The USD is higher this morning against the EUR, GBP, and CAD as traders exit risk trades and head back to the safe-haven of USD and JPY. The sell-off began yesterday due to the historically low oil prices. The May contract closed the US session at -37.63 before rebounding into positive territory during overnight trading in Asia. The reason for the sell-off was the lack of storage for delivery on the May contract. As the world continues to stay at home, fuel consumption remains at an all-time low. With oil prices remaining under pressure, DOW Futures are pointing towards a lower opening later this morning of around 250 points. Additionally, the Senate is expected to vote Tuesday afternoon on a deal for the next relief package to help the economy. US Treasury yields were lower overnight as the fall of oil prices weighed on yields. The 10-year note was lower at 0.6130%, while the yield on the 30-year bond was also lower at 1.2152%. As concerns remain over when and how to re-open the economy, expect traders to stay away from risk trades and the USD should remain firm.
EUR/USD trading towards the lower end of its overnight trading range despite the release of a better than expected German ZEW economic sentiment number this morning. The Economic Sentiment came in at 28.2 in April vs. -42.3 expected and -49.5 last month. Despite the positive number, the survey showed that experts do not expect to see positive economic growth until the third quarter of 2020 and that economic output will not return to pre-corona levels until 2022. There was also some positive news as active virus cases in Italy, Spain, France, and Germany have eased. Italy announced that it will ease conditions on May 4th. Despite the good news, the disunity between EU leaders continues to weigh on the single currency. The sides have been drawn as Germany and the Netherlands continue to be against “coronabonds”. There is concern that “corona-stricken” nations will have difficulty repaying debt. The EU will continue to meet to come to an agreement. EUR will feel the brunt and could test support levels later today.
GBP/USD has also fallen through significant support levels overnight as the flight to USD continues. The UK job market which was in trouble before the pandemic has gotten worse and is harming the British economy. The UK furlough plan has not worked and has gotten criticized as being insufficient to deal with the crisis as the economy erodes. The pound is also feeling the negative effect of the oil meltdown. While prices seem to have moved higher overnight for the June delivery, traders are concerned the same reaction to May delivery could affect the June contracts. As UK virus deaths have eased a lot over the last few days, the British government is now considering when and how to ease their restrictions. Brexit negotiations have continued using telecommunications and the reports are they have been constructive. There is an EU news conference scheduled for Friday to speak of the progress of negotiations. If an agreement cannot be reached by the end of the year, the UK would default to WTO rules after the transition period expires.
USD/JPY was trading lower overnight as traders were buyers of JPY as well as USD in safe-haven trades. The USD/JPY is currently trading near overnight lows and a test of overnight support could occur later today. Investors continue to be concerned over the weakening of the global economy. As these concerns continue, traders move away from risk trades and the JPY is a traditional safe-haven destination. High-Frequency Trading (HFT) algorithms are pointing to a technical move lower in the USD/JPY and moving averages show a lower move as well. Reports concerning the health of North Korean leader Kim Jong-un who is supposedly in a critical situation following heart surgery also have traders seeking safe trades.
USD/CAD is much higher this morning as oil prices and coronavirus worries are weighing on the loonie. As a commodity-based currency, the Canadian Dollar is affected by oil moves and yesterday's move did plenty of damage. Technically resistance levels have been broken up and the USD/CAD is currently trading at its overnight high. Continued pressure on oil will weigh on the CAD. There is an economic release this morning as the government will publish retail sales for February. This number is not expected to cause much reaction as it will discuss data from early in the virus crisis. Oil prices early this morning have shown quite a bit of volatility and the June oil contract is currently trading around $14.00 per barrel. The problem of oversupply has now shown that it is real and the market is paying the price for not heeding these warnings earlier. As countries wrestle when to re-open economies, the oversupply mode will continue and pressure oil prices which will continue to pressure the Canadian Dollar.
The People’s Bank of China (PBoC), has stated that there could be further rate cuts soon. The pace of monetary easing has remained gradual as compared to more aggressive cuts by other world economies. President Xi Jinping has promised stronger economic policies to support the economy after GDP resisted its first contraction since 1976. Forecasts for the economy have been reduced, as the rest of the world wrestles with getting back on track.