Summary: Killer Dollar returned to kick off Q2 2020 sinking Emerging Market and Risk currencies, climbing against the majors (except the Yen) in high volatile trade. The coronavirus crisis plagued risk sentiment despite fresh efforts by the Fed to provide USD liquidity to global central banks. While US economic data bettered expectations, a warning by President Trump that Americans face a “painful” two weeks ahead in fighting Covid-19 soured risk sentiment. Risk currencies, the Australian Dollar and Canadian Loonie tumbled 1% to 0.6075 (0.6145) and 1.4235 (1.4095), respectively. The Euro retreated 0.7% to 1.0955 from 1.1039, after dropping to an overnight low of 1.0903. Sterling slipped to 1.2395 from 1.2417. Against the safe–haven Yen, the US Dollar was 0.37% lower to 106.98 (107.54). It was against the Emerging Market currencies that the killer Dollar did its damage. The Dollar skyrocketed 2.3% against the South African Rand, USD/ZAR closed at 18.24 in New York from 17.87 yesterday. USD/CNH (Dollar-Offshore Chinese Yuan) climbed to 7.1295 from 7.0945. The Dollar jumped 1.21% against the Thai Baht, breaking the 33.00 barrier to settle at 33.08 (32.75) in late New York. USD/INR (Dollar-Indian Rupee) soared 1.45% to 76.4 (75.35). The Dollar Index (USD/DXY), a favoured gauge of the US currency’s value against 6 foreign currencies climbed to 99.487 from 99.080. Equities resumed their falls with the DOW losing 4% to 20,955. (21,921) while the S&P was at 2,474. (2,590.) down 3.9%. Treasury yields tumbled. The benchmark US 10-year bond yield was 5 basis points lower to 0.61%. Germany’s 10-year Bund finished at -0.47% from -0.48% yesterday. Australia’s 10-year note rate closed at 0.65% (0.74%).
Data released yesterday saw China’s March Caixin Manufacturing PMI climb to 50.1 from February’s 40.3, beating expectations of 45.0. Japan’s Tankan Manufacturing Index fell to -8% in March, beating forecasts of -10. Germany’s Retail Sales rose 1.2% from the previous month’s 0.9%. UK Final Manufacturing PMI climbed to 47.8, bettering forecasts of 47.1. US ADP Private Employment fell in March by 27,000 from February’s 183,000 rise, the first fall since September,2017. However, the drop bettered expectations of a 150,000 fall. US ISM Manufacturing Index bettered forecasts of 48.2 to 49.1 although the new factory orders component fell to an 11-year low.
On the Lookout: Expect Asian markets to remain defensive following the risk-off sentiment offshore.
The rise in the global toll of Covid-19 cases, extended lockdowns, and bleak comments from key officials and policymakers will continue to weigh on risk and support the Dollar.
Markets will focus on this week’s US Unemployment Claims number after last week’s surge and ahead of tomorrow’s key US Payrolls report.
Events and economic data releases are relatively light today. Japan’s annual Monetary base report is the lone data release from Asia. The UK Nationwide House Price Index kicks off European data. Swiss CPI, Spanish Unemployment Change, and Eurozone PPI follow. US data start off with March Challenger Job Cuts, Weekly Unemployment Claims (median forecast 3,500 K from last week’s 3,283K), US Trade Balance, and Factory Orders. Canada reports it’s March trade balance.
Trading Perspective: Expect Asia to trade defensively today in volatile conditions. Yesterday’s average range was between 125-150 pips in the majors, depending on the currency. Liquidity conditions are different for various currencies. The spotlight will be on the Asian and Emerging Market currencies. Both the US ADP Employment Report and ISM Manufacturing PMI bettered expectations. Ahead of tomorrow’s key US Payrolls number, the Dollar will remain in demand.
That said, in these markets, nothing goes in a straight line for too long. Trade extremes, be discretionary and pick your levels well.
