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Market Wrap – January 2020



If we didn’t have enough issues rattling financial markets, along comes the Coronavirus out of China, which has now infected thousands of people around the world.  As regular updates emerge about the coronavirus and how quickly it is spreading, markets and investors around the world have been gripped by fear with the rapid spread of the coronavirus.  According to data from the World Health Organization (WHO) and Chinese state media, the deadly coronavirus has taken the lives of at least 170 people in China and infected thousands more globally.  As widely expected, the U.S. Federal Reserve kept their benchmark rate steady. Fed Chair Jerome Powell has previously said the rate cuts last year kept the economy on solid footing and no further decreases were needed unless the outlook darkened.  "Uncertainties about the outlook remain, including those posed by the new coronavirus," Powell said at the post meeting media conference. "There is likely to be some disruption to activity in China and globally" from the virus. "It's too early to say what the effect will be" in the U.S. "We are monitoring it carefully.", he added.


During the month of January, the EURUSD generally moved lower from a five-month high around 1.1240 down to a key support level at 1.10.  To finish out the week it again found solid support at this level. During the month it has found some support and resistance from the key 1.11 level, although most of the current levels including 1.10, 1.11 and 1.12 have played a significant role in the last six months or so alternating between providing support and resistance.  It was only a few weeks ago that the EURUSD had been rallying well off the support at 1.11 level right back into the middle of its popular trading range between 1.11 and 1.12, where it has spent the best part of the last month. It has more recently been eyeing off the key level at 1.10 as to whether it can maintain some support.  

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In its first rates meeting for 2020, the European Central Bank (ECB) voted unanimously to keep the main deposit rate at a historic low of -0.5%, in line with market expectations.  In a press conference following the decision, ECB President Christine Lagarde said rates will “remain at their present or lower levels until we have seen the inflation outlook robustly converge to a level sufficiently close to, but below 2% within our projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.”  She added that the central bank “stands ready to adjust all of its instruments as appropriate” in order to guide inflation towards target. Ms Lagarde said the risks surrounding the euro area growth outlook “related to geopolitical factors, rising protectionism and vulnerabilities in emerging markets remain tilted to the downside, but have become less pronounced as some of the uncertainty surrounding international trade is decreasing.”


After some volatility to finish last year, the GBPUSD has been quiet and steady throughout January.  For the month, the GBPUSD has enjoyed some solid support from the key support level of 1.30 which has allowed it to push higher and reach a two-week high above 1.31 two weeks ago and again push off strongly to finish the month.  In the last few weeks the 1.30 level has been under pressure as the GBPUSD eased away from a two-week high above 1.32 and looked poised to move lower through 1.30 before some support kicked in which has held it up well.  

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The Bank of England (BOE) have voted 7-2 to keep the official base rate at 0.75%, in what will be Governor Mark Carney’s final monetary policy meeting, and the final meeting before the United Kingdom departs the European Union later today.  Some thought the BOE may cut rates given recent weak GDP figures. European and British leaders are now due to start negotiations for a free trade agreement before the end of 2020. The BOE’s report further downgraded the 2019 fourth-quarter U.K. GDP growth estimate to zero.  The central bank has suggested that as the Brexit outcome becomes clearer, inflation and growth are likely to pick up.


Just like the EURUSD, the AUDUSD only headed in one direction in January – down.  Throughout the month, the AUDUSD fell strongly from a six-month high above 0.70 down to its lowest level in three months below a key level at 0.6750.  It had been enjoying some support from the well-established significant level at 0.6750 and now this level may provide some resistance to any rallies. In the last two weeks the AUDUSD had been enjoying support from the key 0.6850 level after falling from a six-month high above 0.70.  Just prior to its recent drop, it had been experiencing resistance from the 0.6850 level which may resume this role should the AUDUSD rally to back above 0.6750.  

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At the last policy meeting for 2019, the Reserve Bank of Australia (RBA) kept the official cash rate on hold at a historic low of 0.75%.  However, the RBA is now torn between stimulating growth and rising house prices, having just posted five consecutive months of gains. So, while the three rate cuts since June have failed to help the unemployment rate, which has moved up to 5.3%, it has boosted house prices again.  Dr Lowe said in a post meeting statement, "There are further signs of a turnaround in established housing markets. This is especially so in Sydney and Melbourne, but prices in some other markets have also increased recently. In contrast, new dwelling activity is still declining and growth in housing credit remains low.”  There remain concerns about the Australian economy with more retail stores seemingly going into liquidation every day, which is indicative of the weaker consumer sentiment.


