Summary: Risk sentiment remained unsettled after another tumble in oil prices, and whilst not entirely unexpected, served as a reminder of Covid-19’s destructive impact on the global economy. Brent Crude Oil prices tumbled to USD 23.00 from USD 28.50 yesterday, a loss of 23.7%. The US Dollar retained its safe-haven bid, lifting against its rivals. Commodity related and Emerging Market currencies underperformed. A blueprint for Commodity-FX, the Thompson-Reuters CRB Index plummeted to 106.29 lows not seen since the mid-1990s. The Australian Dollar slumped 0.97% to 0.6285 (0.6340) while its smaller cousin, the Kiwi tumbled 1.3% to 0.5973 from 0.6037. Against the Canadian Loonie, the Greenback rose to 1.4200 from 1.4135 yesterday. Sterling plunged to its lowest in two weeks, finishing in late New York at 1.2298 (1.2432), down 1.18%. UK Employment data came in worse than expected. Bank of England Governor Andrew Bailey said that Britain should be cautious of lifting the country’s coronavirus lockdown too early. The Euro dipped to 1.0860 from 1.0867. Elsewhere, the US Senate agreed to a USD 484 million coronavirus stimulus bill for small business and hospital relief which cushioned the fall in US stocks. The Dow ended at 23,126 from 23,629 while the S&P 500 was trading at 2,743 (2,820) in late New York. Global bond yields dropped. The benchmark US 10-year bond yield was 4 basis points lower at 0.57%. Germany’s 10-year Bund yield finished at -0.48% (-0.45%).
UK Average Weekly Earnings (Wages) underwhelmed at 2.8% against forecasts of 3.0%. The UK’s Unemployment Rate rose to 4.0% from 3.9%. US Existing Home Sales matched forecasts at 5.27 million units, falling from the previous month’s 5.76 million units.
On the Lookout: Asian markets will open mixed following the passing of a USD 484 billion interim economic stimulus packaged which cushioned the fall in stocks in late New York. Oil futures in early Asian trade rallied after two days of huge selloffs. Markets will continue to monitor all Covid-19 news releases.
Data released today are Australian Retail Sales, which is an interim release from the Australian Bureau of Statistics to cover the impact of Covid-19. European data begins with UK data: CPI (y/y), Core CPI, PPI Input (m/m), PPI Output, RPI (y/y) and HPI (y/y). Canada reports on its monthly CPI, Core CPI, and Trimmed CPI (y/y). The US releases its House Price Index.
Trading Perspective: The Dollar Index (USD/DXY) climbed to finish at 100.207 as risk sentiment rolled over and treasury prices rallied. In the majors, Sterling was the worst performing currency, on the peaking Covid-19 toll on the UK and underwhelming employment data. Commodity linked currencies led by the Australian Dollar are at risk from weakening prices.
Expect Asian markets to continue the trend with a bid US Dollar and offered Commodity and Asian Emerging Market currencies. In early Asia, oil rallied after two days of unprecedented selloffs. Risk remains unsettled and FX volatility will pick up.
AUD/USD – Slips on Weak Commodity Prices, Risks 0.6250, 0.6350 Resists
The Australian Dollar slipped 0.97% to 0.6387 in late New York from yesterday’s opening of 0.6338. Overnight low traded was 0.62534 as weak commodity prices which resulted from another huge plunge in oil weighed on the Battler. Iron Ore prices though remained stable. RBA Governor Philip Lowe said yesterday that Australian wages will be low and that current interest rates are likely to remain weak for a few years. Lowe forecast that the economy would contract by 6% in 2020.
AUD/USD has immediate support at 0.6250, a break of which could see 0.6215 tested and eventually 0.6185. Immediate resistance can be found at 0.6310 and 0.6360 followed by 0.6400. The latest Commitment of Traders/CFTC report saw net speculative Aussie shorts steady at -AUD 35,554, little changed from the previous week. Short market positioning is a supportive factor for the Battler.
Expect a likely range today of 0.6230-0.6330. Prefer to sell rallies.
EUR/USD – Volatility Eases into EU Council Meet; 1.08-1.09 First Up
The Euro settled into a 1.0817-1.0880 range overnight as FX volatility eased despite a souring in risk sentiment as oil prices remained under pressure. The overall strength of the US Dollar and a long speculative Euro market positioning weighed on the shared currency. Buyers continue to support the 1.0800 level with an overnight low recorded at 1.08165. EUR/USD ended at 1.0858 in late New York. The overnight high was 1.0880. Germany’s ZEW Economic Sentiment Index lifted to 28.2, outperforming median expectations of a -40.0 fall. The Eurozone’s ZEW Economic Sentiment Index jumped to 25.2 from the previous month’s -49.5. That said, Germany’s ZEW Current Situation Index plunged to a record -91.5, missing forecasts at -77.5.
EUR/USD has immediate resistance at 1.0900 followed by 1.0940. Immediate support can be found at 1.0810 followed by 1.0770. The European Council video meeting (midnight Sydney, 23 April) is a risk to the shared currency if the outcome results in a collapse in talks which will trigger a new EU crisis. Meantime look to trade between 1.08-1.09. Preference is to sell rallies.
USD/JPY – Consolidating on Risk Reset, 107-108 Up First
The Dollar was little changed against the Yen, finishing at 107.75 in late New York from 107.70 yesterday. The risk-on, risk-off dictated the moves in this currency pair with no data coming out of Japan last night and none scheduled for release today. The next Japanese economic report comes in tomorrow with Japan’s Flash Manufacturing PMI report. Reports overnight that North Korea’s leader Kim Jong-un was rumoured to be gravely ill put a bid on the USD/JPY pair. The source was from a website run by North Korean defectors. Markets questioned the accuracy of the report.
USD/JPY has immediate resistance at 108.00 (overnight high traded was 107.89). Immediate support can be found at 107.30 (overnight low 107.281) followed by 106.80 (strong). The latest Commitment of Traders/CFTC report saw speculative JPY long bets little changed at +JPY 22,643. USD/JPY will continue to find clues on the market’s risk profile which is unsettled. Until then look for a likely trade today of 107.20 to 108.20, prefer to buy dips.