FX Update: ECB needs to shock and awe today, then FOMC next week

First of all, apologies that I am bringing a tardy update today – all of Denmark has been put in virtual lockdown and this is causing a bit of disruption to our daily work-lives as we shift efforts to working from home and kids are out of school, etc.

Trading interest

• Standing aside for now – interest in buying dips in EURUSD, but need to see where support comes in and behavior after today’s ECB meeting.

Please have a listen to today’s Saxo Market Call, in which we discuss the disastrous address overnight from President Trump, which may be signaling that he understands his presidency is a lame duck one, as well as other prominent risks we are seeing across markets – most notably in US corporate credit. Also note that we will be putting out a quick morning note to help establish the day’s agenda – see our first effort.  Finally, have a listen to our longer form Special Edition podcast we recorded yesterday that takes a wider, longer term view of where we are all headed with this in terms of the incoming policy response and the outlook for inflation and otherwise.

Markets melted lower in the wake of President Trump’s address overnight on the Covid19 “foreign virus” outbreak as he called it. His delivery was monotone and emotionless and signals that perhaps even feels that it is the end of the line for his re-election chances on his midhandling of the Covid19 crisis. Signs of the Democrats and the White House being far apart on the policy remedy needed have the markets in a bad state as well, as does the dawning reality of the scale of the Covid19 impacts. All professional basketball games have now been cancelled in the US and famed Hollywood star Tom Hanks announced he has tested positive for Covid19. The US equity futures were limit down at one point and we have to seriously ponder a market holiday declaration of a week or more – possibly as early as Monday as the Fed and the US government will need to put together the biggest of all bazookas to get ahead of the raging contagion across asset classes.

It is still very early in ECB presidency of Christine Lagarde, but she already faces her first “whatever it takes” moment today as markets have not been under this kind of pressure since the worst spots of the global financial crisis. EU banks are under massive pressure and the EU economy is shutting down entirely – action needed and now!

Chart: EURUSD
Until late yesterday, when it was clear that everything was selling off (bonds and equities), the EURUSD seemed to be trading in sympathy (negative correlation) to risk appetite, but some of the downside since yesterday may be on the US dollar liquidity fears and anticipation that the ECB is set to lower rates again – really the least effective and even counterproductive of its policy options. Still, we suspect that the EURUSD has turned the corner and will look for where, and if, it finds support. The first level is the obvious 1.1200 pivot area on the way up, followed by the 1.1100 area 200-day moving average and then the last gasp support areas of the 61.8% retracement down near 1.1050 and ultimate 1.1000 ahead of the lows.