Citing sources familiar with Saudi Arabia’s thinking, Reuters reports that the Kingdom urges the OPEC and its allies (OPEC) to quickly reach an agreement on oil production cuts to respond in a timely manner to the negative impact of China coronavirus on global oil demand.

The sources said: Riyadh sees a potentially bigger impact on oil demand this time than the 2002-03 Severe Acute Respiratory Syndrome (SARS) epidemic due to China’s now far larger role in the global economy.

One OPEC source said Riyadh wanted a quick supply cut to “put a floor under the prices”.

“The Saudis want to be proactive and to keep oil prices at $60 a barrel or above,” the source added.

One of the sources said: “This is about taking preemptive measures against future uncertainties …it is about lessons learnt from the past.”

Sources said the technical panel also recommended this deal be extended until the end of 2020.

This comes as the OPEC+ awaits Russia’s decision on the output cuts proposal. On Tuesday, Russian Energy Minister Alexander Novak said that they were closely studying recommendations of OPEC+ technical committee.

Oil bulls hold the reigns

Both crude benchmarks ride the risk-on wave, driven by fading coronavirus concerns. WTI rises 1.50% to 50.70 while Brent is up 2% just above $55, at the time of writing.

The NZD/USD pair has jumped with news from The Reserve Bank of New Zealand (RBNZ) rallying 1%. The pair has now stabilized at 0.6465. ANZ researchers analyze the RBNZ statement.

Key quotes

“The RBNZ today left the OCR unchanged at 1.0% while leaving the door open to further action if required.”

“As expected, the RBNZ revised down its near-term growth forecast on coronavirus disruptions but remains optimistic on the medium-term outlook, anticipating a pick-up in growth in the second half of the year.”

“The RBNZ expects 0.4% q/q GDP growth in Q4 (previously 0.6%), and have also trimmed their Q1 growth forecast to 0.4% (previously 0.7%).”

“Headline inflation is expected lift to 2.2% in Q1 2020, but moderate to 1.7% by Q1 2021. Inflation is forecast to average 2% over the forecast horizon.”

  • USD/JPY regains some positive traction and moves back closer to weekly tops.
  • The prevalent risk-on mood continued weighing on the JPY’s safe-haven status.
  • The USD gets an additional boost from a goodish pickup in the US bond yields.

The USD/JPY pair climbed back closer to weekly tops, with bulls making a fresh attempt towards reclaiming the key 110.00 psychological mark.

Following the previous session's intraday pullback, the pair managed to regain some positive traction on Wednesday and was being supported by a combination of supporting factors.

Bulls await a sustained move beyond 110.00 mark

The prevailing positive mood around equity markets – despite concerns about the outbreak of coronavirus – continued weighing on the Japanese yen's perceived safe-haven status.

The risk-on flow was reinforced by a goodish pickup in the US Treasury bond yields, which provided an additional boost to the already stronger US dollar and remained supportive.

It, however, remains to be seen if the pair is able to capitalize on the positive move or once again struggle to make it through the 110.00 mark amid absent relevant market-moving economic data.

Meanwhile, the Fed Chair Jerome Powell's second day of testimony, this time before the Senate Housing Committee, will be looked upon to grab some short-term trading opportunities.

Technical levels to watch

China’s highly influential news outlet, Global Times, carries a statement from the country’s National Health Commission (NHC), citing that the recovery rate from coronavirus infection in China rose from 1.3% on Jan 27 to 10.6% on Tuesday, leading to the discharge of more patients from hospitals.

Meanwhile, Reuters quoted a Chinese government official with the knowledge of the matter, saying that the government is likely to stagger reopening of schools in order to limit coronavirus transmission. Earlier it was reported that students will only resume school next month.

Amid the slowdown in the outbreak of novel coronavirus, Lijian Zhao, Deputy Director General, Information Department, Ministry of Foreign Affairs, China tweeted out:

“Retweet this good news! The number of confirmed cases reported daily in provinces other than Hubei dropped consecutively for 8 days from 890 on Feb 3 to 377 on Feb 11, a drop of 57%, indicating that our prevention & control measures are working. The turning point will come soon!”

The risk sentiment was lifted earlier today after the NHC said that across mainland China, there were 2,015 new confirmed infections on Tuesday, the lowest daily rise in new cases since Jan. 30.

  • USD/JPY sits near weekly tops, eyeing to reclaim 110.00 mark
  • Coronavirus hits China’s gold jewellery demand – Bloomberg

The EUR/USD pair on Tuesday staged a goodish intraday bounce from multi-month lows and finally settled with modest daily gains, snapping six consecutive days of losing streak. Haresh Menghani from FXStreet, however, does not expect the gains to continue.

Key quotes

“Immediate resistance is now pegged near the 1.0940 horizontal zone and any subsequent positive move might fizzle out, rather capped near a strong horizontal support breakpoint, now turned resistance, around the 1.0980 region.”

“The 2019 swing lows – around the 1.0890-80 region – might continue to protect the immediate downside, which if broken might turn the pair vulnerable and pave the way for a further near-term depreciating move towards late April/early May 2017 lows, near the 1.0825-20 zone.”

The cable gained some follow-through traction on Tuesday and sit just above mid-1.2900s. Nonetheless, Haresh Menghani from FXStreet sees the pair struggling to break resistance point.

