What a month! Only a month ago we were talking in terms of tens of thousands of people infected with COVID-19, which has now ballooned out to several hundreds of thousands and quickly approaching one million. Financial markets are rattled and have become ludicrously volatile with wild swings being experienced on a regular basis. Most major central banks have taken emergency action to cut rates (some repeatedly) and increased stimulus measures.
In a TV interview, the OECD’s secretary general Angel Gurria has said the economic fallout from the coronavirus pandemic will be felt far beyond the immediate impact of the virus. “What you have is an economic effect now that, very clearly, is going to be prolonged beyond the period of the pandemic,” Angel Gurria said. “We’ll hopefully get rid of the pandemic in the next two or three months and then the question is how many unemployed (will there be), how many small and medium-sized enterprises will be in a very, very severe situation if not disappeared by that time,” he added. “Life, and economic activity, is not going to be normalized any time soon,” he said. “We’re going to have the impact of this crisis for a long time to come.”
During the month of March, the EURUSD has been on a rollercoaster ride falling sharply from near 1.15 down to a three year low below 1.0650 before a very strong rally to close out the month has seen it climb back above another key level in 1.10. After having traded in a wide range generally between 1.10 and 1.12 for an extended period, this latest break lower, rally higher and then sudden drop is significant with volatility increasing as well. The 1.10 level has propped up the currency pair several times in the last few months however it failed on this occasion such was the strength of the recent drop. It will be interesting to see if the key levels including 1.10, 1.11 and 1.12 which have played a significant role in the last six months resume and keep price in this range.
Considering the U.S. Federal Reserve (Fed) cutting its benchmark interest rate by 50 basis points, the European Central Bank (ECB) also announced stimulus measures however would have disappointed those expecting a rate cut. Last week the ECB agreed on an additional 120 billion euros worth of debt purchases before the end of the year. “The interventions are flexible both in timing and in terms of concerned markets and will continue for as long as necessary,” a Bank of Italy source said. “The ECB is ready to do everything in its mandate to counter market turmoil that disrupts monetary policy transmission, otherwise monetary policy cannot function,” ECB board member Isabel Schnabel said in an interview. Previously, ECB President Christine Lagarde said, “the coronavirus outbreak is a fast developing situation, which creates risks for the economic outlook and the functioning of financial markets” in a statement.
Like the EURUSD, the GBPUSD has also experienced a rollercoaster ride during March moving sharply back and forth. Throughout the month, the GBPUSD spent two weeks dropping dramatically down from above the key 1.30 level down to its lowest levels in 35 years below 1.15, before enjoying a healthy resurgence in the last week or so to close out the week, pushing it back towards 1.25. The sterling was able to enjoy some short-term support from the 1.25 level two weeks ago however that level also gave way with the GBPUSD collapsing, however this role may now provide some resistance to the GBPUSD. The 1.30 key level now seems a distant memory, however it is also likely to provide some resistance if and when the GBPUSD returns there.
This month alone, the Bank of England (BOE) has made two emergency interest rate cuts in order to limit the economic impact from the virus last week, moving down to 0.1%. In its latest meeting yesterday, the central bank kept its key policy rate unchanged however it warned that the UK economy would suffer “a very sharp reduction in activity” as the coronavirus outbreak sharply reduces consumer spending and forces businesses to close. "The scale and duration of the shock to economic activity, while highly uncertain, will be large and sharp but should ultimately prove temporary, particularly if job losses and business failures can be minimised," the BOE said. Despite the BOE maintaining the total size of its bond-buying programme, it believes its own actions won't be enough to stop the economy falling into a deep recession. “The economic consequences of these developments are becoming more apparent and a very sharp reduction in activity is likely,” the BOE said.
Like both the EURUSD and GBPUSD, the AUDUSD has moved sharply in March. In the last week to close out the month and right in the face of steep falls, the AUDUSD has been able to stop the bleeding for the time being and consolidate in the last few days spending several days trading around 0.57 and 0.58 and then rally back up to above 0.61. In less than two weeks, the AUDUSD dramatically dropped sharply from around 0.66 down to an 18 year low near 0.55, before its recent rally. It had only recently been applying pressure on the key 0.6750 level before the drop. Due to its current multi-year low, there are no obvious support levels available, although the AUDUSD may very well be propped up at different levels. The AUDUSD has now spent almost the last two months below the key 0.6750 level and is likely to meet resistance at this level if it is able to miraculously regain the lost ground soon.
