Flight to Safety - Canceled
Joe Perry March 10, 2020 8:24 PM
If stocks move lower, watch for USD/CHF to move lower as well.
Today has been an interesting day, to say the least. The S&P 500 moved from “Limit up” overnight to briefly negative for the day, and finally closed up over 4.8% on the day. This was primarily due to comments from US Government officials regarding the coronavirus. Investors were hopeful overnight before the US stock markets opened that the President would introduce a payroll tax cut, to give some relief to corporations who are dealing with the fallout of the coronavirus. At a press conference this morning, the President said they were not ready to announce any kind of economic relief. There were concerns by Democrats that payroll tax relief would not reach all workers who might need help. Markets gave back all their gains and briefly turned negative. However, later in the afternoon Treasury Secretary Steve Mnuchin met with House Democratic leader Nancy Pelosi and he said that there is a ‘BIPARTISAN” urgency to pass a coronavirus economic relief package. As a result, stocks roared higher as markets hoped something will get done!
As a result of the moves in stock markets, the flight to safety trade was unwound a bit. On a 240-minute timeframe, USD/CHF has moved from a low on Sunday night of .9182 to today’s highs of .9411, completely filling the gap from over the weekend. (The low Sunday night was also horizontal support from the February 2018 lows.)
Source: Tradingview, FOREX.com
All is right in the world once again! Right? Not quite. Although S&Ps closed up over 4.8% on the day, they could not fill the gap from Sunday night at 2916. The actual gap fill is Friday’s close at 2984.25. Price is still over 100 handles away from that point. The first resistance is 2916 (the gap open) and the second resistance is 2984.25 (the gap fill).
Source: Tradingview, CME, FOREX.com
What does this mean? The coronavirus is still out there. A fiscal stimulus package is helpful, but as Powell said regarding the 50bps interest rate cut last week, stimulus will not stop the coronavirus. It will just help those who are affected by it. This means that although US government officials are finally moving in the right direction, stocks can still move lower. Because stocks did not fill the gap from Sunday night, there is still a lot of work to be done if they want to move higher. USD/CHF bears are still watching the “flight to safety” trade. They are hunting the trade in which stocks turn lower and they can jump in again and look to take out the February 2018 lows.
The markets will continue to be volatile over the next few weeks. If stocks move lower, watch for USD/CHF to move lower as well.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.