In the face of fears that the global economy will be shut down due to the rapid spread of the coronavirus, many Central Banks took action last week to help stimulate the economy. Central banks in the Australia, Canada, the United States, Saudi Arabia, Hong Kong, and many others have cut rates to help maintain price stability. Markets are expecting that many of the Central Banks who have not cut rates yet, will do so soon, including the European Central Bank (ECB) and the Bank of England (BOE) at their respective meetings this week and next. In addition, the markets are pricing in more rate cuts for the US Federal Reserve (FED) at their scheduled meeting next week.
In addition to using monetary policy to help stem the economic fallout, many countries have announced fiscal stimulus plans. And the counties that have not done so yet, are expected to do so within the next few days. Japan has been providing fiscal stimulus for the past few weeks already (they see the need for JPY 10tln-JPY 20tln). In addition, Japan’s Prime Minister Abe announced a second package today worth JPY 430.8bln.
Italy is reportedly planning to increase its 2020 budget deficit above 2.5% of GDP (previously 2.2%). In addition, Italian PM Conte has added the entire country to the “red zone” area, in which movement will be restricted (previously it was only Northern Italy). They are also closing schools and universities through April 3rd.
In Spain, as the number of cases there increased by roughly 25% since the previous day, some banks have granted additional loans to small businesses and individuals who have been affected by the virus. The Spanish Parliament has suspended sessions for the next week, as one lawmaker has been tested positive for the coronavirus.
In Germany, Chancellor Merkel will try and meet with unions and employers to discuss the affects of the virus. They will provide an additional EUR 1bln in additional funds to help with the crisis. She has said that liquidity is what is needed, not classic stimulus (Reuters), hinting that something is on the way.
The UK is set to release the Spring Budget for 2020 later today. There will be measures within the budget to help with the coronavirus.
As far as the US is concerned, they have already approved $8 trillion to help combat economic disruptions and fallouts from the coronavirus. Today, Trump was expected to reveal a plan regarding a payroll tax cut, however at a press conference earlier, he said they were not ready to release any new plans.
Markets had been in risk on mode all day in Asia and Europe were doing their part to provide fiscal stimulus. However, after Trump’s press conference earlier markets began selling off, xxx/jpy pairs in particular (along with stocks). After rallying from 102 to 105 earlier in the session, the yen pairs began to rollover as market felt Trump did not deliver on the payroll tax cut. Support comes in at the 50% retracement level of this week’s range near 103.21, then a band of support from 103.05 down to 102.70. Below that, final short-term support is 101.18, this week’s lows. Resistance is back at overnight highs near 105.20.
Source: Tradingview, FOREX.com
Remain vigilant in these volatile markets. Markets can be extremely volatile and move rapidly if, for example, the US announces the payroll tax deduction. Plan your trades accordingly!