All eyes are focused on U.S. weekly jobless claims release, which has shown that another 5 million people filed for unemployment benefits last week. This will bring the four week total to more than 22 million people. Although this number should be expected, it is staggering. Most analysts expect this number to be peak soon as stay-at-home orders from local and state governments have non-essential businesses closed to prevent the spread of the virus. After finishing down over 440 points on Wednesday, DOW Futures are pointing towards a gain of 220 points when the markets open later this morning. Poor economic releases yesterday weighed on the DOW, but traders are looking at a possible turnaround in the virus cases reported as a reason for the positive sentiment. The release of the Beige Book yesterday shows that US economic activity “contracted sharply and abruptly through all regions”. Uncertain outlook moving forward was the main concern as most expect conditions to worsen over the next several months. The USD is trading higher this morning against the EUR, GBP, and CAD and holding steady against the JPY. The possibility of the US re-opening could boost market sentiment and President Trump will have a press conference later today regarding the re-opening. US Treasury yields rebounded overnight as the 10-year note was trading at 0.6550%, and the 30-year bond was also higher at 1.2843%.
EUR/USD is lower this morning as virus cases in France and Germany increase, weighing on the EUR. The single currency is now trading below technical moving averages indicating that there is room to see the EUR move lower during the trading day. An interesting concept is put forth by traders. While US data releases were terrible yesterday, other countries, especially those in Europe will have worse numbers. Poor macroeconomic data has caused traders to once again move to risk-off trades that favor the USD. Questions remain about the re-opening of Europe. The European Commission would like to see a coordinated re-opening which could be difficult considering the virus outbreak is at different stages in different countries. The lack of unity between the EU countries continues will weigh on the EUR.
GBP/USD is lower this morning falling from overnight highs as the UK government is set to extend their lockdowns amid reports that the virus is nearing a plateau. According to UK Health Secretary Hancock, “the virus would run rampant if all restrictions are lifted”. Most investors expect the extension of the lockdown which could be extended at least another three weeks. Prime Minister Boris Johnson continues to recover from the virus but as of yet is still not ready to regain control of the government from Foreign Secretary Raab, who is running the government in his absence. Negotiations on Brexit have resumed, via video after the Chief EU negotiator recovered from the virus. According to reports, the resumption of talks was cordial.
USD/JPY trading towards the middle of its overnight range. Once again concerns over global economic fallout seem to be weighing on the currencies and benefitting the USD. Bouncing off technical support levels overnight have traders looking to take the USD/JPY higher. Failure to break through support levels as well as “oversold” positions should see the USD rebound during the trading day. According to the latest news, Prime Minister Shinzo Abe is ready to declare the nationwide state of emergency which is set to last for up to one month.
USD/CAD is trading higher this morning after the Bank of Canada left rates unchanged at 0.25% yesterday as expected. The BOC also announced that they were extending their QE program, adding further monetary easing. The central bank did not give any updates to economic projections at the meeting but rather mentioned that there was hope there could be a removal of containment measures by the end of May. Adding to the woes of the loonie, Brent crude was down by $0.19, trading at $27.50 a barrel. Prices seem to be stabilizing ahead of the Thursday North American trading open. Concerns about lower demand will continue to weigh on oil prices and as a commodity-based currency, they will weigh on the Canadian Dollar as well.
China’s GDP figures are expected to show a contraction of around 6% in the first quarter of 2020. Economists say the contraction would erase the growth rate of 6% seen in the fourth quarter of 2019. It would also be the worst contraction in recent memory. This number is expected to be a barometer for equity and USD markets, as a better than expected number would push equity markets higher and push the USD safe-haven trade lower, while a worse than expected number would have the opposite effect.