The US30 index has enjoyed a strong January before falling sharply towards the end of the month.  In the last week of the month the US30 index rallied well back towards the key 29000 level however this is following sharp falls which saw the index drop below this level down to a three-week low.  Prior to the sharp falls, the index had been easing a little from its all-time highs. It will be interesting to see if the 29000 level resumes its previous role and provides resistance to the index.  In the last month or so the index has moved strongly after breaking through the key 28000 level, which had been providing resistance to the index, even with some recent consolidation between 28500 and 29000.


As widely expected, the Federal Open Market Committee of the U.S. Federal Reserve (Fed) decided unanimously to hold its benchmark funds rate in a range between 1.5% to 1.75%, where it has been for several months now.  There wasn’t much changed in their post meeting statement, however it did state that its policy is aimed toward “inflation returning to the Committee’s symmetric 2 percent objective.” Fed Chair Jerome Powell has previously said the rate cuts last year kept the economy on solid footing and no further decreases were needed unless the outlook darkened.  "Uncertainties about the outlook remain, including those posed by the new coronavirus," Powell said at the post meeting media conference. "There is likely to be some disruption to activity in China and globally" from the virus. "It's too early to say what the effect will be" in the U.S. "We are monitoring it carefully.", he added. In the statement, the Fed also said “the labor market remains strong” and “economic activity has been rising at a moderate rate.”


After moving strongly throughout December, gold consolidated a lot during January enjoying solid support from $1550.  Especially during the middle part of the month, gold enjoyed support from $1550 allowing it to push up to a three-week high near $1590 a week ago before easing in the last week to finish the month.  From the last three weeks, the $1550 level has clearly established itself as a level of support and is likely to play this role again should gold decline from its current levels. Even with its drastic falls a few weeks ago from its seven-year highs above $1600, the $1550 level stepped in and propped gold up.  Towards the end of last year, gold surged very strongly to its highest level in seven years above $1610, after it exploded through the key $1500 level, which had been a significant level for several months.

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Recently, gold has been well supported by fears on several different fronts from the virus, to Brexit to the U.S. economy.  The International Monetary Fund (IMF) has revised its global growth rate down from 3.4% to 3.3% for 2020, having become less optimistic and warning that the outlook remains sluggish.  Gita Gopinath, the IMF’s chief economist wrote, “The projected recovery for global growth remains uncertain. It continues to rely on recoveries in stressed and underperforming emerging market economies, as growth in advanced economies stabilizes at close to current levels.”  The IMF made specific note about the recent trade deal with the China signing a ‘phase one’ trade deal with the United States, which was a positive and a way of reducing tension in the markets. “Some risks have partially receded with the announcement of a U.S.-China Phase I trade deal and lower likelihood of a no-deal Brexit,” Gopinath said.

UK Oil

UK Oil has fallen very sharply throughout January from seven-month highs above $71 down to its lowest levels in three months below the key $58 level.  UK Oil has been on a wild ride of late moving to multi-month highs and dramatic falls providing traders ample opportunity to trade with the increased volatility.  As quickly as it surged higher through the key $68 level, it was falling back through this level, down through the key $63 level and lower. The $63 level is also significant and has played a role several times in the last few months, which means UK Oil may experience some resistance should it rally from its present lows.  


Several weeks ago, tensions escalated further when Iran launched a rocket attack on U.S. forces in Iraq which failed to destroy major energy infrastructure, which luckily would have disrupted global crude supply.  Fortunately, those tensions appear to have dissipated. In a further potential blow to oil, according to the National Oil Corporation (NOC), two major oilfields in southwest Libya began shutting down on the weekend after forces loyal to Khalifa Haftar closed a pipeline, potentially significantly reducing national output.  More recently, the flow on effects of the virus are hitting the oil price with airlines all around the world cancelling flights to China. The markets are currently trying to assess the potential fallout from the virus and impact to economic growth and demand for crude oil.  

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