Forex FOREX PRO WEEKLY, March 09 - 13, 2020

Sive Morten

Special Consultant to the FPA

Last week markets have got some relief, based on D. Trump words that we should not overestimate virus impact and markets are able to take care themselves to overcome any virus problems and everything should be fine. It had some calm effect but not for too long and this week market returns back to the road of running into the quality, buying gold and selling everything what is still could be sold. Simultaneously the process of unwinding of carry trades continues. Fed has cut rate for 0.5% and it is more on horizon. From that standpoint - it is no sense to keep US assets, as Fed is coming fast to ECB levels and investors sell US assets, sell USD and buying EUR to close short-term loans of carry trade financing. This is one of the reasons why we see unstoppable and irrational rally on EUR. Factor of safety also triggers additional demand of CHF and JPY, despite that Japan is second largest country under epidemic.

The U.S. dollar fell across the board after the U.S. Federal Reserve cut interest rates on Tuesday in an emergency move designed to shield the world’s largest economy from the impact of the coronavirus.

In a statement, the central bank said it was cutting rates by a half percentage point to a target range of 1.00% to 1.25%.

“The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate,” the Fed said a statement.

“This is definitely not good for the dollar,” said Mark McCormick, global head of FX strategy at TD Securities.While the U.S. has room to cut interest rates, other developed economies have already slashed rates to record lows and may be hesitant to reduce them further. That is likely to weigh on the U.S. currency and boost the currencies of other countries, he said.

The Fed’s move comes shortly after Group of Seven finance officials said on Tuesday they would use all appropriate policy tools to achieve strong, sustainable global growth and safeguard against downside risks posed by the fast-spreading coronavirus.

Global risk assets, including equities, were hammered hard last week as investors worried about the economic impact of the global spread of the virus.

The safe-haven Japanese yen and Swiss franc gained on the dollar on Tuesday, as investors remained nervous about the economic fallout of the coronavirus outbreak.
The yen, which tends to attract investors during times of geopolitical or financial stress as Japan is the world’s biggest creditor nation, was up about 1% against the dollar, while the Swiss franc, another safe haven, rose 0.7%.

The greenback also traded near the lowest in almost two years against the Swiss franc, with investors flocking to traditional safe havens as rate cuts were deemed insufficient to offset risks posed by the global spread of the coronavirus.

The euro was one of the currencies to benefit most from the broad-based dollar weakness as traders bet the Fed will cut rates more than the European Central Bank.

Disappointment that a Group of Seven statement on Tuesday did not lay out a specific response to a global slowdown caused by the coronavirus has reinforced the view among some investors that policymakers have fallen behind the curve.

“The G7 and the Fed were not enough to support markets,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.
“This Fed rate cut is bad for dollar/yen, partly because Treasury yields are now very low. The dollar’s weakness is reflected in the euro, because the Fed will likely ease more than the ECB.”

Money markets were pricing in another 25 basis point cut from the current 1% to 1.25% range at the next Fed meeting on March 18-19 and a 50 basis points cut by April.

"The cuts were emergency so it's worth wondering, will the Fed strike again like this or will they telegraph another move? It seems like they're willing to help at any point, thus the lack of faith in the buck is understandable," said Juan Perez, senior foreign exchange trader and strategist at Tempus Inc in Washington

The rate cut failed to arrest a sell-off in U.S. equities and sent benchmark 10-year Treasury yields crashing to a record low of 0.906%, further reducing the appeal of the dollar.

Sentiment also took at a hit after G7 finance ministers issued a statement on Tuesday that stopped short of calling for new government spending or coordinated central bank interest rate cuts. Uncertainty about trade talks between Britain and the European Union is weighing on sterling, along with growing expectations for UK interest rate cuts.

Money markets are now fully pricing in a cut of 25 basis points on March 26 when the Bank of England next meets. Almost two cuts are priced by the end of 2020, compared to none a few weeks ago.

But, later Sterling gained 0.4% against the greenback as expectations waned for an immediate Bank of England rate cut to follow this week's emergency move by the Fed. Incoming BoE governor Andrew Bailey dampened expectations of an inter-meeting cut late on Wednesday, telling lawmakers the central bank should wait until it has more clarity about the economic hit from the outbreak.

