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By XE Market Analysis April 14, 2020 7:27 am
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    XE Market Analysis: North America - Apr 14, 2020

    The dollar has retained a moderate softening bias 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. European and Asian stock markets rose, and S&P 500 futures gained over 1%, reversing the loss the cash version of the index posted yesterday. EUR-USD lifted to the mid 1.0900s, nearing the halfway mark of the volatile range that was seen during the height of the market panic in March. Yesterday's high at 1.0968 has so far remained unchallenged. USD-JPY edged out a 12-day low at 107.38. 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 printed a fresh one-month low at 1.3861. Weakness in the U.S. dollar has been driving, while oil prices have remained soft, with WTI futures scrapping out 12-day lows under $22.00. Crude markets have been underwhelmed by the near 10 mln barrels per day output cut of the OPEC++ group, though 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 nudged modestly higher on the back of a generally softer dollar. This has lifted the pair to the mid 1.0900s, nearing the halfway mark of the volatile range that was seen during the height of the market panic in March. Yesterday's high at 1.0968 has so far remained unchallenged. The rapid deployment of monetary stimulus measures by the Fed, and expectations for more, have impacted the dollar in recent weeks, satiating what had been a surge in demand for dollars while causing U.S. Treasury yield spreads versus the Bund benchmark to drop and stay down (the 10-year T-note versus Bund yield differential is down by about 115 bp from levels seen in just a month ago). Economic data on both sides of the Atlantic has been a secondary consideration even as the reports begin to show the depth of the devastation wrought by the shuttering of the economy last month -- the huge declines expected in activity have been realized, and then some. Last week, to some relief, European and Eurozone finance ministers finally managed to agree on a joint support package to address the immediate costs of measures designed to address the economic impact of the COVID-19 pandemic. There are now a number of states in the U.S. and a number of countries in the Eurozone, including Spain and Italy, that looking at a phased reopening in economies. We expect EUR-USD, after whipping between a 1.0637 low and a 1.1494 high in March, to remain in a choppy trading pattern, lacking clear directional bias for now.

    [USD, JPY]
    USD-JPY has edged out a 12-day low at 107.38. 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 rose by over 1.3%, 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 number 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 printed a fresh one-month low at 1.3861. Weakness in the U.S. dollar has been driving, while oil prices have remained soft, with WTI futures scrapping out 12-day lows under $22.00. Crude markets have been underwhelmed by the near 10 mln barrels per day output cut of the OPEC++ group. While 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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