Tiomarkets Daily Commentary 24 Feb. 2020

The start of a new week brings familiar themes. One in particular seems intent on grabbing the headlines, and today more so than ever. The Coronavirus. You could argue that today was the day that financial markets woke up to the real possibility of this turning into an uncontrollable pandemic. That maybe it won’t just ‘blow over’. From Italy to Iran new cases continue to surface. Travel links and sporting events are being shut down and cancelled. It’s getting serious and the markets know it.

European equity markets would lead the onslaught. As my day begins in the US, the DAX and FTSE 100 are both down more than 3.5%. The FTSE MIB (Milan) is lower by 4.8%. Equity futures in the US have the DJ opening down by 850 points. XAU has proved to be the safe haven of choice with a gap higher on the open in Asia from Fridays close of 1,643 up to 1,656. Before long we would touch 1689. It’s a full on a panic. FX would be a little more muted in its reaction. JPY cross selling was prevalent as traders express their loss of risk appetite but maybe not quite to the extremes you would imagine. USDJPY, having closed around 111.60 on Friday would touch 111.20. EURUSD would also head lower from 1.0850 to 1.0805 as EURJPY flows would dominate. GBPUSD would follow suit dropping to 1.2887. AUD, NZD and CAD all suffered as you might expect with AUD making new 11-year lows at 0.6582. In the absence of any meaningful data releases, would the US session continue to add to the doom and gloom, or would traders find some respite? The Wall Street open would suggest the former with the DJ down 900 points at the open. USDJPY would take a sharp drop lower, touching 110.33. EURUSD would head the other way, rallying back up to 1.0872. You might have expected Gold to continue its march higher but seems like the market got caught a little long and drifted back to 1,575 before dropping all the way to 1,552! Equities would chop around, the DJ rallying back to down ‘just’ 750 points. EURUSD would briefly drop back to 1.0840 and USDJPY would squeeze back to 110.75. By the Wall Street close the DJ would be down over 1,000 points! That in itself, tells you all you need to know. Gold would end at 1,560.

A messy day to put it mildly, especially for equities and XAU. For FX, JPY flows would dominate. Looking at a very simple hourly USDJPY chart, I think its fair to say we rallied too far too fast. Conversely we have come off just as quick as we rallied. As you can see 110.29 was the level that needed to break to the topside and when it did, off we went. That in turn should act as strong support even in the most volatile of markets. Today's low? 110.33. Sometimes keeping it simple in the face of volatility is the best plan. Keep an eye on that level going forward.