By Deepta Bolaky
The virus risks will likely remain as the primary driver of risk sentiment this week amid a much-muted economic calendar. Investors will probably stay fixated on the number of new cases and deaths related to the virus.
The rate of infection appears to be slowing down but the changes in methodology cast doubt over the official numbers last week. The spread of the virus across borders has also increased:
As more countries raise their threat level with respect to the virus, attention will be on the measures being put in place across borders to contain the widespread.
Germany, a leading EU economy continues to be a source of worry as it is struggling from a crisis within the ruling party and dismal economic data. A series of key releases this week will help to monitor how the economy is flaring.
Monday: IFO Surveys – Business Climate, Current Assessment and Expectations
Tuesday: Gross Domestic Product
Friday: Unemployment Rate, German Buba President Weidmann Speech and Harmonized Index of Consumer Prices
The shared currency has been on the backfoot dragged by poor fundamentals. Overall, the eurozone’s economy keeps flashing red signals and investors will probably wait for strong fiscal action. We note that even the ECB is pushing for a greater fiscal push to jump-start the sluggish economy.
Amid a relatively empty-economic calendar for Australia, traders will be focusing mostly on the growing risks around the coronavirus outbreak. Given the close link with China’s economy, Australia will also likely bear the brunt of the virus. Certain Australian companies have already warned about the impact of the virus and some have also downgraded forecasts.
Tourism and education sectors are also expected to take a substantial hit, considering Chinese tourists and students are important to the Australian’s economy. The Aussie dollar remains among the weakest and will probably stay on the backfoot until coronavirus fears ease.
The Dollar remains the King of forex as it is being favoured due to buoyant economic data and a less-dovish central bank, compared to its peers. The risk-off theme due to the contagion is also fuelling the safe-haven demand for the greenback. Even though the US dollar Index retreated from 2020 high after preliminary figures showed a contraction in business output, it is still trading just below 2019 high.
We do not expect economic data to cause a significant retracement in the US dollar but this week’s releases might slow the pace of the bid momentum if they come below expectations.
Monday: Chicago Fed National Activity Index
Tuesday: Housing Price Index, S&P/Case-Shiller Home Prices, Consumer Confidence, Fed’s Speech
Wednesday: New Home Sales
Thursday: Durable Goods, Core PCE, Gross Domestic Product, and Pending Home Sales
Friday: Core PCE, Personal Income & Spending, Chicago Purchasing Manager’s Index and Michigan Consumer Sentiment
Gold’s rally appears unstoppable as risk sentiment remains fragile. The pace of the surge is also increasing despite a strong US dollar. The unusual tandem between the two safe-havens continues to prevail. As of writing, the XAUUSD pair is currently trading at a 7-year high of $1,661.
Since the beginning of the year, the yellow metal has been trading in elevated levels within a range of $1,550 and $1,600 The latest significant push outside this range is mainly related to the deterioration in market sentiment as investors are growing fearful of the impact of the coronavirus on the global economy. We expect gold traders’ attention to remain on the COVID-19 this week.
By Deepta Bolaky
|Tuesday, 25 February 2020 |
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