Daily Market Pulse

USD higher as states move to re-open

6 minute read


The USD is trading higher this morning against the EUR, GBP, JPY, and CAD. Traders seem somewhat optimistic about coronavirus recovery and more U.S. states look towards re-opening. Adding to the greenback’s strength is concern over US-China tension which seems to be growing adding some safe-haven buyers to the equation. Along with President Trump’s comments on China, a new report coming from Beijing states that many other countries worldwide are looking towards China as the one to blame for the pandemic. DOW Futures are higher in overnight trading as investors are looking at the re-opening of the U.S. With more states moving towards easing restrictions and getting back to work, investors are taking this as a positive sign and the US equity market may show an opening gain of around 175 points later this morning. As California governor Newson begins loosening restrictions, New York Governor Cuomo said the state is now “on the other side of the mountain” as hospitalizations and deaths decline but not as quickly as he had hoped. U.S. Treasury yields are higher amid the US-China concerns as the 10-year note was trading at 0.6540% and the 30-year bond was trading at 1.3041%. U.S. factory orders suffered a record decline in March with all the lockdowns. Today investors will be focusing on Markit Composite and Services PMI, which are expected to worsen from 40.9 to 27.4 and 39.8 to 27.0 respectfully. As the economic numbers continue to show an economy heading towards recession, traders will begin to focus on the Non-Farm Payroll release on Friday. Despite these poor numbers, expect the USD to remain bid as global tensions remain high.


EUR/USD is trading near overnight lows, pressured by a court challenge in Germany regarding the European Central Bank’s bond-buying program. Simply put, the question is whether these purchases are legal or not. Should the court rule that Germany cannot participate in the bond program, then this would put additional pressure on the EUR. Coronavirus cases are easing on the continent as Germany has reported fewer than 1,000 new cases in the last few days and German Chancellor Merkel is working on a plan to loosen the lockdowns. As Spain and Italy continue to need funding, eyes will be on the German court ruling. While most analysts expect the court to dismiss the case, it does add to the pressure on the single currency. With traders' concerns focusing on the US and China, expect a further downside move on the EUR.


GBP/USD is also trading near its overnight support levels as UK PMI numbers come in at 13.4 reflecting a deep contraction and the fact that 25% of the British workforce has been furloughed. All eyes are focused on PM Boris Johnson as he decides when to ease the lockdown of the British economy. From the country that brought us "Hamlet", the question for PM Johnson now is “to ease or not to ease”. While reports of fatalities have fallen to their lowest levels since March, there is the “weekend effect” to take into consideration, as under-reporting seems to occur during the weekend, followed by an increase early in the next week. Members of Parliament are urging the PM to lift the lockdowns and get people back to work. The Bank of England meets on Thursday and while no rate moves are expected, further funding aids may be announced. As with the other countries around the world, Britain is caught between getting their economy moving again while preventing a second wave of the virus.


USD/JPY has seen a slight move higher over the last few hours but has remained within the overnight trading range as traders decide whether to add to risk trades or remain in safe-haven mode. As traders continue to monitor global concerns, US-China tension could see the USD/JPY move lower safe-haven JPY buying. Technically, the USD/JPY remains in a bearish pattern and a new test of overnight support levels is not out of the question. US data releases could also weigh on the USD/JPY as the projections of these numbers are not good. The markets in China and Japan were closed on Tuesday as Golden Week continues and liquidity was a factor during the Asian trading session as the USD/JPY moved towards the downside. Japan will remain in a state of emergency until May 31st according to Japanese Prime Minister Shinzo Abe. According to the PM, the expert will re-assess the situation in 10 days and the removal of restrictions will not occur until the reduction of infections is at the required level. Abe has also asked his experts to come up with a detailed plan for the re-opening of the Japanese economy.


USD/CAD moved lower overnight aided by higher oil prices. Oil prices moved higher on prospects that demand will soon be increasing as lockdowns begin to ease. West Texas Intermediate crude rose to a three-week high of $22.06, before easing back to $21.94. Brent crude reached a high of $28.37 a barrel, before falling slightly to $28.32. Both commodities are trading higher for the fifth and sixth straight days respectively. If the economies in the US and Europe continue to open, this winning streak should continue as well. Canadian trade balance data is due out this morning and it is expected to come in at -C$2 billion after last posting -C$-0.9 billion. As oil goes, so goes the loonie. The question is whether traders will react more to positive oil news or negative trade balance news.


According to analysts, the Chinese economy is expected to pick up the pace in the second quarter. China’s PMI numbers for both manufacturing and non-manufacturing have remained above 50, despite a drop in new export orders in April to 33.5 from 46.4 in March. This was an improvement from the record low of 28.7 in February. China continues to move forward with the easing of lockdowns. The services industry accounts for 54% of the Chinese economy and with government support continued improvement is seen. China has remained somewhat silent as the US and other countries voice concern as to how the Chinese government handled the original viral outbreak. Traders will be closely monitoring the reaction by government officials moving forward.


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