17-Apr-2020

1) EUR/USD: Gains Traction on Hopes for Virus Treatment
2) Dollar Rises Broadly As Dismal
3) Risk Appetite Falters Forcing AUD Lower

1) EUR/USD: Gains Traction on Hopes for Virus Treatment

The EUR/USD pair remained under some selling pressure for the second consecutive session on Thursday and dropped to 1-1/2 week lows some follow-through US dollar buying. Concerns about the economic impact of the coronavirus pandemic continued benefitting the greenback’s status as the global reserve currency. The incoming dismal US macro data further illustrated the severity of the collapse in global economic activity and forced investors to take refuge in the USD’s perceived safe-haven status. Adding to this week’s awful US monthly retail sales figures, the US Initial Jobless Claims came in at 5.25 million in the week ending April 11. Separately, the Philly Fed Manufacturing Index slumped to -56.6 for April as compared to -12.7 previous and Housing Starts plunged 22.3% in March.

The shared currency was further weighed down by speculations that the Euro area is facing increasing risks of slipping into a recession, which further contributed to the pair’s retracement slide from two-week tops set on Wednesday. The intraday downfall took along some short-term trading stops placed near support marked by a four-week-old ascending trend-line, around mid-1.0800s. The pair fell to its lowest level since April 7, albeit managed to find some support ahead of the 1.0800 round-figure mark and caught some fresh bids during the Asian session on Friday amid a turnaround in the global risk sentiment.

The US President Donald Trump on Thursday hinted at the reopening of the US economy, which accompanied with optimism over the treatment for COVID-19 virus boosted investors confidence. According to the recent headlines, Gilead Sciences’ clinical trials of its antiviral drug remdesivir showed promising results in treating symptoms associated with the virus. Developments surrounding the coronavirus saga might continue to play a key role in influencing the broader market risk sentiment and produce some meaningful trading opportunities on the last day of the week. In the meantime, Friday’s release of the final Euro zone CPI print seems unlikely to provide any meaningful impetus.

From a technical perspective, the overnight break below a short-term ascending trend-line now seems to have shifted the near-term bias back in favour of bearish traders. However, it will be prudent to wait for some follow-through weakness below the 1.0810-1.0800 region before positioning for any further depreciating move. The pair might then accelerate the slide towards monthly lows, around the 1.0770-65 region, below which the downward trajectory could further get extended towards testing sub-1.0700 levels.

On the flip side, any subsequent recovery might now confront some fresh supply and seems more likely to remain capped near the 1.0900 round-figure mark. That said, a convincing break through might prompt some near-term short-covering move and assist the pair to make a fresh attempt towards reclaiming the key 1.10 psychological mark. The latter coincides with 50-day SMA and should now act as a key pivotal point for the pair’s next leg of a directional move.

2) Dollar Rises Broadly As Dismal

The greenback swung sideways in Asia and Europe and caught a bid in New York ending the day higher across the board as release of another dismal U.S. initial jobless claims data prompted investors to flee to safe-haven USD as coronavirus pandemic continued to take a toll on global growth.

Reuters reported another 5.2 million more Americans sought unemployment benefits last week, lifting total filings for claims over the past month above an astounding 20 million, which would underscore the deepening economic slump caused by the novel coronavirus outbreak. The Labor Department on Thursday said 5.245 million new unemployment claims were filed last week, down from a slightly revised 6.615 million the week before. According to a Reuters survey of economists, initial claims were expected to have fallen to 5.105 million in the week ended April 11. Estimates in the survey went as high as 8 million. This report followed dismal data on Wednesday showing a record drop in retail sales in March and the biggest decline in factory output since 1946.

Economists are predicting the economy, which they believe is already in recession, contracted in the first quarter at its sharpest pace since World War II.

Versus the Japanese yen, dollar went through a roller-coaster ride. Although the pair found renewed buying and rose from 107.36 in Australia to session highs of 108.08 in Asian on safe-haven USD buying, price erased its gains and fell to intra-day low of 107.17 in New York morning on falling U.S. Treasury yields. However, the greenback quickly erased intra-day loss and staged a strong rebound to 107.94 on USD’s continued strength.

The single currency went through a fairly choppy session. Price initially fell from 1.0912 in Australia to 1.0865 in Asia and then rebounded to 1.0905 at European open on cross-buying in euro but only to drop to 1.0854. However, the pair then recovered to 1.0901 shortly after New York open and then tumbled to a fresh one-week low of 1.0817 on renewed USD’s strength before recovering on short covering.

In other news, Reuters reported the European Central Bank is ready to do more to avoid financial fragmentation in the euro zone, ECB board member Isabel Schnabel said on Thursday, after a significant widening of the spread between Italian and German bond yields. “(The ECB) stands ready to adjust all of its instruments as needed to avoid fragmentation that may hamper the smooth transition of our monetary policy,” she said during a webinar.

The British pound tracked euro’s movement and fell from 1.2529 in Australia to 1.2462 in Asia on buying in USD due to risk-off trades and then recovered to 1.2514 at European open. The pair then weakened to 1.2457 before rebounding again to 1.2515 in New York morning on dismal U.S. initial jobless claims data. However, cable then dropped to 1.2414 at London fix before rebounding in tandem with euro on short covering.

Reuters reported Britain’s government has agreed to extend a nationwide lockdown for another three weeks, Sky News reported on Thursday citing Welsh First Minister Mark Drakeford. Drakeford was involved in a meeting of British leaders on Thursday afternoon, led by foreign minister Dominic Raab, which had been widely expected to extend the restrictions designed to prevent the spread of the coronavirus.

3) Risk Appetite Falters Forcing AUD Lower

The Australian dollar came under sustained pressure through trade on Thursday edging a quarter percent lower to touch intraday lows at 0.6263. The US dollar outperformed for a second consecutive day as demand for risk faltered amidst a glut of dour US data sets. Investors shed away from risk assets forcing equities, treasury yields and the AUD lower. Markets largely ignored the better than expected domestic labour market report, acknowledging the reporting period only encompassed the first two weeks of March and failed to capture the vast number of job losses. Instead attentions will turn to next month’s unemployment read for a better indication of the scale of economic damage caused by the coronavirus.

Uncertainty continues to drive direction and we expect the AUD will remain vulnerable to missteps in demand for risk through the short-term. That said, the AUD has enjoyed strong gains through this morning’s open, buoyed by reports a clinical trial in Chicago have showed promising recovery rates for patients infected with COVID-19 following daily infusions of remdesivir. While the results have not been vetted by the FDA or CDC they offer some hope that we may be able to control the devastation caused by the pandemic while waiting for an effective vaccine. Having jumped back through 0.63 the AUD currently buys 0.6353 US cents.

The US dollar advanced through trade on Thursday, touching a one week high as the flight to safety continued. US jobless claims increased exponentially again as another 5.2 million citizens’ filed for unemployment. Twenty-two million Americans have now lost their job through the last month, a staggering 13% of total workforce and a stark reminder of the scale of the economic impact caused by the global public health crisis that is the coronavirus. The dollar moved higher against most majors, advancing against the yen as Japan extended its state of emergency to envelop the nation and not just major cities while the euro fell back below 1.09. The combined unit remains under pressure as last week’s half-trillion euro support package is broadly seen as insufficient; essentially falling short of the number needed to support the continent through the ongoing pandemic.