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By XE Market Analysis April 14, 2020 4:27 am
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    XE Market Analysis: Europe - Apr 14, 2020

    The dollar has retained a steady-to-softening bias amid overall fairly narrow ranges so far today, and this amid a context of risk-on positioning and with global markets returning to full participation following the long weekends in many financial centres in Europe and Asia-Pacific. Chinese trade data for March provided bullish fodder for stock markets in Asia by showing an abatement in the rate of decline in imports and exports after the severe plunges in January and February. The MSCI Asia-Pacific equity index was showing a gain of nearly 1.5%, while S&P 500 futures gained 1.3%, more than reversing the loss the cash version of the index posted yesterday. EUR-USD plied a less than 35-pip range in the low-to-mid 1.0900s, holding within Monday's range. USD-JPY was heavy, but remained just above yesterday's 12-day low at 107.50. AUD-USD, meanwhile, managed to carve out a one-month high at 0.6432, even though S&P Ratings warned that there is a one in three chance that it will downgrade Australian sovereign debt from its current triple A rating. USD-CAD remained heavy, though has so far remained a few pips shy of the one-month low printed yesterday at 1.3854. Oil prices have remained heavy, too, with WTI futures scrapping along near the 12-day low seen yesterday at $22.03. Crude markets have been underwhelmed by the near 10 mln barrels per day output cut of the OPEC++ group. U.S. President Trump said he thinks OPEC++ will agree a 20 mln barrel per day cut by the end of the month. On the coronavirus front: Northeastern China reported an increasing rate of infection, the UK lockdown has been extended to May 7th, and to May 11th in France. Nine U.S. states, meanwhile, are planning the unlocking their economies, while a nunber of European countries, and the likes of Australia, New Zealand, are also discussing how and when to get their economies back to work. The number of candidate vaccines in development now totals 70. Two are reportedly already going into clinical trial in China.

    [EUR, USD]
    EUR-USD has so far today been plying a less than 35-pip range in the low-to-mid 1.0900s, holding comfortably within Monday's range. Markets are returning to full strength with many European countries returning from a four-day holiday weekend. We expect EUR-USD to remain in a choppy trading pattern, lacking clear directional bias for now.

    [USD, JPY]
    USD-JPY has been heavy, but remained just above yesterday's 12-day low at 107.50. Broader dollar weakness has been the dominant factor in the context of risk-on positioning, which was boosted by Chinese trade data for March showing an abatement in the rate of decline in imports and exports after the severe plunges in January and February. The MSCI Asia-Pacific equity index was showing a gain of nearly 1.5%, while S&P 500 futures gained 1.3%, more than reversing the loss the cash version of the index posted yesterday. On the coronavirus front: Northeastern China reported an increasing rate of infection, the UK lockdown has been extended to May 7th, and to May 11th in France. Nine U.S. states, meanwhile, are planning the unlocking their economies, while a nunber of European countries, and the likes of Australia, New Zealand, are also discussing how and when to get their economies back to work. The number of candidate vaccines in development now totals 70. Two are reportedly already going into clinical trial in China.

    [GBP, USD]
    Sterling has continued to hold up amid a backdrop of optimism in global stock markets, with the UK currency having become apt to correlative positively with risk appetite during the coronavirus crisis era. The pound is showing gains of just over 1.5% against both the dollar and euro from week-ago levels, and a rise of nearly 1% in the case against the yen. UK Prime Minister Boris Johnson is on the mend from coming down with COVID 19, while the UK lockdown has been extended for another three weeks, to March 7th. Regarding the coronavirus in the UK, the infection rate of increase is slowing, though the mortality rate is still rising. The general view is that the lockdown is working, and that this will become increasing evident over the next two weeks. The exit strategy from the lockdown is being debated, as in other countries, though the timing remains uncertain. A phased return to work is likely once the infection rate is in clear retreat, though this would still be contingent on there being a satisfactory supply of relevant medial supplies (protective gear, respirators etc) and testing capacity, which might be one or two months away. The pound, overall, is continuing to trade with relative stability, comfortably above the 35-year low seen against the dollar on March 20th at 1.1409, which was the product of sharp underperformance during the height of mid-March liquidity crunch. The UK currency remains down by by over 5% against the dollar on the year-to-date, and down versus most of the other main currencies, although has still gained versus the commodity currencies and other high-beta units over this period.

    [USD, CHF]
    EUR-CHF has continued to gravitate around 1.0550-1.0600, holding above the five-year low that was seen on March 9th at 1.0505. Assuming the coronavirus crisis persists, as looks highly likely, this should maintain Swiss franc's safe haven premium, which at the least should limit upside scope of EUR-CHF. The U.S. in January added Switzerland to its list of currency manipulators. The move seems a bit rich given the franc is a demonstrably chronically-overvalued currency in purchasing parity terms (as illustrated by the Economist's Big Mac index), though the Trump administration argues that Switzerland needs a more expansive fiscal policy.

    [USD, CAD]
    USD-CAD has remained heavy, though has so far remained a few pips shy of the one-month low printed yesterday at 1.3854. Weakness in the U.S. dollar has been driving, while oil prices have remained soft, with WTI futures scrapping along near the 12-day low seen yesterday at $22.03. Crude markets have been underwhelmed by the near 10 mln barrels per day output cut of the OPEC++ group. U.S. President Trump said he thinks OPEC++ will agree a 20 mln barrel per day cut by the end of the month. The coronavirus-caused demand destruction is estimated to be about 30 mln barrels per day. Overall, we retain a bullish view of USD-CAD, on the assumption that oil producers struggle to fully plug the demand/supply imbalance.

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