US, Europe Scramble to Contain COVID-19; Dollar, Bond Yields Fall

Summary: The Dollar Index (USD/DXY), a measure of the US currency’s value against 6 foreign currencies fell 0.8% to 1.0175 (1.0275) on Friday as Europe and the US scrambled to contain the coronavirus spread. The New York Times reported that cases in New York state alone grew to more than 15,000 (roughly 5% of the global total of 314,700). In Spain, thousands of health workers tested positive. Friday also saw the announcement by six major central banks of coordinated action to enhance liquidity from company funding requirements in the Greenback. The group agreed to increase the frequency of their currency swap operations to occur daily, which is unprecedented.

Ten Year Global Government Bond Yield Table - Bloomberg - 23 March 2020
Ten Year Global Government Bond Yield Table – Bloomberg – 23 March 2020

After plunging to multi-year lows, the Australian Dollar, British Pound and Canadian Loonie rebounded amid elevated volatility. The Aussie soared to 0.5986 overnight (from 0.5775), easing to settle at 0.5805 in late New York after US stocks settled near weekly lows. Sterling climbed to as high as 1.1934, dipping to 1.1610 at the NY close. The USD/CAD pair slumped 1.12% to 1.4335 from its Friday open at 1.4510 and last week’s high of 1.4668. In Italy, according to the NY Times, “containment measures lagged behind the trajectory of the virus.” The Euro, sold hard to an overnight and April 2017 low at 1.06376, rallied to close at 1.0695 on the weaker US Dollar.
US Bond yields fell. The benchmark US 10-year rate fell 29 basis points to 0.85%.
Wall Street stocks
fell to their lowest close this week. In late New York trade the DOW was 4.6% lower to 18,997 while the S&P 500 lost 4.3% to 2,274.

New Covid-19 Cases Per Day - Chart- Saxo Bank - 23 March 2020
New Covid-19 Cases Per Day – Chart- Saxo Bank – 23 March 2020

On the Lookout: We can expect further elevated FX volatility today. This time though, its not a one-way bet for a stronger Greenback despite funding demand. The economic data calendar for today is a light one. The week ahead though, beginning tomorrow sees global manufacturing and services PMI reports. Covid-19 developments and global containment efforts remain centre stage.
Yesterday, Australian Prime Minister Scott Morrison announced venues “where people congregate” will be shut to enforce social distancing amid the virus breakout. Morrison added that schools will be open (except in the state of Victoria) but it would be to the discretion of parents as to whether to send their children. The RBNZ announced early this morning that it would conduct large-scale asset purchases of New Zealand bonds (QE) following similar moves by global central banks last week.
Meantime New York state coronavirus cases rose more than France or South Korea. Total US cases neared 24,000, the death toll surged to 306 over the weekend. The US now has the third highest numbers after Italy and China.

Trading Perspective: FX opens in Asia with a clear risk off stance in highly volatile trade. US stock futures hit limit down as investors await a stimulus agreement in Washington. USD/JPY dropped to 110.46 before rebounding to 111.00 in a few minutes. The New Zealand Dollar slumped 100 points to 0.5604 from its NY close at 0.5704. The Euro eased to 1.0665 from 1.0695. Risk aversion saw the Aussie slip to 0.5725 from 0.5800. USD/CAD climbed to 1.4455 from 1.4335. The extremely choppy trade means no strong views, be flexible and pick your levels. We examine those in a per currency report.

EUR/USD – Remains Heavy with 1.0635 Key Support, 1.0800 Resists

Amidst the US Dollar’s reversal on Friday, the Euro managed to finish 0.24% higher in New York at 1.0692. The Euro rebounded against the generally weaker US Dollar to an overnight high at 1.08309 before easing. This morning in early Sydney, EUR/USD finds itself back to 1.0660 with key support at 1.0635 within reach. This level would have to hold for any recovery in the shared currency.

 

Reuters reported over the weekend that Germany’s Finance Minister Olaf Scholz said its debt ceiling will be raised to include a supplementary budget of EUR 156 billion. This would bring the total stimulus package of Germany to EUR 750 billion. While this would defy the country’s fiscal rulebook it will go a long way to battle the coronavirus epidemic. And would be supportive of the EUR/USD pair.

As the US grapples with the latest surge of Covid-19 cases in its own backyard, EUR/USD should climb. Immediate support today lies at 1.0640 followed by 1.0580. Immediate resistance can be found at 1.0780 and then 1.0830. Expect another choppy session with a likely range of 1.0640-1.0840. Prefer to buy dips.

AUD/USD – Risk Aversion Vs Weaker US Dollar = 0.55-0.60

We can continue to expect high volatility between 0.55 cents and 0.60 cents. The Australian Battler came back strongly after hitting 2002 lows last week at 0.55062. Following Prime Minister Scott Morrison’s announcement of a nationwide application of tough new social distancing rules, the government also announced its second stimulus package of AUD 66 billion, which brings to total stimulus effort to AUD 189 billion. According the Australian Business Insider, this is about 10% of the country’s GDP.

AUDUSD Hourly Chart - Daily FX - 23 March 2020
AUDUSD Hourly Chart – Daily FX – 23 March 2020

Australia’s efforts to battle the virus outbreak include the possibility of mobilising the hotel industry to fill shortages of medical equipment should the country run out of intensive care wards. According to the Sydney Morning Herald, major hotels are set to become quarantine zones and even hospital wards under an emergency plan. These proactive efforts will feed in to support the beleaguered Aussie Battler, which is due for a sharp rebound.

AUD/USD has immediate resistance at 0.5965 and 0.60 cents. The Aussie would need to break out above 0.60 cents to get back to a 0.60-0.65 cent range. Immediate support lies at 0.5700 followed by 0.5630 and 0.5530. Look for a volatile trading session between 0.5670-0.5930. Prefer to buy dips.

USD/CAD – Oh What A Night, Look for the Same, 1.42-1.45 Likely

“Oh, what a night.” The USD/CAD pair went Loonie, trading between an overnight low at 1.4150 and 1.4535 before slipping to settle at 1.4335 in New York. This morning, the risk-off stance saw USD/CAD jump to 1.4488. On Friday, Brent Crude Oil prices dip to USD 29.00 from Thursday’s USD 28.30.

USDCAD - 1H Chart - ForexLive - 23 March 2020
USDCAD – 1H Chart – ForexLive – 23 March 2020

USD/CAD has immediate resistance at 1.4525 followed by 1.4600. A break of 1.4600 could see 1.4670, highs reached on 19 March. Immediate support can be found at 1.4370 followed by 1.4330 and 1.4270. US 10-year bond yields on Friday plunged 29 basis points to 0.85%. Canada’s 10-year bond yield closed 13 basis points lower to 0.86%. That yield differential will favour the Loonie over its southern counterpart.

Look for a choppy trade, likely between 1.4320 and 1.4520. Prefer to sell rallies as the Covid-19 toll continues to surge in the U.S.