I'm really fascinating with BoE representatives. Fears are rising in UK as virus has come there as well, investors expect rate cut but they add uncertainty, making such statements "that we will see'. And later they surprise why it was so much volatility around rate decision, while they should think that they are bring this volatility by their statements. For traders this is good statement, as I'm sure that BoE will cut the rate. As uncertainty stands at high level - this again could trigger solid downside move.


The U.S. dollar fell across the board on Friday, posting its biggest weekly loss in four years, as a sharp drop in U.S. government bond yields hurt the greenback’s appeal.
“A historic slide in U.S. Treasury yields served as the straw that broke the dollar’s back and its handle on three-year highs reached a couple weeks ago,” said Joe Manimbo, senior market analyst at Western Union Business Solutions, in Washington.

“Economic uncertainty is spreading about as fast as the coronavirus which is heaping pressure on the Federal Reserve to follow up its big rate cut this week with another when it meets later this month,” he said.

Investors have slashed expectations for U.S. interest rates after an emergency Fed rate cut of 50 basis points earlier this week to counter the economic fallout from the spreading coronavirus.

Worries about the outbreak have left market fundamentals in the dust, and the 10-year note yield sank to a record low. That is wiping out the yield advantage that had fueled a popular carry globally - borrowing at negative rates in the euro and yen to buy U.S. assets. Markets now bet the Fed will again cut rates by 50 basis points this month.

Currency volatility gauges rose on Friday, with one-month euro-dollar implied volatility reaching its highest since November 2018.

The dollar found little support from data that showed U.S. employers maintained a robust pace of hiring in February, giving the economy a strong boost as it confronts the outbreak that has stoked fears of a recession.

“The print is very impressive,” said John Doyle, vice president for dealing and trading at Tempus Inc in Washington. “But I think the positivity of the numbers will be drowned out by the overarching risk-off environment today.”

Sterling extended gains against the broadly weaker dollar, and was boosted by comments from the European Union’s chief Brexit negotiator that a trade deal between Britain and the bloc was still possible this year.


Despite the storm on the market CFTC shows minor change in net positions. Thus, on EUR net short position barely has changed, despite that rally stands for two weeks already. This phenomenon confirms our suggestion that cross-currency flows have no impact on balance of short and longs positions, as these flows have non-market reasons. Investors change currency not to hold it but to payout short-term loans. Thus, it has minor impact as on hedgers as on speculators. It is interesting to see whether this situation will change next week:


Charting by

One of the hottest topics is what to expect from the Fed. And I thought that Fathom opinion on this subject should be interesting:

News in Charts: After Fed’s emergency cut, what next?
The Federal Reserve announced a rare inter-meeting emergency interest rate cut of 50 basis points this week. The accompanying statement said that the “fundamentals of the US economy remain strong” but the coronavirus posed “evolving risks to economic activity”. The statement was released after a conference call of G7 finance ministers and central bankers about a response to the virus failed to result in coordinated action. However, the Bank of Canada has since implemented a 50 basis point cut of its own. Following the Fed’s move, investors continued to anticipate further policy easing, sending the yield on a ten-year US government bond below 1% for the first time in history. Investors expect further interest rate cuts ahead. Can previous inter-meeting decisions shed light on the subject?


The Federal Reserve rarely announces policy moves in-between meetings. The last time it did so was in October 2008 at the height of the Global Financial Crisis. In total, there were three inter-meeting cuts during 2007 and 2008 as policymakers responded to a severe economic shock and turbulent financial conditions. Before that, the Fed enacted three emergency rate cuts during 2001 — two related to the fallout from the dot-com bubble and one in response to the 9/11 terrorist attacks. Meanwhile, in 1998, the Fed reduced its interest rate in response to Russia’s financial crisis. Looking back, history suggests that an emergency rate cut tends to be a sign of further easing to come. Interest rates continued to decline in 2001 and 2007/08, however, the Russia shock is a notable exception to this rule, with interest rates rising soon after the emergency cut. There has been one example of an inter-meeting policy tightening. In April 1994, the Fed increased its policy rate by 25 basis points, a move that was followed by further tightening.


