The start of another week and volatility will be the keyword moving forward. After trading positively earlier overnight, DOW Futures have moved into negative territory as cases in the US continue to rise and President Trump announced a “stay-at-home” extension until the end of April. He stated that the peak of the outbreak will probably hit in the next two weeks. The roller coaster ride is expected to continue this week as economic data due around the world will see the impact the virus has had on countries around the world. There are several US economic releases due this week beginning with Consumer Confidence tomorrow, PMI during the week and Non-Farm payroll on Friday. The USD is higher this morning as the EUR and GBP have moved off last week’s highs. Continued concerns over the spread of the virus have traders moving towards safe-haven trades. US Treasury yields are lower this morning as traders anticipate the longer-term pandemic. The 10-year note is trading at 0.6870%, and the 30-year bond was lower at 1.2634%.
EUR/USD begins the week on a negative note as the virus spreads across Europe at an alarming rate. There are many economic releases due out this week, including the Economic Sentiment Indicator (ESI), which is expected to have fallen from 103.5 to 91.8. This number will highlight the fall in the European economy. As the data comes in from the European economy in the next few weeks, there is pressure on the ECB to do more even as the central bank ramped up their stimulus program. Analysts look towards the next few weeks to see if the viral spread will finally slow to allow the economy to begin recovery.
GBP/USD also trading off overnight highs this morning. The move higher from March 20 when the GBP fell to 35-year lows seems to have run out of steam for the time being. The UK death toll due to the virus rose to 1,228 with those infected by the virus reaching 19,522 cases including British PM Boris Johnson. Reports over the weekend say the UK GDP could fall by as much as 15% in Q2, as coronavirus restrictions may last as long as six months. The Fitch global rating agency downgraded the UK’s credit rating to AA from AAA adding a continued negative outlook. Technical resistance levels should remain in place and the upside move in the GBP is expected to be limited early this week.
USD/JPY also trading in the middle of a rather volatile overnight range, as resistance levels held early in the trading session and then the currency pair bounced off support levels later in the session. The Bank of Japan issued a statement overnight that it is prepared to relax some requirements for financial institutions to participate in market operations. Initially, the BOJ had stated that institutions “were subject to liquidity cover ratio (LCR) requirements.” The BOJ will judge banks on an individual basis and if the institution is deemed likely to improve, the institution will remain eligible for funding. The Tankan report is due out on Wednesday and is expected to reveal a large drop in business confidence in all sectors.
USD/CAD trading higher this morning as the market reacts to the Bank of Canada rate cut last week. The bank lowered the overnight lending rate to 0.25% from 0.50%, with hopes this will help to boost the Canadian economy. The bank also introduced a Commercial Paper purchasing program and a minimum purchase of C$5 billion government securities per week. BOC Governor Poloz also said the central bank is not contemplating negative interest rates at the current time. The weakness of the Canadian Dollar is not surprising according to Royal Bank of Canada economists, as risk aversion, general demand for US dollars and collapsing oil prices are weighing on the loonie. Speaking of oil prices, Brent futures were down $1.68 to 23.25 per barrel. Earlier overnight, Brent had fallen to $23.03, the lowest price since November 2002. US West Texas crude fell as low a $19.92, near an 18-month low before moving back to $20.34 a barrel. Depressing oil prices continue to weigh on the Canadian Dollar.
China is no longer the epicenter of the pandemic but a return to economic normalcy has been slow as restrictions still are in place in many parts of the country. PMI numbers are due out Tuesday and Caixin/Markit surveys on Wednesday. These numbers are expected to show some improvement as the manufacturing number which fell to a record low of 35.7 in February is expected to rise to 45.0 in March.