Key quotes

"Any positive move is likely to confront stiff resistance near a short-term ascending trend-line support break-point, around the key 1.30 psychological mark. A convincing breakthrough the mentioned barrier, leading to a subsequent strength above the 1.3020-25 region might trigger a fresh bout of a short-covering move and lift the pair back towards testing 50-day SMA resistance near the 1.3070 region."

"Bearish traders are likely to wait for a sustained weakness below 100-day SMA, around the 1.2895 region, before positioning for any further depreciating move. The pair then might accelerate the slide further towards the 1.2830-25 horizontal support en-route the 1.2800 round-figure mark."

The demand for gold jewelry in the world’s top consumer, China, is likely to plunge this year, as the China coronavirus negatively affects the shoppers’ sentiment, per Bloomberg.

Key Points:

“Jewelry retailers such as Luk Fook Holdings International Ltd. are shortening business hours and managing time off for employees in an effort to prevent the disease from spreading.

Zhang Yongtao, Chief Executive Officer of the China Gold Association, noted: “People are not in the mood to shop for jewelry. Stores and shopping malls are closed because of the virus. The sales of gold jewelry and bars will drop substantially this year.”

Metals Focus, a London-based research firm, sees a 6% drop in sales in China this year, extending an estimated 7% drop in 2019 to a seven-year low. It said the decline could turn out to be “particularly acute" given the Lunar New Year has traditionally been the busiest period.

Hong Kong retailers could see their profit from the city drop in 2020 amid the outbreak, according to Bloomberg Intelligence.

Chow Tai Fook Jewellery Group Ltd., the world’s second-biggest jewelry chain by market value after Tiffany & Co., plans to shut about 15 of its stores in Hong Kong after net income fell following the demonstrations that drove tourists away.”

So far in Wednesday’s trading, gold prices trade modestly flat, divided between a slowdown in China new coronavirus cases and persisting concerns over the economy. The yellow metal changes hands around $1567, at the time of writing.

Open interest in Crude Oil futures markets decreased by around 17.2K contracts on Tuesday as per advanced prints from CME Group. In the same direction, volume went down by nearly 15.1K contracts, reaching the second drop in a row.

WTI expected to return to sub-$50.00 levels

Tuesday’s positive price action in WTI came on the back of declining open interest and volume, signalling the presence of short covering behind the current recovery. That said, prices are seen resuming the downside in the near-term, targeting the area below the key $50.00 mark per barrel once again.

  • AUD/USD gains some follow-through traction for the third consecutive session on Wednesday.
  • Concerns over the economic impact of coronavirus, stronger USD kept a lid on any strong gains.

The AUD/USD pair held on to its daily gains and is currently placed near weekly tops, comfortably above the 0.6700 round-figure mark.

The prevailing risk-on environment continued lending some support to the perceived riskier Australian dollar and assisted the pair to build on this week's recovery move from over a decade low. The pair gained some follow-through traction for the third consecutive session on Wednesday, albeit concerns about the outbreak of coronavirus held investors from placing any aggressive bullish bets around the China-proxy aussie.

Stronger USD seemed to cap gains

This coupled with some renewed US dollar buying interest further collaborated towards capping any runaway rally for the major. As investors looked past the Fed Chair Jerome Powell's semi-annual testimony, worries about the economic impact of the deadly virus drove some safe-haven flows towards the greenback. The already stronger USD was further supported by a goodish pickup in the US Treasury bond yields.

Hence, it will be prudent to wait for some strong follow-through buying before confirming that the pair might have already bottomed out in the near-term and positioning for any further near-term appreciating move. Moving ahead, market participants now look forward to Powell's second day of testimony, this time before the Senate Housing Committee, in order to grab some short-term trading opportunities.

Technical levels to watch

EUR/USD has dipped below 1.09 but remains above that line for now. Where next for the world's most popular currency pair?

The Technical Confluences Indicator is showing that euro/dollar has support at 1.0902, which is the convergence of the Pivot Point one-week Support 1, the PP one-day S1, the previous daily low, and the Bollinger Band four-hour Lower.

Further down, critical support awaits at 1.0880, which is the meeting point of 2019 low and the PP one-day S2.

Looking p, some resistance is at 1.0948, where the Simple Moving Average 100-1h and the SMA 5-one-day converge.

Higher, EUR/USD faces fierce resistance at the 1.10992 to 1.1005 region, which is a dense cluster of lines including the Fibonacci 23.6% one-week, the BB 4h-Upper, the PP one-month S1, the previous month's low, the SMA 200-1h, the SMA 50-4h, and the all-important Fibonacci 38.2% one-week.

Here is how it looks on the tool:

EUR USD technical confluence February 12  2020

Confluence Detector

The Confluence Detector finds exciting opportunities using Technical Confluences. The TC is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc. Knowing where these congestion points are located is very useful for the trader, and can be used as a basis for different strategies.

This tool assigns a certain amount of “weight” to each indicator, and this “weight” can influence adjacents price levels. These weightings mean that one price level without any indicator or moving average but under the influence of two “strongly weighted” levels accumulate more resistance than their neighbors. In these cases, the tool signals resistance in apparently empty areas.

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