Tiomarkets Daily Commentary 15 April 2020

What a difference a day makes. Tuesday saw a surge in US equity markets as traders chose to focus on the positives. A flattening of the curve of Covid-19 infections and hospitalizations down in the worst affected places such as New York and London. Some small re-openings in Denmark, Austria and Spain. More headlines about countries looking to gradually re-open to a new normal once the peak has been reached. In China, the hospital that was erected in 10 days in Wuhan has now closed. It’s all good. Good enough even for President Trump to further politicize the coronavirus outbreak and announce a cut in funding to the WHO (World Health organization). Too nice to China apparently.

Wednesday would see a change of sentiment as the reality of the fallout from Covid-19 hits home. It does rather beg the question ‘Well, what did you expect?’. US earnings season is upon us and all the major banks see a sharp drop in profitability and as well as some sizable provisions for bad loans. Hardly shocking news but it spooked the markets. Then add in worse than expected US retails sales data, industrial production, manufacturing production and a particularly ugly NY Empire State manufacturing index number and you get the picture. The US economy is in a mess. And it’s not alone. Now of course the markets are focusing on recovery and the hope we can come back quick. But listening to the experts, that’s probably not going to be the case. For the first half of the day, it was reversal time. Equities lower, and the USD higher. EURUSD would drop from 1.0990 to 1.0857, GBPUSD from 1.2630 to 1.2437 and AUDUSD from 0.6443 to 0.6284. The DJ futures would trade above 24,000 for a brief period in Asia, but It wouldn’t take long for the screens to turn red. By the time Wall Street opened we were down 500 points and at the lows around 23,225 we were down 700 points. Gold, which had yesterday rallied as high as 1,747 would drop down to 1,708 as it appeared to be a victim of a stronger USD. But the afternoon session would see equities bounce and with that a reversal of the USD’s fortunes. EURUSD would trade back to 1.0940, GBP to 1.2565 and AUD to 0.6345. The aforementioned yellow metal would rally back to 1,720. The DJ would end down 445 points at 23,505. It’s going to be a battle on those focusing on now and those who choose to focus on a future none of us can predict. The increased volatility isn't going anywhere in a hurry.

Meaningful charts are getting tougher to find. A very simple one today in the form of a 2H GBPUSD chart. A previous high gave us resistance just above 1.2640 and that’s where we topped out yesterday before a 200+ point drop today. Looking forward, expect this level to now be pivotal in any further topside attempts.