USD trading mixed after US data, but still lower vs European open
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SUMMARY
- Asia goes “risk-off” with “hard-to-believe” Aussie jobs report adding weight.
- ECB’s Schnabel says “ready to do more to avoid euro fragmentation”. Risk recovers.
- US Philly Fed survey for April misses expectations, -56.6 vs -30.0. Worst read since 1980.
- US Jobless Claims (for week ending April 11) beat expectations, +5.25M vs +5.5M.
- USD now trading mixed, but still lower versus the European open. US yields lower.
- OPEC cuts 2020 world oil demand forecast by 6.9mln bpd, April -20mln bpd.
- USDCAD traders brush of yesterday’s Bank of Canada meeting. Broad USD flows in focus.
ANALYSIS
USDCAD
The Bank of Canada kept its overnight target rate on hold at 0.25% yesterday, and while it announced new provincial and corporate bond purchase programs, the USDCAD market largely shrugged off this news. It’s almost as if FX traders are numb to everything central banks do now…we know they’re going to do whatever it takes to sooth their respective bond markets and none of these measures are really surprising any more. With regard to the Bank of Canada's economic outlook, governor Stephen Poloz cited two plausible scenarios in the bank’s Monetary Policy Report, but admitted the uncertainty around COVID-19 makes it “impossible to judge when the economy will recover”. Deputy governor Carolyn Wilkins, while expressing concern that corporate credit markets still weren’t functioning properly, said that the Bank of Canada was not actively discussing other unconventional monetary policy tools at this point. Dollar/CAD respected trend-line chart resistance in the 1.4110s throughout the whole meeting, with traders seemingly more focused on gyrations in oil prices following the largest weekly EIA inventory build on record (+19.25mln barrels).
Broad market risk sentiment oddly recovered into the NY afternoon yesterday but deteriorated once again heading into Asian trade overnight. Australia’s hard-to-believe 5.9k job gain for March (vs expectations of -40k) added a little insult to injury and allowed the broader USD to rally further but some soothing words from the ECB’s Schnabel ("ready to do more to avoid euro fragmentation") helped risk sentiment and Italian bonds recover.
There’s some debate this morning over whether or not today’s US data set was better or worse than expected. The US Philly Fed survey for April came in at -56.6 vs -30.0 expected, which was flat out awful. However, the number of Americans filing unemployment insurance claims, for the week ending April 11, rose just 5.25M last week vs +5.5M expected. We’d argue that the data set was mixed, and explains why the FX markets are now dialing back some initial, mis-placed, optimism.
Dollar/CAD is now trading just above the lower bound of a new, upward sloping, resistance band that has formed over the last 24hrs, currently 1.4100-1.4120.
USDCAD DAILY
USDCAD HOURLY
MAY CRUDE OIL DAILY
EURUSD
Euro/dollar staged an impressive recovery off chart support in the 1.0850s yesterday and it was hard to find a fundamental narrative to explain the bounce. Early Asia’s slip back below the 1.0905 level was fitting in our opinion, as was the AUD-inspired fall back into the high 1.08s. Buyers were found once again at the 1.0850s in the European AM today following Schnabel’s comments, but they’re struggling to get the market back into the 1.09s following this morning’s mixed US data set (bad Philly Fed/better jobless claims).
EURUSD DAILY
EURUSD HOURLY
SPOT GOLD DAILY
GBPUSD
Sterling also managed to rally handsomely off its own chart support in the 1.2430s yesterday, and it has followed EURUSD pretty closely even since. The market’s reaction to this morning’s US data has been more muted though, vis a vis the euro, and we’d note GBPUSD’s continued ability to hold chart support in the 1.2470-80s. We’re talking about a very tight trading range though and so we wouldn't get too excited in either direction here. We think the 1.2430-1.2520s will become the new pivotal price range for GBPUSD heading into next week.
GBPUSD DAILY
GBPUSD HOURLY
EURGBP DAILY
AUDUSD
Traders didn’t take well to Australia’s better than expected March Employment Report last night because the survey period ended on March 14, well before the major coronavirus restrictions kicked in. The headline showed 5.9k jobs created in March versus expectations for a loss of 40k, and the unemployment rate ticked higher just one tenth to 5.2%, versus expectations of 5.5%.
AUDUSD was justifiably knocked below the 0.6300 figure as result, which we felt dragged other currencies lower heading into European trade as well. This morning ECB comments and the better than expected US jobless claims number has seen the Aussie recover, but we think the market is going to need a heck of a lot more good news in order to erase yesterday’s technical damage on the charts.
AUDUSD DAILY
AUDUSD HOURLY
USDCNH DAILY
USDJPY
Dollar/yen continues to trade with the broader USD as opposed to the broader risk tone. This means it’s now rallying with “risk-off” and it’s falling with “risk-on”, which is counter-intuitive the market’s long held positive correlation with risk sentiment. Perhaps traders are finally coming to the conclusion, after Japanese PM Shinzo Abe said he would expand his state of emergency to cover all regions of the country, that the dollar is a better safe-haven than the yen?
The market is now slipping lower after losing chart support in the 107.60-80s. Just look at how unimpressed bond markets are about this morning's US data set...US 10yr yields have slipped back below 0.60%! So far this development is not helping USDJPY, so does that mean the positive risk sentiment correlation is back on after a 48hr hiatus?
USDJPY DAILY
USDJPY HOURLY
US 10 YR YIELD 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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