The USD is slightly lower this morning against the EUR, GBP, JPY, and CAD as traders take some profit ahead of the weekend. Overall, the USD will have its largest weekly gain since the 2008 financial crisis. As the Coronavirus pandemic grows throughout the world, investors are liquidating positions in stocks, bonds, gold, and commodities, for the safety of the USD. To eliminate fiscal strain, the Federal Reserve extended funding to nine more central banks. San Francisco FED President Daly, said in an interview yesterday that it is appropriate to have the FED helping small businesses and households to weather the near-term shutdown. US Equity markets ended yesterday on a positive note gaining almost 190 points and retaking the 20,000 level. After spending most of the overnight in the negative area, DOW Futures reversed Friday morning and now are up around 840 points, which indicates an opening later today of around 800 points. As US government debt prices move higher this morning, with investors continue to move into safer assets, the yields are lower on Treasury notes and bonds. The 10-year note is trading at 1.0322%, while the 30-yer and is trading at 1.6109%. While there will be some profit-taking today on the USD, expect the greenback to remain better bid as the week ends.
After falling to its lowest level since 2017, in earlier trading, the EUR/USD has made a bit of a comeback early this morning. Oversold trading positions and profit-taking are being given as reasons for the reversal, but the single currency could not break through technical resistance levels and continued its downward move. The reversal in technical terms is referred to as a "dead cat bounce” and failing to follow through has traders expecting another extended move lower. The Coronavirus continues to spread through Europe as Italian deaths have surpassed those who have died in China. Italy may extend its countrywide lockdown to May 1. Any turnaround in the European economy remains on hold until the spread of the virus ends and markets begin to lift restrictions.
The Bank of England, at a special meeting yesterday, announced a rate cut by 15 bps to 0.10%. They also raised the asset purchase target by GBP 200 billion to GBP 645 billion. In the accompanying statement the Bank of England said: “As a consequence of the conditions in the UK gilt market, the UK and global conditions have been forced to tighten.” GBP/USD is trading off the lows it hit yesterday, which saw the pound fall to a level not seen in 35 years. UK Chancellor Sunak will be presenting additional stimulus measures later today. Technical resistance levels and the continued move into USD will keep any GBP move higher contained. As with the other currencies, GBP/USD is oversold, so short covering reversals would not be unexpected. Brexit negotiations are on hold as UK chief negotiator, David Frost, is in self-isolation after his EU counterpart, Michel Barnier announced he had tested positive for the virus.
USD/JPY trading off overnight highs, as traders exited safe-haven JPY trades. After hitting one-month highs in early Friday trading, the currency pair is now heading back down. Profit-taking by traders is the reason for the volatile moves in the currency. Adding to the pressure on the JPY is the continued global flight to USD as well as further purchases of JPY 300 billion worth of Japanese bonds. The USD/JPY has been bouncing between strong technical support and resistance levels and the volatility should continue throughout today.
USD/CAD trading near overnight highs as oil prices continue to fall. The move lower in oil is being blamed on potential falling demand, as well as the on-going price war between Saudi Arabia and Russia. Brent crude is lower, falling $1.13 to $32.72 per barrel. Brent crude fell 25%, the largest drop since 2008. US crude also fell, down $0.72 to $31.01. This happened despite President Trump’s pledge to fill strategic oil reserves. As oil prices fall, commodity currencies continue to bear the brunt of the damage. The Bank of Canada has cut interest rates 100 points in less than 10 days to help fight against the virus pandemic, and it expected that the Canadian Finance Minister will announce a substantial fiscal stimulus package later this week.
China’s total number of confirmed Coronavirus cases rose to 80,967, as 39 new confirmed cases were reported, but it was the second consecutive day that the Hubei province reported zero new cases. While it is still early, some are taking this as good news that the epicenter of COVID-19 is in recovery. China kept its 5-year loan prime rate at 4.75%. This move was unexpected as most analysts were expecting some sort of rate cut after most of the world’s central banks had cut their rates in recent days to combat the economic impact of the virus outbreak.