Viral optimism leads risk sentiment higher over last 24hrs

SUMMARY

ANALYSIS

USDCAD

The wave of viral optimism kicked into second gear yesterday after Italy and New York reported some more encouraging statistics on the coronavirus front.  Italy reported just 3,599 new cases for April 6^th (which was the lowest daily increase in three weeks) and New York officials pointed to tentative signs (ie. slowing death rate) that the coronavirus outbreak may be starting to plateau.  The S&P futures closed over 7% higher as a result and the US 10yr yield finished near its session highs around 0.68%.

These “risk-on” flows spilled over into overnight trade and got an added boost from Japan’s soft emergency declaration and the RBA’s “confident” hold to interest rate policy.  The S&P futures are trading another 3% higher into NY trade, the US 10y yield is galloping higher to 0.75%, and USDCAD has finally given up on it’s week long battle with the 1.4200 figure.  On March 27, we said the damage done by the technically destructive NY close on March 26 would signal the end of the market’s recent uptrend and usher in the creation of a new 1.3900-1.4200 price range…and it looks like we’re finally getting that now with six successive NY closes below 1.4200 and a 10% rally in the stock market.

We think traders will be focused today on USDCAD’s ability hold the 1.3950s support level and regain the 1.3990s.

 USDCAD DAILY

USDCAD HOURLY

MAY CRUDE OIL DAILY

EURUSD

Euro/dollar barely staved off technical destruction yesterday by closing NY trade just above the 1.0770s, and we think the entrenched longs are breathing a sigh of relief this morning given the market’s ability to benefit from the improvement in the broader risk tone.  Germany reported a much better than expected February read for Industrial Output this morning (+0.3% vs -0.9%), but we think we must continue to take all “hard” economic data with a grain of salt because of its stale nature in relation to the fast-moving COVID-19 world we now live in.

Traders are now deciding what to do with last week’s trend-line support (now turned resistance) in the 1.0910s, as they await today’s press conference following the Eurogroup meeting.  The Eurozone finance ministers are expected to produce a joint response to help member countries deal with the economic impact of the coronavirus outbreak, and we’re hearing more and more talk of progress towards the issuance of “coronabonds”.

EURUSD DAILY

EURUSD HOURLY

JUNE GOLD DAILY

GBPUSD

Traders are talking about Boris Johnson’s health again this morning after reports circulated late yesterday about the UK Prime Minister entering an ICU.  This news saw GBPUSD break below yesterday’s chart support in the 1.2210s.  Broad “risk-on”, USD sales helped the market recover overnight however and we saw an added boost in early NY trade following news that Boris Johnson is stable, not on a ventilator, and has not been diagnosed with pneumonia.

Sterling is now trading well above yesterday’s chart resistance in the 1.2290s and we’re now seeing the possibility for a bullish outside reversal on the daily chart should the market close above the 1.2320s.

GBPUSD DAILY

GBPUSD HOURLY

EURGBP DAILY

AUDUSD

The Australian dollar is charging higher today after the Reserve Bank of Australia kept interest rates on hold last night and issued a rather confident sounding press release following its latest monetary policy meeting.  Full press release here.  We noted yesterday how we suspected some of the AUDUSD short covering was due to traders anticipating such an outcome from the RBA. 

Last week’s chart resistance in the 0.6120s finally gave way during the RBA announcement and the OIS market (which had priced in ~50% odds of a rate cut) needed to suddenly push out those odds to the May policy meeting instead.  We think both these factors added fuel to the surge in AUDUSD overnight.

The market has now surpassed trend-line chart resistance in the 0.6170s, which technically opens up the door for even further gains should AUDUSD hold these levels going into the NY close.

AUDUSD DAILY

AUDUSD HOURLY

USDCNH DAILY

USDJPY

Dollar/yen traders look a little unsure of themselves this morning as they weigh broad risk-on flows (USDJPY positive) with a soft coronavirus emergency declaration from Japanese authorities (USDJPY negative).  Japanese PM Shinzo Abe said the state of emergency would not be like the lockdowns seen oversees, but he said he wanted people to refrain from going to bars and nightclubs and he wanted businesses to reduce employee numbers in the workplace by 70%.  Sounds like he’s putting a lot of faith in the Japanese public to comply.

We think USDJPY may be relegated to a short-term 108.50 to 109.50 price range while traders figure out what they want to do here.  Up next will be the daily coronavirus statistics for Europe and New York. 

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.