Summary: Plans by several countries to ease restrictions on businesses that were closed due to lockdowns brought about by the coronavirus outbreak cheered markets, lifting risk appetite. The US Dollar fell against most rivals as demand for the have currency eased. The Euro was up 0.09% at 1.0827 after reaching a high of 1.0860 overnight. Among the countries that have planned to reopen businesses were Italy, with the world’s second highest rate of infections. The Aussie Dollar outperformed, jumping 1.5% to 0.6461 (0.6395) as several Australian states said they would ease social distancing rules this week. Against the Yen, the Dollar eased 0.25% to 107.26 (107.50) after trading to a low at 106.99. The Bank of Japan expanded its stimulus to aid companies hit by Covid-19 while pledging to keep borrowing costs low. The move was widely expected by traders. Sterling rallied on the broad-based US Dollar weakness to 1.2430, up 0.6% from 1.2365 yesterday. The Canadian Loonie rallied 0.45% against the US Dollar despite a slump in Oil prices. USD/CAD was trading at 1.4025 (1.4095) in late New York. US Oil (WTI) fell 24% to USD 12.90/barrel while the broader Brent Crude was down 7% to USD 23.05. Concerns about an oversupply and lack of storage space saw volumes fall in futures contracts, sharply weakening prices.
Wall Street stocks rose to 6-week highs. In late New York, the Dow was trading at 24,125 (23,770), up 1.45%. The S&P 500 rose 1.35% to 2,877 (2,837). Several US States took steps to ease coronavirus restrictions despite warnings from several health experts that it might be too early.
US bond yields climbed as treasuries dropped. The benchmark US 10-year bond yield climbed 6 basis points to 0.66%. Germany’s 10-year Bund yield was up 2 basis points to -0.46%.
There were no major economic data releases yesterday while US company earnings start to pick up this week.
On the Lookout: Markets will continue to monitor coronavirus updates as countries start to ease rules and restrictions. Economic data release pick-up today.
Japan reports on its Unemployment Rate (April) which is forecast to rise to 2.5% from 2.4%. Also due for release is the Bank of Japan’s Annual Core CPI report. Europe kicks off with Spain’s Unemployment Rate, forecast to climb to 15.6% from 13.8% the previous month. The UK releases its CBI (Conference Board) Realised Sales. The US follow with its Goods Trade Balance, and its Conference Board Consumer Confidence reports. Economists expect the US CB Consumer Confidence to drop to 88.3 from 120.0. US Richmond Manufacturing Index rounds up the day’s reports.
Trading Perspective: Optimism on the easing of restrictions and reopening of economies saw risk assets climb while US treasuries and the Dollar eased. Some analysts see this rise in risk appetite as premature, with economic data releases in the days ahead showing how far and wide the damage from Covid-19 has grown. Any return to risk-off will see the Dollar uptrend re-emerge.
Market positioning also supports a US Dollar rally. The latest Commitment of Traders/CFTC report saw speculative short Dollar bets maintained, although the pace has been reduced. According to Saxo Bank in its latest report, “the main and almost solo driver behind this change has been the turnaround in the Euro.” Speculators turned from their short Euro bets and built long positions to their biggest total since June 2018. Against the other currencies, position changes were limited.
AUD/USD – Easing Lockdown Rally to Slow, 0.6500 Resists, 0.6350 Base
The Australian Dollar extended its gains to close at 0.6460 in New York, trading to an overnight and fresh six week high at 0.64718 before settling lower. In early Asia, AUD/USD currently trades at 0.6448. Antipodean cousins Australia and New Zealand have weathered the coronavirus crisis better than others as they quickly closed borders in the early stages. This was even before the World Health Organisation officially termed Covid-19 as a pandemic. Which gave them success in containing the outbreak and flattening the curve.
Which in turn has allowed the government to ease restrictions in some states and territories. Australian States Queensland, the Northern Territories and Western Australia said they would ease social distancing this week. Today, New South Wales, the country’s largest State announced that two adults will be allowed to make a visit to someone’s home on the basis of care from May 1.
The Australian Dollar’s rally will slow from here as the focus now falls on the economic fallout with the upcoming data releases. Which will dent the optimism, reverse risk-on and lift the US Dollar. AUD/USD has immediate resistance at 0.6480 followed by 0.6500. The next resistance level lies at 0.6550. Immediate support lies at 0.6400 followed by 0.6350. Look to trade a likely 0.6380-0.6480 range today. Prefer to sell rallies.
USD/JPY – 107.00 Post BOJ Support to Hold, 108.50 Resists
The Dollar dropped to an overnight low at 106.99 after the Bank of Japan pledged to keep buying unlimited amounts of government bonds and keep borrowing costs low. This was widely expected, and we saw USD/JPY tumble from its 107.50 opening. USD/JPY was trading at 107.25 in early Asia, unchanged from its New York close.
Overnight, the US 10-year bond yield rose 6 basis points to 0.66% while Japan’s 10-year JGB yield dropped 2 basis points to -0.05%. Which will support the USD/JPY pair at current levels. Meantime the latest Commitment of Traders/CFTC report (week ended 21 April) saw net speculative JPY bets increase to +JPY 26,026 from the previous week’s +JPY 22,643. The change was the largest among the 10 IMM currencies. Which is USD supportive.
USD/JPY has immediate support at 107.00 followed by 106.70. Immediate resistance can be found at 107.60 followed by 108.00. Look to buy dips in a likely 107-108 range today.
EUR/USD – Up on USD Weakness, Longs Cap Gains at 1.0900, 1.07 Supports
The Euro climbed on the back of broad-based US Dollar weakness after holding the 1.0700 support level well on buying demand. EUR/USD finished at 1.0828 in New York from yesterday’s 1.0824. Gains were modest as the shared currency struggled past its overnight high at 1.0860.
The latest Commitment of Traders/CFTC report saw speculative Euro long bets continue to grow to total +EUR 87,218 contracts in the week ended 21 April. Which are the biggest number of total net speculative EUR longs since June 2018. The Euro is struggling to trade higher under the weight of those longs. While some European countries like Italy have eased their own restrictions, allowing some businesses to start the coronavirus toll remains high and the economies are weak.
The ECB is expected to increase the size of its bond buying program at the conclusion of their meeting on Thursday. Expect any Euro rallies to be sold into.
EUR/USD has immediate resistance at 1.0870 followed by 1.0900 (strong). Immediate support can be found at 1.0800 followed by 1.0770. Look to sell rallies in a likely 1.0760-1.0860 range today.
