FX Update: USD bears may look through Turnaround Tuesday narrative

Trading interest

• Going long GBPUSD in 1.3050 area with stop below 1.2850 for 1.3500
• Returning USDJPY short to full size above 104.00 – stop adjusted slightly to above 105.50

Again today, please have a listen to today’s Saxo Market Call podcast, in which we put yesterday’s move in context and ponder what is coming next. We put a lot of effort in the show and today’s produce is as good as any other.

Markets staged a solid bounce overnight after yesterday’s carnage saw the worst equity market session in many markets since the single worst trading sessions during the financial crisis in 2008. Technically, it is very important that the bounce came right near the 20% correction level in the S&P 500 from the all-time top just a few weeks ago. This is a massive psychological level – even in the financial crisis, the initial break lower was halted within a percent of the 20% level in January of 2008, only slightly broken intraday in March,  and didn’t fall until July. The market sell-offs in 2011 and 2018 were corralled very close to the 20% level as well. So if yesterday’s lows fail, it represents a major failure.

We have the unfortunate conviction that the coronavirus fallout could prove even worse for the US than what we are seeing in Europe, with a two to four-week delay. For more, please listen to the great Juliette Declercq on the MacroVoices podcast discussing the unpleasant, but necessary topic of risks to the intensive care capacity in healthcare systems from this virus outbreak. The US and its “personal freedom first” principles as well as a worse-than-botched signaling from the White House on the risks from this virus point to the risk of a tardy response to the outbreak in the US, which could then mean a worse peak strain on resources. So far, the activity shutdown in the US has been extremely limited – we are miles away from peak impact.

 In FX, so many currencies are simply moving with a combination of beta to risk appetite and to oil prices, so not a lot of differentiation occurring, but a sober technical assessment of the USD suggests the might greenback is slipping a turning lower and that we should be looking for ways to get short, even if most risk-correlated currencies have yet to find a low if the deleveraging panic and economic outlook have yet to turn the corner.

Chart: GBPUSD
We’ve no idea how long the post-Brexit trade deal negotiations will drag out from here and leave GBP bulls waiting for the green light from that angle, but from a risk/reward perspective, and from a technical perspective, GBPUSD looks in a good place here for potential further gains, having recently rejected the run down to nearly the 200-day moving average and posted a solid rally. Some backfill risk, but if the price action stays north of 1.2850 (preferably 1.3000), we will continue to focus higher, for a run into the massive 1.3500 (pull up a very long term chart – it is quite clear what we mean.)