The week started with a great carnage on financial markets across Europe and elsewhere in the world as traders flee for safe havens. The Dow and the European indices slump nearly 8% each as investors fled the stock market for safe havens like JPY and Gold, leaving dividend behind.

Ultra-low Yields: Euro jumps to 1.15 as US dollar and US 10y yields collapsed to 0.36% and US/Germany 10y yields spread dropped below 140 bps, lowest since 2015. Germany’s ss 10y yield fell to -0.726 all-time low. And Japan’s 10y yield closed at -0.13%. It seems US 10y yields are catching up with the developed market like Germany and Japan.

 Dual shock: Coronavirus spread, and OPEC deal failure are the key factors behind this fall. The downfall was intensified after oil prices collapsed 10% following the OPEC meeting on Friday, and part-2 collapse started on Monday with 30%, recorded the worst day since 1991. The global spread of the new coronavirus is plunging the world economy into recession. According to Sentix, “The global economic overall index falls from +8.1 to -12 points.” Never before has such a strong, synchronized collapse of the global economy been measurable in Sentix data.

What’s next? It is a big question now. 

Last Tuesday Fed responded with a 50bps cut; as a result, euro bids and farewell to the dollar rally. US 10y yields closed below 1% on that day, which is much lower than the Fed funds’ midpoint of 1.13%. We believe only monetary policy measures are unable to support the individual economies. The combination of fiscal and monetary policies is only could limit further damage to the individual countries. The market response was negative to the Fed emergency rate cut last week.

Moody’s Analytics said, “Fiscal and monetary policy measures will likely help limit the damage in individual economies.”

Data review:

  • Final Eurozone Manufacturing PMI at 49.2 in February (Flash: 49.1, January Final: 47.9), according to IHS Markit.
  • Euro area annual inflation is expected to be 1.2% in February 2020, down from 1.4% in January according to a flash estimate from Eurostat.
  • In January 2020, German IP was up by 3.0% vs -2.0% in Dec 2019.

Data preview: Data wise Q4 Final GDP grab some attention, but not a market mover. Besides, ECB rate decision and press conference in focus.

All the guns are pointed to the ECB meeting scheduled later this week.

“What the ECB could do “become very famous this week. Now markets are fully pricing in a rate cut. If ECB cuts more than expected (10bps) this week means EURCHF will be in focus as SNB will be in trouble and expect to deliver a rate cut in April. New staff projections will be released at this week’s meeting, which we assume no significant revisions.

Here is a gist of analysts forecast on the upcoming ECB meeting.

  • Danske Bank:We expect the ECB to stand ready to ease monetary policy via rate cuts should the economic outlook deteriorate sharply in the near future. As such, we see the possibility of a rate cut in Q2, perhaps as early as the April 30 meeting. The bank also expects, “The new ECB staff projections to lead to lower GDP growth and broadly unchanged inflation projections”.
  • Moody’s Analytics:A deposit rate cut by the ECB next week is on the table, and so is an increase in monthly quantitative easing purchases. But our view is that the bank’s focus will be on target liquidity operations, such as TLTROs for small and medium-sized enterprises.
  • ING: We expect a ”targeted” approach, with a new TLTRO aimed at SME lending, a (temporary) shift or even increase of the QE purchases towards the CSPP and possibly some easing of the collateral rules. All of this could be garnered with a cut of the deposit rate by 10bp and some tweaks to the tiering system.
  • Frederik Ducrozet, Global Macro Strategist, tweeted, “What the ECB could do,” and he gave ten options. 1. Cut rates 2. Do a special SME LTRO 3. Cut the TLTRO rate 4. Increase the tiering multiplier 5. Increase CSPP 6. Increase QE 7. Increase issuer limits 8. Buy senior bank debt 9. Buy ETF 10. If everything else fails, call Mario back from retirement.
  • Nordea markets: We add a 10bp cut from the ECB at next week’s meeting. The 2020 growth forecast is likely to be revised downwards, as disappointing 2019 fourth-quarter GDP numbers will carry over to weaker 2020 GDP numbers.


EURUSD log best rally by 4.50% in two years after clocking a low below 1.0800 during the Corona spread. The common currency rose nearly 7%, the most since January 2019, to close at 1.1450. Five out of seven-euro crosses trading higher, led by EURCAD with 7.80% (Monthly basis) followed by EURAUD 6.00% and EURNZD 5.50%. On the flip side, against CHF and JPY, euro is trading down by 2.50% and 1.50%, respectively.

Turning back to the EURUSD technical view, the euro extended its rally last Thursday and breached a key resistance at 1.1215 and 1.1240 against the dollar. On March 09 it closed the session at 1.1450 against its previous close of 1.1290. Finally, the euro currency has broken two key resistances 1.1412 and 1.1240) in the past three trading sessions, hinting a substantial upward momentum.

The major resistance from the current level is at 1.1500 psychological number, beyond which the resistance comes in between 1.1550-1.1570. On the downside, 1.1375, as good support below here focuses on 1.1240 and 1.1095 levels. Until the euro stays above the support at 1.1095, it can be approached with a bullish bias.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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