The USD, equity markets and US Treasury yields continue to move lower as we get to the end of the week and risk aversion due to growing fear of the Coronavirus remains the main theme in the financial markets. The Dow fell almost 1200 points yesterday, which was the largest one-day drop ever. Dow Futures are indicating a continued fall of more than 600 points when the equity markets open later this morning. The Dow has fallen into “correction” territory, after closing at a record high on Feb. 12. US Treasury yields are also lower as the 10-year note was trading at 1.2324% and the 30-year bond was trading at 1.7317%. These moves lower have put added pressure on the Federal Reserve to cut rates at their March 17-18 meeting. The odds of the Fed lowering rates by 25 bps have risen to 96.3 % according to traders. A month ago, the odds were less than 9%. Chicago PMI is due out later this morning and is expected to rise to 46.0 from 42.9. University of Michigan Consumer sentiment will also be released and is expected to fall slightly to 100.7 from 100.9.
EUR/USD is also feeling the benefit of USD weakness and the single currency is currently trading near overnight highs. Lower equity markets and higher odds on a Fed rate cut have been given as reasons for traders moving into the EUR. While traders are expecting a 10 bps rate cut by the European Central Bank in June, the move by the Fed will be much more impactful, according to traders. Having broken through technical resistance levels, the EUR is getting close to being in an overbought situation, but we are not there yet. Until there is some positive news regarding the Coronavirus, and as long as equity markets remain under pressure, the EUR will remain better bid.
GBP/USD is trading near overnight lows this morning as Brexit talks prepare to kick off on Monday. Prime Minister Boris Johnson is “talking tough” ahead of these meetings and there have been threats that the UK will walk away from negotiations in June if progress has not been made. The EU wants Great Britain to accept the type of trade deal that they have with Canada, but the UK has no interest in a deal of this nature. Bank of England retiring governor Mark Carney has stated economic growth in the UK could be downgraded.
As fears over the virus continue, the USD/JPY has fallen to its lowest levels in more than three years. As the epidemic moves to other countries, investors have moved towards the safe-haven currency. Prime Minister Abe has promised to take steps to shield the economy from the impact of the virus outbreak. He stated that Japan has the “reserves to tap for virus response”. He also said there is no need yet for additional funding. USD/JPY currently trading at overnight lows and with equity markets falling around the world, the expectation is that the pressure on USD/JPY will remain.
Oil prices have fallen to their lowest levels in almost a year on Friday and these prices are placing pressure on commodity-based currencies. US Brent Crude prices were lower at $50.31, the lowest in 14 months, while West Texas Intermediate crude was trading lower at $45.70. The Canadian Dollar has fallen to levels not seen since July of 2019. Although the loonie is now in an oversold situation, the pressure is expected to continue as long as oil prices move lower.
As the spread of virus cases increases across the globe, Chinese cases appear to have slowed with only 327 new cases confirmed on Thursday. That brings the number of cases reported to 78,824, while the death toll has risen to 2,788. Cases throughout the globe have risen with South Korea now above 2,000 cases with 13 deaths, while Italy’s cases have more than doubled to 650, with 17 deaths. The World Health Organization has warned countries that they must be ready to handle their first cases as they occur.