A look at history suggests that investors are right to anticipate future Fed easing. However, there is a big difference between the economic impact of COVID-19 and the Global Financial Crisis. In the latter, the initial impact was a negative shock to aggregate demand. Easier monetary policy was the textbook response. With COVID-19, there is likely to be a hit to both supply and demand. The shock to supply comes as firms cannot produce as much before, due to factory shutdowns or staff sickness, implying shortages or price increases. Meanwhile, reduced confidence and increased uncertainty is likely to have a negative effect on demand. Further interest rate cuts would only really make sense if the negative shock to demand is larger than that to supply. So far, the official economic data suggest that coronavirus has yet to have a large impact on domestic demand. Indeed, the ISM non-manufacturing survey rose to 57.3 in February. Meanwhile, its manufacturing counterpart dropped by 0.8 points but remained above 50. Fed Chair, Jerome Powell, said the policy easing this week was in response to disruptions to trade and travel elsewhere and that there was no sign of a domestic slowdown yet. Signs of a change on that front will be decisive when it comes to the future direction of monetary policy.

Now let's take a look what interesting could happen next week:


A week is proving to be a long time in central banking — who would have thought a week ago that the Fed would step in with an aggressive emergency rate cut? Canada and Australia have also slashed rates in the face of the coronavirus outbreak, so will central banks in Europe and Japan take similar action in coming days?

The March 12 ECB meeting will be a lively affair, no doubt.

Some ECB policymakers have cautioned against a quick move; where rates are already deeply negative - read the euro zone, Switzerland - further cuts may have limited impact. The Bank of England says it will gauge the scale of economic damage before taking action. And with a new BOE governor coming in, there’s an additional reason for delay.

Britain’s new finance minister Rishi Sunak will present a budget on March 11. He was already expected to announce a stimulus package targeted at Britain’s poorer regions but the spread of coronavirus means he may have no choice but to boost public spending further. Those expectations were further raised when incoming Bank of England Governor Andrew Bailey suggested a co-ordinated response between the government and central bank to help small businesses caught up in the coronavirus fallout.

Will Germany — the country with the most room to engage in fiscal stimulus — follow? The pressure is on.


There’s enough evidence that factories are nowhere close to normalcy while empty roads and shops suggest producer prices contracted last month. Economic activity should have contracted in the first quarter, for the first time in decades.

But all that is history. Looking ahead, authorities will want to address the growth risks, so expect more cuts in bank reserve ratios, money market yields and benchmark rates. Beijing is also likely to speed up infrastructure projects to get economic momentum going.

Meanwhile, foreign investors are rushing into Chinese equities and rich-yielding yuan bonds as other markets tumble. But they are also questioning the shape of China’s recovery and whether that could be undermined by the global spread of the virus.


As a bottom line...when people are frightened they do a lot of irrational things.

So, this is briefly the background that we have right now. As always, it is difficult to make any reasonable analysis and forecast, difficult to apply tools of technical analysis as they have limited applicability. At the same time, guys, I have some strange feeling of big artificial component in all this rush around virus. Yes, we have 100K cases right now, but headlines mostly are dedicated to new cases and victims, why so few information on how many people recovered, what the death statistics, etc.

I'll give you just few numbers. To estimate how easily a virus spreads, scientists calculate its "basic reproduction number," or R0 (pronounced R-nought). R0 predicts the number of people who can catch a given bug from a single infected person, Live Science previously reported. Currently, the R0 for SARS-CoV-2, the virus that causes the disease COVID-19, is estimated at about 2.2, meaning a single infected person will infect about 2.2 others, on average. By comparison, the flu has an R0 of 1.3.

Perhaps, most importantly, while no vaccine exists to prevent COVID-19, the seasonal flu vaccine prevents influenza relatively well, even when its formulation doesn't perfectly match the circulating viral strains.

