Daily Market Pulse

Two major Fed announcements today


The USD remains under pressure as traders await two major events today. The US Q1 GDP will be released this morning and then the FOMC will announce their interest rate decision later this afternoon. GDP for the first quarter of 2020 is expected to show -4.0% contraction, which would be the biggest contraction since the recession in 2009. The coronavirus had caused a big decline in consumer spending and the focus will also be on business investment in the first quarter. Later today, the Fed is expected to keep monetary policy unchanged. There will also be no economic projections until the June meeting but Chairman Powell could reveal his thoughts on the economy for the second half of 2020. The chairman has previously ruled out the possibility of negative interest rates and analysts will be watching to see that opinion remains the same. As the USD moves lower, equity markets move higher this morning and DOW Futures are looking to show a gain of 250 points when the markets open later today. Most traders expect interest rates in the US to remain on hold for a while but comments on the US economic recovery will be closely watched. Treasury yields are lower this morning, with the 10-year note trading at 0.6017% and the 30-year bond trading at 1.1884%.


EUR/USD is higher this morning, trading near the top of its overnight range. Traders are waiting to hear from the European Central Bank (ECB) which meets on Thursday. There is growing pressure on the central bank to expand its Pandemic Emergency Purchasing Program (PEPP) which is currently at EUR 750 billion. Italy, which is the hardest-hit European country regarding the virus is struggling with its finances as the Fitch rating system has lowered its credit rating to BBB. France and Spain are moving forward with plans to exit their lockdowns moving forward into May and June. Germany has seen an increase in virus cases, which means the country may have to re-impose lockdown restrictions. German CPI numbers for April came in at 0.6%, after a previous number of 1.4%, showing a substantial downfall in inflation which may put some pressure on the ECB to act as the divide between EU members from the north and the south continues. 


GBP/USD is higher overnight but trading near the bottom of its overnight range as concerns remain over testing in the UK. This has kept the pound from moving higher, despite the pressure that continues on the USD. UK virus cases have risen over the last few days but the trend seems to be moving towards the downside, which is similar to the reaction in other European countries. Scientific committees meet to tackle the virus and PM Johnson is now having to deal with criticism over the government’s handling of testing. GBP may come under pressure as Brexit talks continue but there is no conclusion on the horizon.


USD/JPY is trading at its lowest level in six weeks, as traders continue to take refuge in safe-haven currency trades. As US GDP shows its worst contraction since 2009, traders prefer to exit risk trades. A break of key support levels as the USD/JPY moved lower fueled downward pressure and technically there is further room for a downward move. Comments from Bank of Japan governor Kuroda also helped the JPY as he said there is hope that the moves by the central bank will help the private sector fund their loans form financial institutions. He also noted that the BOJ took an extremely rare step of paying 0.1% interest to financial institutions that use the loan program, which is aimed at combating the pandemic. Expect to see pressure remain on the USD/JPY.


USD/CAD is lower this morning as recovering oil prices are providing a boost to the commodity currencies such as the Canadian Dollar. After weekly data published by the American Petroleum Institute (API) on Tuesday showed a smaller-than-expected increase in the US crude oil inventories, West Texas Intermediate continued to erase the losses it suffered on Monday. Moreover, optimism surrounding the easing of coronavirus-related restrictions in major economies helps the WTI preserve its strength, with prices rising to $14.16 per barrel. USD/CAD has some room to move lower and if oil prices continue to move higher we could see those support levels tested. 


China’s Xinhua news agency reported on Wednesday that the country’s parliament will start its annual meeting on May 22nd, which is over two months later than originally scheduled due to the fallout from the coronavirus outbreak. China's top political consultative body, the Chinese People's Political Consultative Conference, has also proposed to start its annual session on May 21st. There is some concern among financial markets as it seems there is a renewal of tensions between the US and China due to China’s coronavirus response. US President Trump has faulted China for the virus spread and said that his administration was conducting a “serious investigation” into the issue. This will be watched very closely in the coming weeks.


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