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By XE Market Analysis April 15, 2020 7:29 am
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    XE Market Analysis: North America - Apr 15, 2020

    Currencies are back in a risk-off formation as global stock markets turn lower. Commodity currencies have flown lower, while the dollar and yen have flown higher. While Asia stock markets closed out with moderate declines, equity losses accelerated in Europe. The pan-region STOXX 600 was down 1.8% as of the early PM session, while S&P 500 futures were showing a 2% decline. Oil prices hit new lows. WTI benchmark futures printed a 21-year low at $19.21 after the IEA warned in its monthly report today that there is "no feasible agreement that could cut supply by enough to offset such near-term demand losses." The IMF forecast the world economy will see its sharpest contraction since the 1930s depression, which by now will not surprise many, while a study from the Harvard School of Public Health highlighted that the return to normal may be a long road, saying (of the U.S.) that "intermittent distancing may be required into 2020 unless critical care capacity is increased substantially or a treatment of vaccine becomes available." In forex markets, the biggest movers have been AUD-USD, NZD-USD, AUD-JPY and NZD-JPY, which have all racked up losses of well over 1.5%. AUD-USD, after a run of seven consecutive days highs, has printed a six-day low at 0.6309. The pair still remains up by over 14% from the 17-year low that was printed on March 19th. The Canadian dollar has also fallen, setting USD-CAD up for its first up day in a week, with the pair posting a six-day high at 1.4031. Elsewhere, EUR-USD ebbed and tested yesterday's low at 1.0904. The pair remains near the halfway mark of the volatile range that was seen during the height of the market panic in March. Cable posted a two-day low at 1.2487. USD-JPY has seen a comparatively narrow range, though the pair still managed to scrape out a two-week low at 106.93.

    [EUR, USD]
    EUR-USD has drifted to a low at 1.0920, nearing yesterday's low at 1.0904. The pair remains near the halfway mark of the volatile range that was seen during the height of the market panic in March. 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 the world's reserve currency 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. A study from the Harvard School of Public Health highlighted, however, that the return to normal may be a long road, saying (of the U.S.) that "intermittent distancing may be required into 2020 unless critical care capacity is increased substantially or a treatment of vaccine becomes available." 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]
    The yen has lifted against most currencies today, particularly the commodity currencies amid a backdrop of flagging risk appetite in global equity and commodity markets. Oil prices have also remained heavy, with WTI benchmark futures printing a new 21-year low at $19.21, with the OPEC++ group's near 10 mln barrel per day output cut, and hints of bigger cuts to dome, doing little to convince crude markets that producers have the will to cut production sufficiently to plug the massive supply/demand gap amid the prevailing lockdowns across many global economies. The IMF forecast the world economy will see its sharpest contraction since the 1930s depression, which by now will not surprise many. AUD-JPY and NZD-JPY have racked up losses of over 1%. CAD-JPY, EUR-JPY and GBP-JPY have also declined, as have most other yen crosses. USD-JPY has seen a comparatively narrow range amid concurrent dollar perkiness, though the pair still managed to scrape out a two-week low at 106.93. We continue to anticipate USD-JPY trading at sub-100.00 levels.

    [GBP, USD]
    The pound has come back under pressure against most of the other main currencies with the exception of the commodity currencies. Sterling is correlating positively with global stock market direction, fitting the pattern the UK currency has established during the pandemic era. Cable posted a two-day low at 1.2499, ending a run of six consecutive up days. EUR-GBP concurrently edged out a two-day high, which follows a week-long ascent, while GBP-JPY is looking set to make this the first down day following four straight days of gains. The pound remains down by about 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]
    The Canadian dollar has declined today, setting USD-CAD up for its first up day in a week, with the pair posting a six-day high at 1.4031. This comes with oil prices, to which the Canadian dollar correlates with, hitting new lows. WTI benchmark futures printed a new 21-year low at $19.21, with the OPEC++ group's near 10 mln barrel per day output cut, and hints of bigger cuts to dome, doing little to convince crude markets that producers have the will to cut production sufficiently to plug the massive supply/demand gap amid the prevailing lockdowns across many global economies. The IEA warned in its monthly report today that oil demand destruction is too big to offset with supply cuts, forecasting a 29 mln barrel per day drop in April to the lowest levels in 25 years. The agency said there is "no feasible agreement that could cut supply by enough to offset such near-term demand losses," though acknowledged that the near 10 mln bpd output cut agreed by the OPEC++ group of oil producing nations as being a "solid start" by "lowering the peak of the supply overhang and flattening the curve of the build-up in stocks," which should, "help a complex system absorb the worst of this crisis." On the demand side, the IEA said proposals to increase strategic storage from the U.S., China, India and South Korea, could amount to 2 mln bpd of supply being withdrawn from the market over a three month period. Overall, we retain a bullish view of USD-CAD.

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