The USD is set to end the week on a positive note against the majors as traders remain concerned over growing tension between the US and China as well as a possible second wave of the coronavirus due to economies re-opening around the world. Risk appetite continues to waiver as economic reports around the world show the global economy remaining in a severe contraction. Today is a busy day for US economic data as retail sales as Industrial Production and Capacity Utilization will all be reported. US retail sales for April are expected to fall to -12.5%, after a -8.7% fall in March, while Industrial Production is expected at -12.0% for April, after a -5.4% report in March. Capacity Utilization will also fall to 63.2% in April from 72.7% in March. Yesterday’s release of the jobless claims number initially caused traders concern, especially in the equity markets as almost 3 million filed for unemployment, bringing the total to more than 36 million since the pandemic began. However, the market rallied on the back of tech stocks to finish up over 375 points. There had been concerns that a close below the technical 23,000 level could harm the US equity markets but that did not happen. This morning, DOW Futures are pointing towards a modest opening as the last day of the week trading begins. One thing that could affect the market is the expected filing of bankruptcy by JCPenney following Neiman Marcus as a casualty of the pandemic.
EUR/USD is trading close to its overnight lows as German GDP fell by 2.2% in the first quarter of 2020, compared to the final three months of 2019. The move-in GDP marks the sharpest decline for the economy since 2009 when the world was in the middle of the Great Recession financial crisis. The numbers are expected to get worse before they get better. The German Statistical Office has forecast a 10% plunge in GDP for the second quarter, dependent on the success of lifting lockdown measures. Adding to the Euro’s woes, EURO GBP fell 3.2% as the continent looks to re-open. Based on these numbers, Deutsche Bank has stated that Germany is officially in a recession based on the two consecutive quarter rule. That rule states an economy falls into recession if GDP falls for two consecutive quarters. Analysts also expect the second quarter to be much worse falling 14%, before recovering in the third quarter to around 5.5%. Technically the EUR continues to trade below the 50, 100, and 200 moving averages but selling momentum has eased for the time being.
GBP/USD continues its losing streak this week and is expected to show its biggest loss in the last 2 months. Overnight trading has seen the pound rebound from overnight lows, but the currency remains under pressure, and it looks as if Brexit will return to center stage overshadowing the coronavirus pandemic. The transition period expires on December 31st and negotiations are not going well. Michel Bernier, the chief EU negotiator will address the media and inform of the progress of this week’s talks which haven’t shown much progress. Negative tones from this press conference could cause the selling of the pound. Recent pressure on the pound has been a combination of perceived lack of direction by the UK government regarding the re-opening of the economy, as well as stronger dollar sentiment fueled by the actions of the Federal Reserve. Negative Brexit news will see the pound head to new lows.
USD/JPY begins the North American trading day trading near overnight lows as the market is seeing some renewed USD selling bias and some more traders reverting to the safe-haven status of the JPY. Technical support is right below the overnight low and the USD/JPY is trading below the 50, 100, and 200-day moving averages, so the downward bias remains. Traders will focus on the US economic data due this morning and any “shocks” in those announcements could see a push lower in USD/JPY.
USD/CAD is trading towards the higher end of its overnight range. Canadian Prime Minister Justin Trudeau spoke to the media last night, urging nations to adjust to the new normal after the pandemic ends and a vaccine is created. Oil prices do not seem to be helping the loonie at the moment, but they were higher in trading overnight as Brent crude rose $0.39 to $31.52 a barrel after rising almost 7% on Thursday. West Texas Intermediate crude was also higher rising $0.19, trading at $27.75 a barrel, a rise of 9% from the previous day. Helping the move in oil was a report from China, showing their daily crude use has rebounded in April as the economy has ramped up operations.
China’s industrial production grew 3.9% year-on-year in April, which was above the expectation of 1.5% year-on-year. This is the first expansion reading this year as activity began returning to normal from the coronavirus pandemic. However, consumption has remained weak as retail sales reported a contraction of -7.5% year-on-year in April, which matched expectations. This number is an improvement from the -15.8% contraction of sales in March. China’s fixed-asset investment did contract -10.3% year-on-year in April, which was worse than the expected -10.0%. Traders' concerns remain over US-China relations as President Trump continues to blame the Chinese for the global pandemic.