz at one point this morning.

EZ Mar Markit Mfg Flash PMI, 44.8, 39.0 f'cast, 49.2 prev
EZ Mar Markit Serv Flash PMI, 28.4, 39.0, 52.6 prev
EZ Mar Markit Comp Flash PMI, 31.4, 38.8 f'cast, 51.6 prev
DE Mar Markit Mfg Flash PMI, 45.7, 39.6 f'cast, 48.0 prev
DE Mar Markit Service Flash PMI, 34.5, 42.3 f'cast, 52.5 prev
DE Mar Markit Comp Flash PMI, 37.2, 40.6 f'cast, 50.7 prev

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GBPUSD

It sure looked like the broader USD wanted to finally turn lower in the overnight session as traders ignored the poor UK flash PMIs for March as well (see below). Sterling rallied to the key 1.1790 resistance level in early London trade, but its now pulling back as NY traders seem to be preparing for a negative news cycle in North America today.

UK Mar Flash Composite PMI, 37.1, 45.1 f'cast, 53.0 prev
UK Mar Flash Manufacturing PMI, 48.0, 45.0 f'cast, 51.7 prev
UK Mar Flash Services PMI, 35.7, 45.0 f'cast, 53.2 prev

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AUDUSD

Mild coronavirus optimism lifted the Aussie as well in overnight trade and it seemed to take the focus away from Australias flash PMI numbers for March, which were also bad (see below). Traders are still having trouble with the 0.5960-0.6020 resistance zone as NY trade gets underway and we think this will be the markets pivotal level, for momentum, heading into the close. PM Scott Morrison extended a nationwide crackdown on social gatherings today by announcing some new restrictions. Seeherefrom ABC News.

AU Mar Manufacturing PMI, 50.1, 49.8 prev
AU Mar Services PMI, 39.8, 48.4 prev
AU Mar Composite PMI, 40.7, 48.3 prev

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USDJPY

Dollar/yen rallied back up to its recent trendline resistance highs in the 1.1130s yesterday, despite the Feds unprecedented QE announcement, and while it pulled back overnight on the broadly better risk mood (which hitthe USD), buyers have been found once again as NY trade begins with caution. The IOC and Japanese PM Shinzo Abe released a joint statement this morning saying that the Tokyo Olympic Games must now be rescheduled to a later date, but not later than the summer of 2021. Full statementhere.

JP Mar Jibun Bank Mfg PMI Flash, 44.8, 47.8 prev

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Charts: Reuters Eikon

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