Dollar Jumps on Funding Strain, Global Central Bank Relief Ignored

Summary: The US Dollar jumped against its rivals on company funding demand for the second day running despite steps by world central banks to ease market stress. Yesterday the US Federal Reserve announced the creation of several swap lines to provide US Dollar liquidity to 9 countries – Australia, New Zealand, Singapore, South Korea, Denmark, Norway, Sweden, Mexico and Brazil. The move was an effort to meet heavy demand for Greenbacks around the world as worries about the economic fallout from the coronavirus climbed. Despite the move, a favoured gauge of the Greenback’s value against a basket of six major currencies, the Dollar Index (USD/DXY) rose 1.59% to 102.75 (101.00), its highest since January 2017. The Euro, which takes 57.6% weight in the Dollar Index, plunged to its lowest in almost 2 years at 1.0655, (1.0895) before steadying to 1.0680 in late New York. Sterling’s fall was modest compared to moves in the other currencies, down 0.5% to 1.1540 (1.1585) after the Bank of England cut its Official Bank Rate to 0.1% from 0.25% in an emergency meeting. The BOE also announced an extension of QE worth GBP 200 billion. Prime Minister Boris Johnson moved to slow the spread of the virus following his soft approach in the previous week with the UK government’s announcement that it was preparing to put London in lockdown. The Australian Dollar, pummelled to a 2002 low at 0.5506 following the RBA’s emergency rate cut to 0.25% from 0.5%, rebounded in volatile trade to close at 0.5775, a modest loss of 0.4%. The price action reveals nervous sellers near the Battler’s low. USD/JPY soared to 110.80 from 105.10 on broad-based USD strength and a rebound in Oil prices and equities.

New US Jobless Claims - FX Factory - 20 March 2020
New US Jobless Claims – FX Factory – 20 March 2020

Brent Crude Oil prices recovered 13.5% to USD 28.25. Wall Street stocks rallied with the Dow climbing 0.5% t0 20,150 at the close. Stock futures though were pointing to a loss. US bond yields slipped. The key 10-year rate fell to 1.14% (1.19%). Other global bond yields were higher. Australia’s 10-year rate closed at 1.41% from 1.29%.
Australia’s economy created 26,700 jobs in February beating forecasts while the Jobless rate was also better, falling to 5.1% from 5.3%. The US Philadelphia Manufacturing Index slumped to -12.7, missing forecasts at +9.5 the weakest since September 2012. US New Weekly Unemployment Claims jumped to 281,000 from 211,000 and forecasts of 220,000. The New Jobless Claims hit a 2.1/2 year high, jumping by 70,000 which officials blamed on the coronavirus.

On the Lookout: The Dollar strengthened due to funding demand over worries on the impact of the coronavirus spread. The world’s central banks have taken steps to alleviate the market stress. The Fed announcement of the creation of swap lines to provide Dollar liquidity to 9 countries was an effort to meet heavy demand for Greenbacks. Despite the move, the Dollar Index jumped just over 3% in the past two days. Against the Australian Dollar and EM currencies the Dollar has risen more.

DXY – Dollar Index 5 Y Chart – Trading View – 20 March 2020

In 2009 the action by policy makers helped put a bottom on asset markets, US Dollar demand eased, and the Dollar dropped. Today the realisation is that fiscal and monetary policy cannot cure a pandemic. Markets may have to wait until the pandemic shows signs of fading.
US economic data released have pointed to a possible recession in the US. Markets have ignored this for now. At some stage, as Dollar funding demand eases, the currencies will stage a strong rally and the Greenback will find itself on the other end. Today economic data releases are few.

Trading Perspective: While the Dollar’s rally has continued unabated, its climb is starting to slow against the currencies that have been crushed by its up move. Liquidity has been thin which has led to choppy moves. Expect more of the same today.
While the Dollar remains bid, its rapid advance in less liquid and volatile conditions may see the world’s central banks moving in to “smooth” the climb.

AUD/USD – Choppy Trade Between 0.55-0.59 to Continue

The Australian Dollar had a volatile trading session yesterday plunging in Sydney following the RBA’s rate cut and QE decision to 2002 lows at 0.55506 before jumping to 0.5962, settling in late New York at 0.5772. Already this morning, the fall in US stock futures has seen AUD/USD slip to 0.5685.

Yesterday Australian Employment data beat forecasts in both the Jobs gain and Unemployment rate. Markets shrugged this off as RBA Governor Philip Lowe told a press conference that Australia should anticipate “significant” job losses. Lowe also clarified that he doesn’t think the RBA’s plan to buy government bonds in the secondary market quite meets the standard of quantitative easing. US economic data were dismal. The key US 10-year rate is at 1.14%. Australian 10-year bonds yielded 1.41%. Australian 10-year rates are now higher than that in the US. This cannot be ignored.

Meantime the Covid-19 death toll continues to rise which is grim news for all, including the markets.
Expect further choppy trading today between 0.5500 and 0.5900. Immediate support is found at 0.5650 followed by 0.5610. Immediate resistance lies at 0.5720 followed by 0.5790.
We may have seen a short-term base at 0.55 cents. Tin helmets on, lets get ready to rumble.

USD/JPY – Lifts on Dollar Funding Demand, 111-112 Caps

The Dollar rallied against the Yen on broad-based USD demand as stocks rallied. Japanese markets are closed today due to its Vernal Equinox Day. We can expect volatile trade in this currency pair as well. Overnight Japanese All Industry Activity rose to 0.8% beating forecasts at 0.3%. This contrasts with the weak US Philadelphia Fed Manufacturing Index and strong rise in New Unemployment Claims.

 

US Dollar buying continued unabated in volatile conditions following fresh coronavirus headlines. Stock futures have seen done a U-turn and this should see the USD/JPY capped at 111.00 to 111.50. The next resistance level is at 112.00. Immediate support can be found at 110.30, followed by 109.70 and 108.60.

Look for a trading range today between 108.50-111.20. Would prefer to sell rallies up at these levels as fresh risk-off hits Asia. US 10-year yields were also lower by 5 basis points. Markets will continue to monitor coronavirus developments.

EUR/USD – Trading Heavy Despite ECB QE – 1.0655 Under Pressure

The Euro had its worst daily drop against the US Dollar since June 2018 falling to 37-month lows at 1.0655 before a modest bounce to 1.0680 in late New York. EUR/USD has dipped back to 1.0660 in early Sydney trade.

EURO DOLLAR Daily Chart - IG Daily FX - 20 March 2020
EURO DOLLAR Daily Chart – IG Daily FX – 20 March 2020

Reports that the coronavirus death toll in Italy reached 3,405 a climb of 427 deaths from the previous day is grim news for the globe. And the Euro. Total number of cases has surged to 41,035. Spain recorded 209 deaths yesterday. Italy has outpaced China and it now has the highest COVID-19 death toll in the world. Developments will be closely monitored.

Expect the Euro to remain heavy against the US Dollar and other rivals. Immediate support lies at 1.0660 followed by 1.0620 and then 1.0540. Resistance is found around 1.0725, 1.0780 and 1.0850. Look for a volatile trading session with a likely 1.0570-1.0820 range today. Tin helmets on as you trade this currency.