Risk aversion is back with a vengeance
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SUMMARY
- Trump halts funding to World Health Organization while review is conducted.
- Australia reports horrible Westpac Consumer Sentiment number for April.
- Germany mulls extending lockdown to May 3rd. IEA releases negative monthly report.
- There was “no feasible [OPEC] agreement that could cut oil supply by enough to offset demand losses”.
- S&P futures -2%, May WTI falls below $20/barrel, US yields weaker, USD surging across the board.
- US Retail Sales/Empire Survey drop most on record. Industrial Production (March) up next at 9:15amET.
- Bank of Canada rate decision/MPR at 10amET. Press conference at 10:30am with no media lockup.
ANALYSIS
USDCAD
Risk aversion is back with a vengeance this morning and it all started with President Trump’s announcement last night that he would halt funding to the World Health Organization while a review of the group’s coronavirus response is conducted. An absolutely horrible Westpac Consumer Sentiment number out of Australia for April (-17.7% MoM vs -3.8% for March) then pulled AUDUSD back below the 0.6430 level, above which it managed to close NY trade yesterday. The Australian dollar is a popular proxy for broad risk sentiment and so its decline started to lead everything else lower versus the USD.
European trade got started today with chatter that Germany plans to extend its lockdown measures until May 3rd (another negative), but what is more, we got a very dire assessment on the state of the oil markets from the International Energy Agency’s monthly market report. While the IEA said the OPEC+ cuts were a “solid start” to help absorb what will likely be the worst month ever for the markets, it conceded that there was “no feasible agreement that could cut oil supply by enough to offset demand losses”. While we and many other analysts have been saying this for a couple days now, it seems broader risk sentiment finally woke up to this reality when the news broke around the 3amET hour. The S&P futures fell 2%, the US 10yr yield backed up by about 5bp, May WTI dropped below $20/barrel and the USD began its surge higher across the board. Gold was sold initially but has since recovered somewhat.
All this has shot USDCAD quickly back into the 1.3900-1.4200 price range prediction we talked about in late March. The 1.3920s, 1.3990s and 1.4030s have all morphed from resistance levels into support levels as traders now digest a poor US Retail Sales report for March, but an ever worse NY Fed Empire State Manufacturing Survey for April. Details below:
- US MARCH RETAIL SALES -8.7 PCT (CONSENSUS -8.0 PCT) VS FEB -0.4 PCT (PREV -0.5 PCT)
- US MARCH RETAIL SALES EX-AUTOS -4.5 PCT (CONS -4.8 PCT) VS FEB -0.4 PCT (PREV -0.4 PCT)
- NY FED'S EMPIRE STATE CURRENT BUSINESS CONDITIONS INDEX -78.2 IN APRIL (CONSENSUS -35.0) VS -21.5 IN MARCH
- NEW YORK FED SAYS APRIL EMPIRE STATE MANUFACTURING BUSINESS CONDITIONS INDEX FELL BY LARGEST MARGIN ON RECORD TO LOWEST LEVEL IN SERIES HISTORY
The US Industrial Production numbers for March are up next (-4.0% MoM expected vs +0.6% in February). Then we’ll get the Bank of Canada’s latest interest announcement and Monetary Policy Report at 10amET, followed by a press conference from governor Stephen Poloz at 10:30amET. Traders aren’t expecting any change to the overnight target rate, which currently sits at 0.25%, but given the lack of a media lock-up prior to the announcement this time around, we think the “on-the-fly” analysis of the press release could lead to some USDCAD volatility. Near-term chart resistance currently resides in the 1.4090s.
USDCAD DAILY
USDCAD HOURLY
MAY CRUDE OIL DAILY
EURUSD
Euro/dollar has fallen back to yesterday’s lows this morning as broad risk aversion drives the safe-haven USD higher. Yesterday’s NY close above the 1.0980 was technically positive but the AUD-driven move back below this level, in Asian trade last night, wasn’t good at all. This gave an excuse for recent EUR longs to bail and boy did they ever. Today’s daily candlestick (on the charts) is shaping up to be quite negative if traders don’t try to stage some sort of recovery.
EURUSD DAILY
EURUSD HOURLY
SPOT GOLD DAILY
GBPUSD
The daily chart for sterling/dollar is also looking decidedly negative this morning as today’s broad USD wave pushes prices quickly back below the 1.2560s and the 1.2520s (resistance levels from earlier this week). UK PM Boris Johnson just told reporters to expect an announcement tomorrow regarding the government’s current review of social distancing measures.
GBPUSD DAILY
GBPUSD HOURLY
EURGBP DAILY
AUDUSD
The very poor Westpac Consumer Sentiment numbers for April seem like they’re going to steal the thunder from Australia's official Employment Report figures for March, which will be released tonight at 9:30pmET. While last night’s sentiment survey is definitely not a tier-1 Australian data release, it’s fresh/forward looking information that markets are craving right now…whereas tonight’s payroll numbers will be “rear-view mirror” kind of data. Traders know that the Australian employment numbers are going to be bad for March, but we now have April consumer sentiment data that suggests it will get even worse. The expectations for tonight’s report nonetheless are 40k job losses in March and a fourth tenths rise in the unemployment rate to 5.5%, versus February.
Last night’s pullback for AUDUSD back below the 0.6430s was decidedly negative and we’d argue there’s not much of a floor underneath the market here until the 0.6230s.
AUDUSD DAILY
AUDUSD HOURLY
USDCNH DAILY
USDJPY
Dollar/yen spiked higher with the broader USD around the time the IEA’s negative oil market report came out, but you tell that the yen has been competing for safe-haven flows ever since.
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.
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