3.28M Americans file for unemployment claims, but markets continue to shrug off expected bad news.

SUMMARY

ANALYSIS

USDCAD

Dollar/CAD slumped to the 1.4170-90 support level yesterday afternoon as a multitude of new stimulus and Italian coronavirus headlines were spun positively to spur the stock market 4% higher.  The market then found a bid with “risk-off” sentiment to start Asian trade, as fears circulated about the US Senate not being able to pass the coronavirus relief bill.  These concerns were brought to rest after the bill finally passed late last night though, which then invited some broad “risk-on” USD sales back into the marketplace.

This uptick in risk sentiment continued into European trade today with reports that the ECB had begun purchasing bonds as part of its new 750blnEUR Pandemic Emergency Purchase Program announced last week.  Italian BTPs naturally outperformed German bunds, leading the BTP/Bund spread to narrow.  We also saw notable narrowing in the pricing for EURUSD and USDJPY 3-month cross currency basis swaps (to +19bp and -45bp respectively), which signaled a further easing of global dollar funding stress.  All this pushed the USD broadly lower and the USDCAD market eventually lost the 1.4170-90 support level.

Fed chairman Powell made an rare appearance on NBC’s Today Show at 7amET this morning, in a pathetic attempt we feel to reassure everyday people that the economy was fundamentally strong going into the coronavirus and that the US central bank still has policy room for even more action….just before the worst weekly jobless claims report in history was to be announced.   Full interview here.  Honestly Mr. Powell…please stop with your disingenuous “economy was in a good place” narrative from last year.  Your forecasts have been consistently wrong.  None of your stimulus measures to date have actually been stimulutive.  Why should we believe anything you say now?

Those weekly jobless claims numbers came out at 8:30amET this morning and boy oh boy were they bad.  A record 3.28M Americans applied for unemployment insurance during the week ending March 21, but this number fell well within the top end of analyst estimates going into the release.  Traders are now selling the USD even more here as risk sentiment perversely goes bid (S&Ps jump 60pts).  We think we're see a classic "sell the rumor, buy the fact" type of market reaction here this morning, similar to how global market responded to the horrible March flash PMI numbers out earlier this week.

USDCAD DAILY

USDCAD HOURLY

MAY CRUDE OIL DAILY

EURUSD

Euro/dollar officially shattered its recent downtrend over the last 24hrs.  Tuesday’s negative NY close was cancelled out yesterday afternoon by a surge in broad risk sentiment which allowed the market to regain the 1.0820s.  We can debate where that optimism came from (slightly better Italian coronavirus figures, ECB OMT rumors, etc), but the fact that buyers prevailed was technically significant on the charts.  The upward momentum was so strong going into the NY close that it led to some buy stops getting triggered above the 1.0880 resistance level in Asian trade. 

Broad USD selling in Europe led to even further gains for EURUSD and we now have a market that is already trying to look past this morning’s horrible figure for US weekly jobless claims.  Chart resistance in the 1.0970-1.1000 zone looks like it might be a tough nut to crack today, but we feel the market’s momentum can now swing more neutral to higher so long as the 1.0820-80 level holds.

EURUSD DAILY

EURUSD HOURLY

JUNE GOLD DAILY

GBPUSD

Sterling is rallying with the improvement in the broader risk tone again today, but it continues to display a higher beta (volatility) relative to its G7 peers.  Yesterday’s early rally was perhaps a little overdone and you could say the same about yesterday's intra-day dip into the London close.  Sterling’s swift snapback into the NY close outpaced the other major currencies as well, and we’re seeing the same thing this morning as the GBP outperforms amidst broad USD selling.

The overnight move above the 1.1950-70 level has now put a dent in GBPUSD’s recent downtrend, but we feel the market needs confirm this shift of momentum with a NY close above it.  The 1.2020-50s are currently capping prices into the London close. 

The Bank of England voted unanimously this morning to maintain interest rates at 0.1% and to continue with the 200blnGBP increase to their asset purchase program (basically all the measures they announced on an emergency intra-meeting basis last week).  We’re not so sure what the point of today’s scheduled meeting was…they should have cancelled it like the Fed did.  Full press release here.

GBPUSD DAILY

GBPUSD HOURLY

EURGBP DAILY

AUDUSD

The Aussie dip buyers lost in NY trade yesterday after they failed to reclaim the 0.6020 level, but a renewed wave of “risk-on” USD selling has helped repair the AUDUSD chart significantly this morning.  The Reserve Bank of Australia (RBA) bought 3blnAUD worth of Australian government bonds last night, bringing its total QE purchases to date to 18blnAUD.  Some analysts now predict that the open-ended nature of the RBA’s new QE program will lead it soaking up nearly half of all new Australian government bond issuance.

AUDUSD DAILY

AUDUSD HOURLY

USDCNH DAILY

USDJPY

Yesterday afternoon’s rush back into US stocks appeared to be enough to finally see some recent dollar/yen buyers give up.  The “risk-on” move saw USDJPY close NY trade back below the 111.40s for the 4^th time in a row in as many days, and we think this very much foretold the broad USD sales we’re seeing today.

Some buyers have stepped up to the plate at horizontal chart support in the 109.40-60s as EURUSD struggles with its own chart resistance in the 1.0970-1.1000 area.  We think week's broad improvement in risk sentiment will continue to need a regular influx of positive headlines to support it.

USDJPY DAILY

USDJPY HOURLY

JUNE S&P 500 DAILY

Charts: Reuters Eikon

About the Author

Erik Bregar - Director, Head of FX Strategy

Erik works with corporations and institutions to help them better navigate the currency markets. His desk provides fast, transparent, and low cost trade execution; up to the minute fundamental and technical market analysis; custom strategy development; and post-trade services -- all in an effort to add value to your firm’s bottom line. Erik has been trading currencies professionally and independently for more than 12 years. Prior to leading the trading desk at EBC, Erik was in charge of managing the foreign exchange risk for one of Canada’s largest independent broker-dealers.

Interested in creating a custom foreign exchange trading plan? Contact us or call CXI's trading desk directly at 1-833-572-8933.