EUR/USD – Slip-sliding Away, Below 1.10, US Data Key
The Euro slid under the key 1.1000 level after holding between 1.10-1.12 for just over a week now. A risk-off market stance offshore saw the killer Dollar cut up the Asian, Emerging Market and Risk currencies up where the Greenback recorded a minimum 1% rise. While Germany’s Retail Sales unexpectedly rose higher than forecast and Euro area PMI’s mostly matched expectations, the coronavirus outbreak’s continuing toll in Europe that once again took the spotlight. Italy contemplated extending its lockdown for another two weeks while confirmed cases in Germany surged.
EUR/USD traded to an overnight low at 1.09028 before rebounding to 1.0957 in late New York. Immediate support lies at 1.0900 followed by 1.0850. Immediate resistance can be found at 1.1000 followed by 1.1050. Expect another wild ride in the shared currency today. While the Dollar remains bid in the short term, US weekly jobless claims are out tonight. Bear in mind as well that the latest COT report (week ended March 24) saw net speculative Euro long bets jump to +EUR 61,290. contracts from the previous week’s +32,495.
No strong views from me, brace yourself for another wild ride today and tomorrow. Look to trade a likely range of 1.0880-1.1020 first up today. Pick your levels well and stay nimble.
AUD/USD – Defensive Despite Upbeat China Data, Recovery Fragile
The Aussie Battler reversed its impressive gains this week dropping back to the mid-60 level after climbing briefly above 0.62 cents (0.62138) yesterday. AUD/USD finished 0.94% lower at 0.6077 in New York from yesterday’s 0.6145 Asia open. The Australian Dollar traded to an overnight high at 0.6185 before the rampaging Dollar against Asian and EM currencies took its toll on the Battler. We noted that often, in the past, the Australian Dollar’s “risk” label was influenced by the level of the Asian currencies. Having traded in the 1997 Asian currency crisis, this was a big lesson to all Australian Dollar traders including yours truly. The Asian currencies were tanking all over the place and the AUD/USD stayed steady. Not for long. Ever since then, the Asian currencies have impacted the Aussie. Not always in the same manner, at times highly correlated, other times, minimal. But the impact is there.
AUD/USD lifted after better Chinese PMI reports were shrugged off by Aussie traders. While Chinese data were impressive, they were coming off an extremely low base and economic activity is far from normal. AUD/USD has spent the last two weeks of March rebounding off it’s 2002 lows. We may have seen a short-term top around that 0.6200 area. Traders will look to the US data to gauge the next direction for the Battler. Immediate resistance lies at 0.6110 followed by 0.6170. Immediate support can be found at 0.6040 (overnight low 0.60387) followed by 0.6000. Look for a choppy trading session likely between 0.6020-0.6180. Just trade the range shag on this puppy today.
USD/CAD – Bounces Off 1.40 in Highly Volatile Trade – 1.43 Caps, For Now
The Dollar skyrocketed against the Canadian Loonie in another highly volatile trading day to an overnight high at 1.4272 before easing to settle at 1.4225 in late New York. USD/CAD opened in Asia at 1.4095, initially trading lower to 1.4064 before the big bounce. An overnight 5.6% slump in Brent Crude Oli prices to USD 25.60 from USD 26.50 and risk-off combined like a one-two punch to the Canadian Loonie.
USD/CAD has immediate resistance at 1.4270 (overnight high) followed by 1.4300-10. Immediate support can be found at 1.4170 and 1.4120. Canadian Manufacturing PMI dropped to 46.1 in March from February’s 51.8. The New York based Commodity Research Bureau Index (CRB Index), an index composed of various commodities, Canadian Dollar correlated, slumped 2.7% lower to 125.80, its weakest since 1999. Expect another wild ride in the Loonie with traders focussing on US employment reports ahead.
Look for a likely trading range today of 1.4120-1.4320. Let’s get ready to rumble in this puppy, it’s a good range to trade.