Second. About 81% of people who are infected with the coronavirus have mild cases of COVID-19, according to a study published Feb. 18 by the Chinese Center for Disease Control and Prevention. About 13.8% report severe illness, meaning they have shortness of breath, or require supplemental oxygen, and about 4.7% are critical, meaning they face respiratory failure, multi-organ failure or septic shock. The data thus far suggests that only around 2.3% of people infected with COVID-19 die from the virus.

Third. The annual flu typically has a mortality rate of around 0.1% in the U.S. So far, there's a 0.05% mortality rate among those who caught the flu virus in the U.S. this year, according to the CDC. In comparison, recent data suggests that COVID-19 has a mortality rate more than 20 times higher, of around 2.3%, according to a study published Feb. 18 by the China CDC Weekly. The death rate varied by different factors such as location and an individual's age, according to a previous Live Science report.

And now guys, try to match these facts with the chaos and panic raised by news agencies. I bet that this is planned action and it was paid and ordered for some purposes. I'm not sure on virus per se, but the way how it presents and highlights in news. US shows great NFP numbers this Friday guys, has somebody signed this? They were totally ignored. Fed has room to cut rate and probably cut more, ECB stands below the floor and can't do anything and EUR is rising. A lot of irrational things happen around.

It seems that under disguise of corona-virus panic big capitalists make the same deeds as at any crisis - put robbed money into gold. This story is as ancient as the world and exists since first market has appeared in beginning of 20th century. The first Great Depression was the same process - rob people, crush the stock market and put money into the gold, then start new trend on stocks, robbing more. I'm not excluding the fact that some additional political tasks are resolving as well. But, anyway, once the process of "saving" will over - panic should stop as fast as it has started. And the same news agencies that just screamed on deadly virus start to talk that it seems that it is not as dangerous as we thought, maybe some vaccine will appear to this moment etc.

History tells that all crisis events through the total history lasts approximately 1.5-2 years with stock market drop around 35%. Now it is down for 10%. WHO tells that epidemic holds till summer definitely. But soon bargain hunting will start, and it will start in China - the motherland of all recent flu-kind epidemics, there it should finish first of all.

So, guys, we should not go against running train, but keep common sense and do not fall in massive panic, be sensitive to signs that situation is changing, keep nose to the wind. Statistics shows slowdown in Chinese economy, some harm probably will be to global merchant either. But, we do not have crucial deteriorating of economy conditions across the Globe as it is presented in news. Currently Covid-19 is 20 times more dangerous compares to flu, but data array is too small, just 100K cases. In any town with population around 1Mln every year the same number of flu infected people exist during seasonal epidemic. All in all, it is difficult to imagine how 100K infected people, including 80K totally recovered, could crush global economy... It is fear crushes the economy, not the virus.


So, let's take a look at technical picture, although it is still a question how useful it will be in current conditions. Anyway... on monthly chart grabber has completed minimal target as price jumped above recent top. Trend holds bullish here, and take a look, EUR again has moved above YPP after testing YPS1. Never thought that I tells this in relation to monthly chart - but situation is changing really rapidly.

Next logical target, based on pivot framework is YPR1 at 1.1560. Monthly Overbought stands above 1.20, so we have no barriers from it. As we will see on weekly chart - big resistance cluster starts since 1.14 and lasts till YPR1.

In general, at a stretch, we could call current price action as DRPO LAL. Grabber month close slightly above 3x3 DMA but it created the new lows. Overall downside thrust is not bad. We do not intend to trade it directly, but it suggests upside action in excess of YPR1, somewhere to 1.18 area.


Technical picture tells that this is not good moment to buy, as price is strongly overbought on weekly and is coming to K-resistance area, that stands just 50 pips above the week's top. Our stake on possible reverse H&S pattern has not worked, as market breaks through the neckline without respect. Now EUR forms upside reversal swing. Normally, we should get deep downside pullback, at least to 50% of recent jump. Anyway, whatever pullback we will get (if any), we will try to use it in direction of existed upside momentum.



