Daily Market Pulse

USD opens the week under pressure


US Equity markets reopen this morning after being closed on Good Friday and based on DOW Futures, the DOW is expected to open lower on Monday by about 300 points as investors react to the deal that was made over the weekend by OPEC and the other oil-producing nations to cut oil production. According to reports, the oil cut will be 9.7 million barrels per day. This will be the single largest cut introduction on record. Last week the stock market enjoyed one of their best weeks ever rallying over 12.5%. Additionally, there may be some good news regarding the Coronavirus, as the man leading the fight against the virus, Dr. Anthony Fauci, said on Sunday he was “cautiously optimistic” that the outbreak was slowing down in the United States. Dr. Fauci also said he hoped parts of the country could re-open next month, but it would not be “flipping the light switch” on the entire country. Instead, returning to normal will be a slow move. The USD starts the week lower against EUR, JPY, GBP, and CAD. Trading overnight and into this morning was somewhat subdued as Australia, New Zealand, Hong Kong, Great Britain, and most of Europe remained closed celebrating Easter Monday. The decline in the USD may be a short-term move, as net short positions in the USD are at their highest level since May 2018 according to Reuters and CFTC data. US Treasury yields were higher this morning as the 10-year note was up at 0.7331%, while the 30-year bond was slightly higher at 1.3523%.


EUR/USD broke through strong resistance levels overnight reaching new highs before falling back to overnight low levels. The Euro agreement reached late last week is still having a positive effect on the single currency, while continued easing measures by the Fed are weighing on the USD at present. Investors continue to monitor the Coronavirus pandemic to see if we are reaching a peak in the US and Europe. Concerns about the Euro economy heading into recession as the virus wreaks havoc on countries such as Italy, Spain, and France could weigh on the EUR sooner rather than later. The contagion curve seems to be flattening in Spain and Italy but cases in Europe remain on the rise.


GBP/USD rallied overnight, reaching levels not seen in over a month as technical resistance levels were broken during trading in Asia. The lack of many traders being active due to Easter Monday increased the move in the pound. As the North American trading day begins, GBP has moved back towards original resistance levels which are now new support levels. The pound received good and bad news overnight as UK Prime Minister was released from the hospital, one week after being admitted due to the virus. Death tolls in the UK have passed 10,000 people to date. The PM credited the hospital medical staff for “saving his life, as it could have gone either way”. Elsewhere in the UK, according to the Times, Chancellor Rishi Sunak said there is a potential for UK GDP to fall between 25-30% in the second quarter. Based on this report, some cabinet ministers are talking up the possibility of easing the lockdown. Concerns around the world remain that a massive reversal to lockdowns could cause the second round of viral outbreaks.


USD/JPY remains under pressure testing support levels in Asian trading overnight, before bouncing back to trade in the middle of the overnight range. A revival of safe-haven position-taking has helped the JPY and added some fresh USD selling pressure. The USD remains depressed against all currencies after the Fed announced last week to provide up to $2.3 trillion of additional support for the US economy. Adding to the safe-haven move was news of a rise in cases in China, as market concerns about the possibility of a “second wave” of virus cases rise. The JPY may become the safe-haven destination for traders short-term.


USD/CAD is trading near the lower end of its overnight range as the market reacts to the OPEC oil production agreement. Oil prices rose overnight, with Brent crude higher at $31.87 per barrel and US West Texas Intermediate crude higher at $23.27 per barrel. The Bank of Canada will be meeting later this week on Wednesday, but rates are expected to remain on hold. Rates have already been cut by 100 bps, now at 0.25% and Asset Purchases now at C$5 billion per week. Concerns over the spread of the virus in Canada and how much that will impact the economy is what concerns traders most. Investors will be interested to hear the predictions by the Bank for the economy, especially predictions for the second half of 2020 and the first half of 2021. Despite the positive oil news, dire predictions on the economy could put pressure on the loonie.


According to reports from China, there was an increase in new cases yesterday from a day earlier and there are concerns this could be the "second wave" of virus cases. As cases rise, the Chinese government is attempting to restart its economy as the rest of the world watches to see if it is possible. Given the difficulty of getting accurate information out of China, traders will be cautious over any news that comes out of the country. Later this week on Friday, China will publish its Q1 GDP and there is no doubt that these numbers will show an economy that is under pressure. The main question will be by how much has the economy fallen. This would be the first time since 1970 that the economy has not grown.


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