The price of crude oil declined by more than 30% during the Asian session. The sharp price action came after Russia rejected a proposal by OPEC members to slash production until December this year. Instead, the country preferred holding the supply cuts started in December. In response, Saudi Arabia decided to cut oil prices by 10% in a bid to capture market share and punish Russia. Another possible reason for Saudi Arabia’s decision was to force Russia back to the negotiation table. There are three main outcomes if the price remains low. First, low oil prices could provide a boost to most countries that import oil. Second, it could be catastrophic to many oil exporting countries, especially Iran and Venezuela whose economies are under pressure from American sanctions. Third, it would add pressure to many highly-indebted American oil producers.
It was a sea of red in global stocks and futures during the Asian session. In Japan and Australia, the Nikkei and ASX dropped by more than 6% while in China, the A50 and Shanghai Composite dropped by almost 3%. In the US, futures tied to the Dow, Nasdaq, and the S&P500 dropped by more than 5%. In Europe, futures tied to the DAX, FTSE, and Stoxx dropped by more than 5%. Meanwhile, the CBOE VIX volatility index rose by more than 6%. This price action happened as traders feared that the coronavirus disease could have devastating effects to the global economy. Just yesterday, New York, the financial capital of the world declared a state of emergency as the number of infections rose.
The Japanese yen rose by more than 2.50% as global risks rose. The yen is known as a safe haven currency because of the large holdings the Japanese government has overseas. The jump came as we received bleak economic data from Japan. In the fourth quarter, the economy declined by 1.8%, which was worse than the expected decline of 1.7%. On an annualized rate, the economy declined by 7.1%, which was the worst decline since 2015. This was caused by a 4.6% decline in capital expenditure and a 2.8% decline in private consumption. This data shows that the Japanese economy could see a prolonged recession with no remedy since the BOJ is already in quantitative easing and interest rates are at historic lows.
The XBR/USD declined to a four-year low of 33.50 during the Asian session. This was the lowest level in four years. The price is along the lower line of the Bollinger Bands on the four-hour chart. It is also below all the moving averages. The MACD and the RSI have dropped to the oversold level. The price could remain at these depressed levels unless OPEC and Russia agree to aggressive cuts.
The EUR/USD pair rose to an intraday high of 1.1496, which was the highest level since February 12. On the daily chart, the price is above all the short and medium-term moving averages. The price is above the Ichimoku cloud while the RSI has moved to the overbought level of 70. The money flow index has risen to the overbought level of 80. The pair may continue rising today as traders price-in another rate cut.
The USD/JPY pair declined to an intraday low of 101.53, which was its lowest level since September 2016. The pair has been declining since Wednesday last week when it was trading at 112.25. The price is below the Ichimoku cloud on the daily chart and below all the short and medium-term moving averages. The RSI and MACD have moved to the oversold level. The pair may continue declining as the Japanese economy continues to struggle.