Daily Market Pulse

Finding the light at the end of the tunnel


Is there light at the end of the tunnel? US stock futures rose overnight after Gilead Sciences reported effectiveness for a drug produced to treat the Coronavirus. This optimistic news has the US equity market ready to open higher by over 625 points. Some analysts are saying, while the news is positive, we need to practice restraint to make sure it will help the economy “re-open”. The USD is also trading higher overnight following the Gilead report. Adding to the USD move was President Trump revealing his plan to re-open the US. The President promised governors they will be handling the process, with help from the federal government. While social distancing will remain, “healthy citizens will be able to return to work as conditions allow”. US Treasury yields moved higher overnight with the 10-year note trading at 0.6575% and the 30-year bond trading at 1.2510%. We shall see if this positive overnight reaction can be maintained through the US trading day.


EUR/USD is trading lower this morning, as technical trends are leading the currency pair lower. Downtrend momentum should continue and a test of overnight lows is not out of the question. The single currency also being pressured by recession concerns and political tension. Economists say the anticipated recession will be worse than the one that happened a decade ago. The bailout fund agreed by EU finance ministers was much less than expected and has those countries most in need of the bailout saying this bailout offer is as poor as the one that finance ministers came up with during the Greece economic crisis. So the debate continues as Southern member nations want more of a joint debt in the form of “coronabonds”, while their Northern neighbors have rejected the idea. As this issue remains a major sticking point, the EUR will bear the brunt of this. Additionally, Germany may open some businesses as early as next week, while France has extended its lockdown to May 11. Look for downward EUR pressure to continue. 


GBP/USD is trading close to its lowest level in a week as dollar demand base on the overnight Gilead news weighs on the pound. Earlier in overnight trading GBP failed to break through resistance levels and this had traders liquidating long positions aiding the downward move. There are strong support levels that have not been breached and it will be interesting to see if the USD euphoria continues through the US trading day. As the UK deals with the Coronavirus, Brexit will once again emerge as a key component for the pound. Currency forecasters are calling for the pound to fall much lower amid the economic uncertainty around whether the UK and EU will be able to agree on a post-Brexit deal. Video conference negotiations are due to begin next week and carry on until June 1. If the UK were to leave the EU without a deal there would be extreme pressure on the economy and now with the added pressure due to the Coronavirus, this could be a real blow to the pound. Strategists expect the “11-hour” deal to take place between Brussels and London. This will be a continuing story that goes beyond the eventual re-opening of the UK economy.


USD/JPY moved higher in trading overnight, aided by the pharmaceutical news. Japanese economic data revealed that industrial output fell 0.3% in February after rising 0.1% in January. Japan PM Abe has extended the state of emergency in Japan to May 6 and asked citizens to try not to travel between cities as a means to contain the spread of the virus. The moves overnight in USD/JPY were a bit volatile within a contained range and at present, the currency pair is nudging up against overnight highs. A breakthrough technical resistance is not out of the question today if the USD sentiment remains strong. As US Treasury yields move higher, JPY will typically trade lower and this relationship has held over the last few weeks. A stronger risk appetitive by traders is also weighing on the JPY as traders are again moving away from safe-haven trades. 


USD/CAD is trading higher although it has come off its overnight highs. Weaker oil prices and general USD strength have served as bullish catalysts for the USD/CAD. The move higher that began yesterday has followed through in overnight trading as the oil price fell in overnight trading. Brent crude was $0.10 lower trading at $27.72 per barrel and US future crude prices for May also fell by $1.54 to $18.33 per barrel. Adding to the loonie woes, Canada released Manufacturing Sales data for February which showed an increase of only 0.5% month-on-month and this data was pre-virus so the March release is expected to be much, much, worse. Technically, the USD/CAD is breaking above moving average levels indicating a higher move is likely.


China’s GDP contracted by -6.8% in the first quarter of 2020. This is the worst performance by the economy since 1992, as the country felt the full brunt of the coronavirus outbreak. The expected number was -6.0%. Retail sales fell -15.8% year-on-year, worse than the expected -8.8%. After many health care officials questioned the virus numbers reported by the Chinese, official fatality figures for Wuhan were revised adding 50% more deaths than originally reported. The number of those infected was revised higher as well. According to Chinese officials, the new totals take into account those who died at home during the early days of the outbreak as well as those not properly reported by hospitals. Over the last few days, there have been calls by world leaders to hold China responsible for the global health crisis.


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