Coronavirus developments continue to make the major headlines. Wednesday saw a market willing to shrug off the potentially negative connotations for the global economy.

S&P, for example, warned of the potential effect on the Australian economy but bar a brief move lower in AUD (only to be later reversed), there seemed little concern among traders.

Even the RBNZ in their prior day monetary policy statement suggested there would be no interest rate cuts this year. Yet New Zealand’s largest trading partners are Australia and China.

Are we downplaying the potential economic consequences of this virus? Thursday saw a very dramatic increase in the number of known cases as well as deaths. Much of this stemmed from the Hubei province of China and was due to a broader diagnostic definition. Still, it’s alarming.

The broad effect would be for equity markets in Asia and Europe to end their respective days in negative territory. US equity futures pointed to a similar fate for the DJ, S&P and Nasdaq.

In the FX world, USDJPY decided it still didn’t like life above 110, especially after the dramatic increase in coronavirus cases.

AUD has a brief drop from 0.6735 to 0.6705 on the back of those S&P comments. EURUSD would continue to build on yesterday’s break of key support at 1.0880 to a low of 1.0834. GBP, as usual, would be the interesting one.

Boris Johnson decided to reshuffle his cabinet. While the PM appeared to have no intention of firing the Chancellor of the Exchequer, that was apparently dependent on him firing all his close advisors.

The Chancellor was having none of that and promptly resigned. And here we get some classic divergence. GBPUSD appeared to welcome the news, rallying from 1.2960 to 1.3069. The FTSE 100, however, was less happy, closing the day down over 1%.

US equities would shrug off some of their earlier losses, with the Nasdaq turning positive on the day as Europe went home. The US afternoon, as has been the case recently, drifted into a slumber with FX barely registering a pulse and even equity markets grinding to a halt.

EURUSD closed at 1.0840 just off its low of the day and looking precarious. USDJPY would end at 109.80 and GBPUSD 1.3040. The DJ would close down 128 points while the S&P and Nasdaq would both end lower by less than 0.2%.

I’m going to turn to the Australian Dollar for today’s technical piece. As you can see from the hourly chart, AUDUSD has been trending lower since the beginning of the year.

Part of that is due to general USD strength and then we have factors such as the economic impact of the wildfires and now, of course, the coronavirus.

Over the past week, AUD has tried to make a rebound off multi-year lows which gives us this interesting chart pattern. A wedge or flag of sorts, it would suggest a sharp break is on the cards. Which way remains to be seen, and of course there are various ways to play it, but worth keeping an eye on.

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David Hannigan

A graduate of the Cass Business School, Dave's career began with Credit Suisse as an Equity Options Trader on the London Stock Exchange, before moving into the world of FX with Chemical Bank and Citibank. 1994 saw him join National Australia Bank, first as a Senior Dealer, then Senior Vice President and Chief Dealer.

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