Summary: Despite a Payrolls report that far beat expectations, US February NFP added 273,000 workers against 175,000 forecast and an Unemployment rate drop to 3.5% (3.6%), COVID-19 fears continued to grip US financial markets. The benchmark US-10-year Treasury yield, already at unprecedented lows, tumbled 14 basis points to close at 0.77% (0.91% Friday), after dropping to below 0.7% at one point. USD/DXY, or the Dollar Index, a favoured gauge of the Greenback’s value against a basket of 6 foreign currencies, slumped to February 2019 lows at 95.71, before settling to close at 96.093 in New York, down 0.75%. Best performing currency was the Swiss Franc which together with the Yen are haven favourites. Against the Swiss Franc, the Dollar plunged 0.97% to 0.9375 from 0.9490 on Friday. The USD/JPY pair dropped to an overnight and near 6-month low at 104.994 before climbing to settle at 105.37 (106.45 Friday). The Euro rocketed to 1.13547 on further short covering before easing to finish at 1.1343 in New York. Italy’s government announced a virtual lockdown of its Lombardy region, which included Milan and other northern provinces. The coronavirus death toll in Italy reached 223, while the number of cases approached 6,000. Sterling broke above 1.30 for the first time in nearly two weeks, climbing 0.75% to 1.3045. The Australian Dollar cemented its hold above 0.66 cents, finishing at 0.6645 against the overall weaker Greenback.
Wall Street stocks finished lower after another roller-coaster trading session. The S&P 500 tumbled as much as 4% before rallying to end 1.92% lower at 2,967 (3,015).
As Asia opens, wide gaps in FX appear in all currencies highlighting significant risk-off stance. The action is fast and furious. EUR/USD 1.1345 from NY close at 1.1290. USD/JPY plunged to 104.35 from 105.35. GBP/USD soars to 1.3077 from 1.3045 USD/CHF drops to 0.9325 (0.9375). Risk FX leader AUD/USD slips to 0.6595 from 0.6645. USD/CAD soars to 1.3585 (1.3435) on the plunge in Brent Crude Oil prices over the weekend.
Other data released Friday saw Canada’s economy create 30,300 jobs, beating forecasts of 11,000.
German Factory Orders rose 5.5%, much stronger than the 1.5% forecast and the previous month’s -2.1%. Australia’s Retail Sales underwhelmed, dropping to -0.3% against forecasts of 0.0%.
On the Lookout: Coronavirus headlines continue to grip markets, FX included. The number of global cases rose above the 100,000 mark to 105,000. Data compiled by the U.S. Johns Hopkins University reported 3,558 total deaths globally. In the US, total cases rose to 434 according to NBC News while deaths hit at least 19. A positive was the dramatic fall in new cases in China down to 99 (Saturday) from a daily average of around 2,000 just weeks ago.
Data today sees a plethora of Japanese data beginning with: Current Account, Bank Lending, Final GDP (Q4), Final GDP Price Index (y/y) and Economy Watchers Sentiment. European data start with Swiss Unemployment rate, German Industrial Production (February), German Trade Balance, and Eurozone Sentix Investor Confidence. Canada reports its Housing Starts and Building Permits.
The week ahead sees US CPI and PPI reports (Wednesday). The ECB holds its interest rate policy meeting on Thursday.
Trading Perspective: The Dollar’s overall downward correction looks set to continue. That said, in FX experience tells this writer that nothing goes in a straight line in the currency markets. This morning’s gaps in Asia extend the risk-off theme. Get ready for more extreme FX volatility ahead. We look at each currency in the current environment where the one certainty is volatility.
The AUDUSD Aussie Battler continued to cling on to its hold around the 0.66 cent mark after this morning’s risk-off gap hit FX. AUD/USD closed in New York at 0.6645, climbing from 0.6592 on Friday on the broad-based US Dollar decline. The Australian Dollar slipped to 0.65959 in early Sydney trade, before rising to settle at 0.6615 currently.
On Friday, Australian Retail Sales missed expectations of 0.0% falling to -0.3% in February, although beating January’s -0.5%. The negative impact of the Australian bush fires and recent coronavirus on the retail sector extended, although February’s sales improved from the previous month. Over the weekend, Australian Treasurer Josh Frydenberg said that the details of a fiscal response to COVID-19 is being finalised. This is positive for the Aussie Battler given that interest rates are about as low as they can be. With US rates set to fall further, the AUD/USD pair will gather support.
AUD/USD has immediate support at 0.6585 followed by 0.6555. Immediate resistance can be found at 0.6640 and 0.6670. Look for a likely range today of 0.6585 to 0.6685. Prefer to buy dips
USDJPY : The go-to haven currency, Japanese Yen flexed in muscles in early Sydney, gapping a whopping 100 points higher against the US Dollar. USD/JPY plunged to 104.13 low before settling at 104.35 from a New York close of 105.35. The Dollar’s fall against the Yen since Friday has been relentless, from 106.45 to 104.13 this morning.
We can expect Japanese officials to initially talk the Yen lower, and FX markets could ignore them. That said, if panic continues to reign, and the fall in USD/JPY is fast and furious, experience tells me we could see the Japanese Ministry of Finance instruct the BOJ to intervene and smooth the markets.
After this morning’s spike lower, we find immediate support at 104.10, 103.80, and 103.50. Immediate resistance can be found at 104.50 and 104.90. Look for a choppy trading session with a possible range trade today of 104.10-105.10. Beware the BOJ.
The USD/CAD pair gapped in early Sydney trade, kicking up to a near 14-month high at 1.3599 with Oil prices set to fall further. Saudi Arabia was reported to have indicated it would raise its oil output to gain a higher market share. This was the result of a collapse in talks between OPEC led Middle East countries and non-OPEC countries led by the Soviet Union. On Friday, Brent Crude Oil prices plummeted 8.98% (USD 45.58 from USD 49.98). The Dollar closed at 1.3425 in New York Friday.
The Canadian economy created 30,300 jobs in February, beating forecasts of 11,000 and slightly lower than January’s 34,500 jobs. The Unemployment rate was steady at 5.6%, matching expectations. The Canadian Public Health Agency reported (as at March 8, 2020) that 64 cases of COVID-19 infections have been confirmed. No deaths have been reported. Which is less than the United States.
USD/CAD has immediate resistance at 1.3600 followed by 1.3630. Immediate support can be found at 1.3570 and 1.3530. Look for a choppy trading session with a likely range today of 1.3530-1.3630. Prefer to sell rallies.
