Home > XE Currency Blog > XE Market Analysis: North America - Apr 24, 2020

AD

XE Currency Blog

Topics7203 Posts7248
By XE Market Analysis April 24, 2020 7:41 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 5127
    XE Market Analysis: North America - Apr 24, 2020

    The dollar pared intraday gains and most currency pairings were showing a net movement of less than 0.2% on the day heading into the New York interbank market opening. European stock markets pared intraday losses of over 2%, with the pan-region Stoxx 600 showing a 0.5% loss as of the early PM session. S&P 500 futures were showing a near 1% gain. The narrow trade-weighted USD index rose over 0.4% in posting a 17-day high at 100.86 in pre-European trading, subsequently correcting to near net unchanged levels near 100.40. EUR-USD, amid its fourth consecutive day of lower daily lows, dropped nearly 0.5% in printing a fresh one-month low at 1.0728 before rebounding to around the 1.0780 mark. EUR-JPY printed a three-year low at 115.54 before recouping to around 116.00. Markets have been overall disappointed after EU leaders yesterday failed to come up with a deal on a trillion Eurozone recovery fund, although signing-off the finance minister's agreement on immediate crisis measures. The focus was on a temporary facility and loans, rather than perpetual Eurobonds and joint financing, while fault lines between southern and eastern European states emerged. Elsewhere, USD-JPY has for a fifth consecutive day held a narrow range in the mid 107.00s, lacking direction presently. Japan's finance minister Aso today said that the BoJ hasn't reached a decision on unlimited bond buying. The Nikkei newspaper yesterday reported that the central bank is discussing unlimited government bond purchases. The BoJ meets on Monday. USD-CAD settled around 1.4050 to 1.4100 after lifting out of yesterday's one-week low at 1.3998, which was the culmination of a correction from the 1.4266 high that was seen on Tuesday.

    [EUR, USD]
    The euro saw some underperformance after EU leaders yesterday failed to come up with a deal on a trillion Eurozone recovery fund, although signing-off the finance minister's agreement on immediate crisis measures. EUR-USD, now amid its fourth consecutive day of lower daily lows, dropped nearly 0.5% in printing a fresh one-month low at 1.0727, though has since recouped back above 1.0750. EUR-JPY to a three-year low at 115.54. Regarding the Eurozone recovery fund, while leaders made some progress in their meeting yesterday, it was not what markets liked as the focus was on a temporary facility and loans, rather than perpetual Eurobonds and joint financing. Fault lines between southern and eastern European states also emerged. While the euro has declined, peripheral Eurozone bond markets have underperformed. EUR-USD has been falling further the south of the halfway mark of the volatile range that was seen during the height of the market panic in March, which was marked by 1.0637 on the downside and 1.1494 on the upside. A re-test of the three-year low at 1.0637 is looking increasingly likely.

    [USD, JPY]
    USD-JPY has continued to hold a narrow range in the mid-to-upper 107.00s, lacking direction presently, while the yen has generally traded moderately softer versus most of the other main currencies amid a backdrop of advancing stock markets. Another massive U.S. coronavirus relief package and a rebound in oil prices have helped lift sentiment, reducing the yen's safe-haven premium. On Japan's domestic front, preliminary PMI survey data for April dropped sharply. The manufacturing PMI dove to a 37.8 reading in the April flash estimate, down from 44.2 in March, while the composite PMI plunged to 27.8 from 36.2. As with nearly all dismal data being released these days, the figures are hardly surprising given the global lockdowns. Regardless of Japanese fundamentals, we expect the yen will remain prone to outperformance during any further phases of acute risk-off positioning, which remains a risk as expectations that loosening lockdown restrictions may be exceeding the potential for a V-shaped recovery. The reality is that the return to economic normalcy is likely to be a long road. A study from the Harvard School of Public Health last week highlighted that (of the U.S., but relevant to most countries) that "intermittent distancing may be required into 2020 unless critical care capacity is increased substantially or a treatment of vaccine becomes available." We continue to anticipate USD-JPY trading at sub-100.00 levels.

    [GBP, USD]
    The pound and UK markets were unperturbed by the dismal UK PMI data, having long since become well braced for the dismal run of data that's only now starting to show the full impact of the global lockdowns. The UK preliminary April composite PMI plummeted to a reading of just 12.9, down from 36.0 in March, driven by an eye-watering drop in services, to 12.3 from 34.5. The scale of decline in the composite reading is, of course, the biggest since records began in 1998, reflecting widespread business mothballing. On ray of light came from business optimism for the year ahead, which lifted off its record low that was seen in March, and which likely reflected expectations for a phased reopening of the economy. The data should help sharpen government about the trade-off between containing the coronavirus and economic prosperity. How to reopen economies before there is a cure or vaccine without risking a second wave of coronavirus infections is the major question, and current thinking is that it will take there being, other than social distancing, sufficient supplies of protective clothing along with availability of widespread diagnostic testing, which could take another month or two to realise. Cable is presently trading at near net unchanged levels on the day, near the 1.2450 mark. The pair is up by over 8% from the 35-year seen in March, but is down by 7% on the year-to-date. The combo of the UK's open economy, current account deficit and outsized financial sector, has meant that the pound has been vulnerable to risk aversion in global markets.

    [USD, CHF]
    EUR-CHF has remained heavy after last week testing the five-year low that was first 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 should keep EUR-CHF directionally biased to the downside. 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 settled around 1.4050 to 1.4100 after lifting out of yesterday's one-week low at 1.3998, which was the culmination of a correction from the 1.4266 high that was seen on Tuesday (after May WTI oil contracts went negative). June WTI oil prices have lifted to around $16-$18 levels, with crude markets having found a toehold. The expectation is that diminishing storage space for crude will force oil producers into bigger output cuts, while reopening economies from lockdown should start to see demand pick up. This in turn has weakened bearish arguments about the Canadian dollar. The currency correlates closely with oil prices, as oil exports account for nearly 25% of Canadian GDP (2018 data).

    Paste link in email or IM