The USD is trading sideways this morning, giving back some gains made in earlier trading against the EUR, GBP and JPY. Traders are reacting to the testimony given by Fed Chairman Jerome Powell yesterday regarding the US economy. Powell re-affirmed the view that the Fed is unlikely to move interest rates in the near term. Most observers do not expect a Fed move this year. Powell also commented that he saw no reason to adjust US interest rates, unless “new developments cause a material reassessment” to the current outlook. The S&P 500 and the Nasdaq closed yesterday at record highs while the Dow finished pretty much unchanged. According to Dow futures, which are higher this morning, the US equity markets should open around 70 points higher.
EUR/USD once again tested technical support overnight before bouncing back slightly. Economic divergence between the US and the Eurozone continues to have a negative effect on the EUR. Industrial Production in the Eurozone came out lower than expected, adding pressure to the single currency. In her speech yesterday, European Central Bank President Lagarde stated that inflation remains “some distance below the bank’s goal”. Traders’ positions are now showing an oversold bias, so profit taking could see the EUR bounce a bit, but that should give better levels for traders to sell the EUR.
GBP/USD has moved higher after slightly better than expected GDP numbers helped the pound move off of 2 1/2 month lows. GBP gains are expected to remain limited as the UK and the EU continue to be at odds ahead of next month’s official talks regarding the UK leaving the EU in December. Most analysts expect an agreement but there will be some arguing ahead of that. Look for the GBP to react to those remarks and to remain under pressure.
USD/JPY also trading off its overnight high, and traders expect the currency pair to trade in a sideways range for the near future. There has been little volatility in the currency markets, and this has helped the USD remain strong. Traders remain concerned as to how the Japanese economy will be affected by the Coronavirus. For now, expect resistance levels to hold.
The Canadian Dollar improved overnight as oil prices moved significantly higher with Brent crude rising $.98 to $54.99 per barrel and West Texas Crude rose $.81 to $50.65 per barrel. With China reporting their lowest daily number of new viruses since late January, there is hope that fuel demand from China will increase. Look for USD/CAD to test support levels during trading today.
Traders continue to monitor the Coronavirus outbreak as the death toll in China has risen to 1,113 people. The total amount of confirmed cases has risen to 44,653. Concern is growing as to how the virus will affect the economy, with companies such as Under Armour predicting that they will take a “hit” from the viral outbreak that could lower sales by $50-60 million. US National Security Advisor O’Brien said “there is no doubt the virus could have an impact on the US and the world economy.” The IMF also weighed in on the viral effect, saying the virus poses large downside risks for countries that have close ties with China.