Here market has broken up all local levels and next one is the same weekly K-resistance. Price is overbought here as well. On daily chart we have twofold task. First is, separate B&B "Buy" potential setup, that could start from 3/8 Fib support. Once it will be over (of fails) we intend to consider deeper retracement as we said above. At least it is suggested by common way of price action. Let's see at what degree market completes this.



Here we have the same steep AB-CD pattern. Reaction on OP target was mild and for the truth sake we didn't put big hope on it and warned on the hazard to go short right now. On coming week again - we mostly intend to watch for pullback and follow the trades that we've mentioned above, following the strong upside momentum for some time.

Picture shows that theoretically market should hit XOP before major retracement starts. It stands just 15 pips below weekly K-area and creates Agreement with it. Of course, short entry is not forbidden again but it stands beyond of our trading plan and we leave this decision up to you.



We see a lot of irrational moments in fundamental background on the market, but currently we can't use it because total panic keeps markets in the only one direction.
That's why on coming week we will try to use existed momentum
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Sive Morten

Special Consultant to the FPA
Very good job, Sive!
Thanks mate. I've tied to keep mind chill and take unbiased view on this stuff, using just common sense. It seems that when you're living in technology era and information is easy to get and distribute - this is not always good achievement. It creates a lot of space to manipulations.


Hi Sive,
the problem is the number of patients who need hospital intensive care to be treated not to die. In a normal flu it is much less than 1%....with COVID about 10% and with a big intensity rate. The healthcare system is suffering enormously from the number of patients who, all together, need such treatment.
The US private healthcare system would have very high costs to treat patients. Trump certainly has pressure to diminish the consequences of the virus. A recent news: Trump has given indications not to use the OMS' test to detect the virus.

In a civilized country, everyone must be able to be treated. A country that diminishes the consequences of the virus because the private health system would face high costs to treat patients, is not a civilized country.
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Sive Morten

Special Consultant to the FPA
Hi Sive,
the problem is the number of patients who need hospital intensive care to be treated not to die. In a normal flu it is much less than 1%....with COVID about 10% and with a big intensity rate. The healthcare system is suffering enormously from the number of patients who, all together, need such treatment.
The US private healthcare system would have very high costs to treat patients. Trump certainly has pressure to diminish the consequences of the virus. A recent news: Trump has given indications not to use the OMS' test to detect the virus.

In a civilized country, everyone must be able to be treated. A country that diminishes the consequences of the virus because the private health system would face high costs to treat patients, is not a civilized country.

Tom, I agree that every country has its own nuances of healthcare, maybe I've missed some purely healthcare problems. I just have tried to take a look not at medicine but on the phenomenon of impact on people mind and possibility to manipulate their opinion, whatever "hot" topic is presented. The object is not a virus per se, but how "the topic" impacts on markets.

Covid has death % around 2%, while ordinary flu around 0.1%. Yes, 20 times greater. But this is only among cases that were reported. I'm sure that at least the same amount of people have recovered and were thinking that this is just a cold or flu. 100K is too small data, and death coefficient probably at least 2 times less.

Anyway, this is by-topic already. ;)


I would be interested in your view of this: Italy's economy was one of the worst in the EU - even the closure of several million people will certainly not help to improve. Similarly, Germany and France may worsen the economic situation, and the fall in the automotive industry will hit hard in Central European countries. What impact can this have on the European currency?

Sive Morten

Special Consultant to the FPA
I would be interested in your view of this: Italy's economy was one of the worst in the EU - even the closure of several million people will certainly not help to improve. Similarly, Germany and France may worsen the economic situation, and the fall in the automotive industry will hit hard in Central European countries. What impact can this have on the European currency?

Excellent question mate. Actually it relates not only to auto-sector but to all export companies, which are majority in EU. I dare to suggest that once capital flows are over - economical factors should come back at first stage. When we've got first stats of EU Trading balance, PMI and Confidence data - EUR should start dropping again. Ultimately US could try to use this weakness and press by sanctions to totally slave EU economy and dictate own terms. I think this is a question of time.


Thank you Sir for such a wonderful analysis, as always. I sometimes worry when you retire, who will give me such clear and incisive analysis for FREE?
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