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Breaking: Gaps all over FX charts, risk-off, tensions are high

  • Market tensions are highs as coronavirus fears dig deep.
  • Policymakers are stepping up to the plate, ears to the ground for fiscal solutions. 

The gaps in the open today portray a significant risk-off tone, laying down the foundations for a turbulent week ahead filled with plenty of risk events. There is even the possibility of non scheduled emergency announcements from global officials set on stabilising global financial and commodity markets. One thing is assured, and that is volatility. 

In the open, we have seen risk-off flows sending the yen to a fresh 104.14 high vs the greenback and the euro jump to a high of 1.1353 in a gap to mark a fresh high. The antipodeans have suffered a commodity-driven sell-off blow and the Canadian dollar is being strung out on the weekend news surrounding oil prices and a dead OPEC+ alliance, (more on that here).

  • Coronavirus update: Italy death toll leaps to 366 amid mass lockdown, markets set to plunge

The COVID-19 fears have intensified over the last 72 hours and financial markets are increasingly concerned about rising cases, including in the US and Europe and slow response in the US. There is a focus on the US bond market with yields plummeting a further 50% below the prior historic lows in the US 10-years, to a fresh low now sitting at 0.657%. This is weighing significantly on the greenback as the carry trade continues to unwind and as the Federal Reserve is seen to be cutting rates by a further 50% on the 18th March meeting. 

Globally, policymakers are stepping up to the plate in response to the global economic slowdown and it will not be surprising if we don't see further emergency calls to action this week. We have the European Central Bank and Reserve Bank of New Zealand on the cards. But its fiscal policy that the markets are going to be focussed on, as the central banks are a given, bar perhaps the ECB that seem reluctant to cut rates, and instead implement targeted measures to support corporate and SME lending. Ears are to the ground for extraordinary measures from global governments at this juncture. 

Chart of the week

  • Chart Of The Week: EUR/USD ripe for a u-turn, depending on ECB

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