Despite the importance of the continuation of President Trump’s impeachment trial, Australian employment data, the Economic Forum in Davos, in addition to the ECB Monetary Policy Statement, all eyes are on the spread of the Wuhan coronavirus.

The city of Wuhan itself has been placed under total lockdown as has a second city, Huanggang. Cases have been reported as far apart as Saudi Arabia, Thailand and the US.

Doctors in Wuhan have expressed alarm at how quickly the virus is spreading. China now has more than 600 confirmed cases with 17 reported deaths so far.

The markets are scared although not yet running for the hills. Equities in Asia and Europe would all register losses with the Shanghai Index down 2.75%.

For FX, the first focus was on the AUD as Australia released employment data for December. The number was better than expected (+28.9k v +15.0k). AUD immediately jumped from 0.6845 to 0.6878 with several analysts revising their expectations for the timing of a rate cut.

However, those gains would be reversed during the day as negative risk sentiment set in.

Next up the ECB rate announcement. As expected, they left rates unchanged. EURUSD saw an initial pop to 1.1108 but this was short-lived and before long support at 1.1070 would be broken en route to a low of 1.1037.

USDJPY which had broken 109.70 support overnight would continue to move lower as negative risk sentiment would dominate.

Selling of JPY crosses would take USDJPY to 109.27. GBPUSD would also move lower from 1.3150 to 1.3097. XAU, of course, would benefit from all the negativity rising from 1,552 to 1,568.

Wall Street would continue the negative trend in equity markets, the DJ falling by 200 points as Europe went home. A mix of poor earnings from Travellers Group coupled with the coronavirus developments gave traders little reason to buy stocks.

However a statement from the WHO (World Health Organisation) that it was ‘too early to consider this event (coronavirus) a public health emergency of international concern’ was enough to calm some trader’s nerves.

Both the S&P and Nasdaq would turn positive and USDJPY would climb back to 109.50.

EURUSD would come back to 1.1057 and GBPUSD to 1.3125 as JPY crosses were bought back. Wall Street closes with the S&P and Nasdaq making small gains. The DJ ends down 26 points, but an impressive recovery from the 200-point loss earlier in the day.

Thursday saw a couple of significant technical breaks. USDJPY through 109.70 and EURUSD through 1.1070.

We’ve looked at USDJPY a couple of times so let’s see what EURUSD has to offer.

Looking at the hourly chart we can EURUSD has not been overly exciting. A 260 point range takes us back to mid-October 2019. 2020 has seen us unable to break through support 1.1065-70. We did, but only to the next support level at 1.1040.

The question from here is do we have a false break lower on our hands or are there more losses ahead? Very near term 1.1065-70 should become resistance with support at 1.1040. Below there 1.0980 would be the next meaningful target.

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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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