Trading Week Ahead: 24th – 28th February 2020
Key Events This Week
Day 2 of the G20 Finance Ministers and Central Bank Governors Meeting
NZD Retail Sales
EUR German Ifo Business Climate
GBP Monetary Policy Report Hearings
EUR German GDP
USD CB Consumer Confidence
NZD ANZ Business Confidence
AUD Private Capital Expenditure
EUR Business Climate
(Times adapted to AEDT timezone)
Japan’s weakening economy
There are a few reasons as to why the Yen was hammered last week, however, the coronavirus fears hitting an already weakening Japanese economy was the most influential. The Bank of Japan confirmed a weakening economy by commenting that the virus will have an impact on supply chains, tourism, and exports.
Currently, the country sits with negative interest rates which were initially placed to jump an ailing economy, but last week Japan’s GDP shrank by an annualised 6.3% in October – December. This was much worse than a median market forecast for a 3.7% drop which continued to stir recession fears. The Japanese Yen (JPY) futures also tested March lows in two days of wild selling. With all this in mind, the currency is struggling to hold on to its safe-haven status.
The Dollar Drives On
In contrast, the USD had a week of glory with Asian funds moving into US assets. The plunge in the Yen and the commodity currencies due to the coronavirus and weaker data all add to the buying. The DXY US dollar futures closed back in on the 100 level and the USD hit 3-year highs.
What now for the Aussie and Euro?
On the back of the USD gain, the AUDUSD hit 10-year lows after weaker than expected employment data and coronavirus worries started to reignite RBA rate cut speculation. Gold, on the other hand, went back into safe-haven mode jumping by around 3% for the week. European leaders met Thursday at an EU Summit to face down a 75 billion euro hole in their budget after the UK’s departure from the trading bloc. With an already beaten down Euro trading at lows, can the currency withstand any further bad news, especially with a glut of German data due this week? It’s shaping up to be quite a year for the EU.
This week it’s hard not to focus on the USD, JPY, Gold and AUD. Gold moved back into safe-haven territory with a 3% jump for the week, whilst USDJPY continues to trade at 10-month highs. 112.20 has started to form resistance for the pair, but a lot comes down to whether or not last week’s influences will carry on. If they do it’s not unlikely to think that we could see a further extension to possibly test 112.50 or 113.00. If this was an overreaction, we could also see some solid profit-taking. The focus will remain on Japan and the effect the coronavirus might still hold over the economy.
Gold is another to watch this week along with the USD and JPY, if we see escalations with the coronavirus and further jumps from the other asset classes, this could potentially add to the current rally. Gold moved above 1630 hitting new 1-month highs. As noted, this rally has a strong driver if that is to change, we could see sharp profit-taking develop.
As for the AUDUSD, how we could leave this pair out after it was knocked back into 10-year lows? There have been levels that have not been seen since the 2008/09 global financial crisis. For example, sellers had broken below the .66 handle! This week a lot will revolve around the developments with the impact of the coronavirus, however, any hints of a rate cut or cuts could further the selling. Is this currency oversold to the USD? The daily might start to point in the direction but the weekly shows a fresh breakout after .6658 was beaten.