Travel Stocks and Global Indices rebound. PBoC Liquidity helps optimism. EUR/USD, GBP/USD, USD/JPY
There is a rebound in stocks and indices. Investors nerves have cooled regarding the coronavirus as it is mainly concentrated in Central China’s Hubei province, in the city of Wuhan. There is a spur of confidence as the PBoC – Peoples Bank of China cut interest rates for short term debt after a liquidity injection on Monday to protect the stock market and the economy. Other Central Banks around the world including the RBA – Reserve Bank of Australia are opting to leave rates unchanged while they wait to see the full impact of the coronavirus on the financial markets.
The Shanghai Composite Index (000001), after gapping down by -8.75% from January 23rd, the index is trading +3.75% this week. Hang Seng (HIS) is trading +2.30% since the beginning of this week. The NASDAQ is up by +2.10% and the DOW by about +1.44%.
We need to take note, that the coronavirus has taken a big toll on travel and airline industries. Many flights are suspended and there is a big spook surrounding cruise ships. There is a luxury Diamond Princess cruise ship off the Japanese port of Yokohama with 3,700 passengers and crew onboard that are confined to their cabins for the next 2 weeks as 10 passengers tested positive for the coronavirus. Princess Cruises is part of Carnival Corporation (CCL) which lost approximately -18.4% since January 17th.
Since January 17th , travel giants like Booking.com (BKNG) lost over -9% and Skyscanner (TCOM) after dropping by a whopping -25% has regained about half and their losses currently stand around -12.5%.
We’ll also pay attention to the stocks of Starbucks (SBUX), McDonalds (MCD), Apple (APPL) and Disney World (DIS) as the businesses are likely to suffer losses after having been closed for a prolonged period of time.
EUR/USD on a Daily TF is trying to push below key level of support. The price dropped below 1.10300, came back for a retest as resistance, dropped to 1.10150 and is now trading around 1.10250. The United States Dollar is strong. U.S. Factory Orders MoM Dec. increased by 1.8%, above the 1.2% forecast and -1.2% previous result. Eurozone Markit Composite PMI and Services PMI for January were reported slightly above forecast at 51.3 and 52.5 respectively, while Retail Sales MoM for Dec. dropped by -1.6%, worse than -0.9% forecast and 0.8% the previous result which was revised down from 1.0%. Conflicting post-Brexit negotiations between the EU and UK may continue to weigh on the European currency.
Technically: Indicators are mixed, MACD is bearish, bearish histogram is increasing. The price is below the13EMA which is pointing down. Parabolic SAR is currently pointing up, albeit around 1.10 support.
Resistance: R1 1.10500, R2 61.8% Fibo 1.10798, R3 1.11 – 1.11102 (50% Fibo).
Support: S1 1.10-1.09923, S2 1.09670, S3 1.09400.
GBP/USD on a Daily TF is trading slightly bullish following better than expected Composite and Services PMI for January, released at 53.3 and 53.9 respectively. The pair continues to move in a flat, currently trading around 1.30466.
Technically: The price met resistance at the 13 EMA, the Parabolic SAR is pointing down, the MACD bearish histogram has increased.
Resistance: R1 50% Fibo 1.31675, R2 1.32500, R3 1.33327.
Support: S1 1.30 - 1.29500, S2 38.2% Fibo 1.28821, S3 200EMA 1.28353.
USD/JPY on a Daily TF reached all three of our resistance targets, currently trying to break above our 109.650 resistance, trading around 109.663 after spiking up to 109.724. The move is due to strong USD, the return of risk-on sentiment and weaker than expected Japan Service PMI, which were released today at 51.0, below the 52.1 forecast but ahead of the previous 49.4.
Technically: The Parabolic SAR and MACD are prepared for a reversal to the upside but still pointing down. The price and 13EMA crossed 48EMA up. 200EMA flat at the 23.6% Fibo level.
Resistance: R1 110.214, R2 110.681, R3 111.
Support: S1 109.270, S2 23.6% Fibo 108.911, S3 108.600.