Wednesday February 26th, 2020

A stark warning from the US that a Coronavirus pandemic is inevitable causing global equity markets to tumble. Current virus cases stand at +81,100, with 2765 deaths of which 16 are in Iran and S.Korea reported 284 new cases bringing its total to 1,261. US$ recovered from it’s 2 week low as investors Fed easing concern fell making way for US$ safe-haven buying. The global economic fallout from the virus has raised concerns that a number of central banks could cut rates at a faster rate than expected. Major and Asian currencies have all weakened on the “pandemic” headline and look vulnerable to further selling. Key to watch for investors today will be the ECB’s president’s speech and US new home sales in January.

US crude dropped to its lowest level since January 2019 as the US warns that a pandemic is inevitable. C$ weakened vs US$, but is managing to hold below the key 1.3310 level. BOC Lane made no comment about rate direction in his speech yesterday, which help support C$. Canada’s Q4 GDP due on Friday could provide guidance for the BOC’s rate outlook. With weaker oil and commodity prices and the potential of a BOC rate cut, its probable that C$ will come under renewed selling pressure. C$ remains firm vs major & Asian currencies, but we expect further weakness vs US$. A break of 1.3310 opens the door to 1.3460 next vs US$.

The increasing spread of the virus to Italy, Austria and Spain will likely undermine EU economic activity. The European economic growth was almost zero before the Coronavirus outbreak, under the current conditions we expect renewed Euro weakness. EBC President Lagarde is speaking today and her comments will be watch closely for rate direction.

A combination of safe-haven US$ buying and ongoing Brexit trade negotiation saw GBP weaken vs US$ today. The EU mandate for post-Brexit talks confirmed demands for a level-playing field, which the UK rejects. The post-Brexit rhetoric remains high, but next week behind closed doors we expect that negotiators may compromise. Intraday US$ direction will be dictated by coronavirus updates and US economic data releases.