In an emergency move, the Reserve Bank of Australia (RBA) has cut interest rates to a record low of 0.25% and announced never seen before measures to help protect the Australian economy from the coronavirus. As part of its first ever quantitative easing program, the central bank will buy Australian government bonds and provide a three-year funding facility to provide cheap loans for Australian banks. In a country wide shutdown of non-essential services, countless Australians have suddenly lost their jobs and the stock market has lost billions of dollars in value in a short period of time. The RBA Governor Philip Lowe said the bank would hold the cash rate at 0.25% "until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2-3 per cent target band". "Before the coronavirus hit, we were expecting to make progress towards full employment and the inflation target, although that progress was expected to be only very gradual," he said.
Like everything else, the US30 index has moved very sharply during March experiencing some of its largest point moves in its long history. In the last week, it has surged higher from down near 18000 back up above 20000 and continued to above 22000, however in doing so, it has only added to its significant increase in volatility. Having moved around 200 points a day on average, this reading has surged to well above 1500 as the volatility has exploded to historic levels. In perspective, its recent surge higher comes on the back of a significant drop in the last month where it has moved from its all-time highs above the key 29000 level to a three year low below 20000.
In order to combat the global impact of the coronavirus, the U.S. Federal Reserve (Fed) recently took emergency action commencing a massive $700 billion quantitative easing program as well as dropping its benchmark interest rate to zero. In doing so, the Fed said, “the coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States.” The central bank has now taken their measures to another level by launching a wide range of programs designed to help financial markets function more efficiently. The Fed will continue its asset purchasing program “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.” “The coronavirus pandemic is causing tremendous hardship across the United States and around the world. Our nation’s first priority is to care for those afflicted and to limit the further spread of the virus,” the Fed said in a statement.
Not exempt from the volatility, gold also moved sharply in both directions during March from seven-year highs above $1700 down to a three-month low around $1450. To finish out the month, it spent several days consolidating in a narrow range right above $1600 having recently surged higher from those three-month lows around $1450. Most of the significant levels from the last three months including $1500, $1550 and $1600 have had little impact on price in the last month, as gold has moved so violently in both directions ignoring any levels of support or resistance. The volatility has increased four times in the last few weeks, underpinning how wildly it is moving.
Despite its volatility of late, gold has been well supported by the massive economic impact of the coronavirus. The head of the International Monetary Fund (IMF), Kristalina Georgieva said the new coronavirus outbreak is the “most pressing uncertainty” facing the global economy currently. Consequently last week, the IMF Managing Director Kristalina Georgieva announced a $50 billion aid package to help fight the coronavirus.
UK Oil has endured a terrible run in March halving in price falling to its lowest levels in many years. Earlier in the month it experienced a significant gap down from $45 to $35, and despite its efforts to rally back, it continued to fall throughout the rest of the month. During its fall, it found little support from anywhere, although it has spent the last week or so consolidating in a narrow range trading around $27. It has no obvious support levels with the possible exception of round numbers, e.g. $25 and $20. Even ignoring its poor March, it generally has not performed well this year falling from multi-month highs above $70 in the first week of the year down to its recent multi-year low as it has been struggling to receive any support from anywhere. This period has also been accompanied by a significant increase in volatility.
Oil prices have been subdued of late as markets assess the potential impact on future demand due to the coronavirus outbreak. Recently oil has been thrown back and forth by a variety of factors including reports that the Organization of the Petroleum Exporting Countries (OPEC) will cut production even further to align with the expected decrease in demand. However as there is more fallout from the coronavirus and what steps countries are taking to combat the economic impact, it is clear for the time being, the demand for oil has dropped dramatically. The lack of air travel has been one of the biggest factors impacting the demand for oil, and then a potential breakdown in OPEC discussions could lead to a glut of supply thanks to Saudi Arabia. Last week oil suffered its worst week since 2008, although it was provided some support on comments from the U.S. President that he would like to purchase oil to fill the U.S. strategic petroleum reserve.
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