Weaker US Dollar notable as Fed injects more help
Friday 10 April 2020
Major markets closed for the long Easter week-end so limited moves so far today but here's a quick summary of yesterday's fun and games.
We saw a softer USD overall as the US Fed provided an unexpected additional $2.3trillion while stretching the rule book to combat the COVID-19 fallout. These are unprecedented measures for unprecedented times. Gold rallied sharply, equities generallY fared better as markets saw a bit of risk-on but the jury remains well and truly out.
Elsewhere the Eurogroup agreed on a EUR 590bln rescue plan after the Netherlands backtracked on its demand for economic reform and oversight.The main feature of the package involves the European Stability Mechanism (ESM), a bailout fund that was created during the Eurozone debt crisis. The ESM would make eUR240bln available for indebted countries.The only requirement to access this line of credit is a commitment to use the funds for the financing of direct or indirect health care, cure and prevention-related costs associated with COVID-19.
In addition to the ESM the 19 Eurogroup finance ministers also approved EUR200bln in loans from the European Investment Bank (EIB) for EU businesses and EUR100bln in a jobs support programme.EU leaders are expected to hold a video conference next week to sign off on the recommendations.The Euro found a bid on the news but not exactly racing away as yet.
The OPEC+ deal delivered a 10mln bpd cut for an initial period of two months (May-June), then 8mln bpd for the next 6 months and 6mln bpd for the 16 months after that. All conditional on the agreement of Mexico but so far no confirmation and some reports that they're not happy with their own revised quota of 1.3mln bpd. Oil markets were less than impressed and we saw oil prices retreat sharply from earlier rallies on the initial pre-meeting positive noises. USDCAD had a roller coaster ride there therefore but still ended near the lows of the day. The Aussie $ was a notable gainer on all this plus the Gold price spike.Today sees the G20 oil ministers meeting from 14.00 GMT with OPEC already threatening to go ahead without their co-operation.
Boris Johnson came out of ICU but stays in hospital and the Pound was suitably unfazed given that the news was generally already priced in.
GBPUSD has now found support into 1.2400 after breaking up through the 1.2430 and 1.2450 and retreating but now tested the 1.2480 offers/resistance and remains underpinned amid the softer USD and some GBPJPY risk demand. EURGBP has found support around 0.8750 again but rallies still limited and helping to underpin GBPUSD.GBPJPY has based at 134.80 helped by the dip demand on core pairs after retreating from 135.75 but since finding sellers into 135.30.
USDJPY capped into 109.00 again but finding dip demand between 108.20-30 on the better risk plays. EURJPY capped at 119.00 but has based around 118.00 again on the better risk and EURUSD dip demand. EURUSD found dip demand around 1.0850 again and was already rallying after the Fed's action before enjoying further progress after the Eurogroup meeting but sellers still remain poised into 1.1000.USDCHF has dropped back into 0.9650 after capping at 0.9730 again as EURUSD rises and EURCHF remains tightly bound around 1.0550-80 with the SNB still in the frame.
AUDUSD rallied again and has now climbed back to 0.6347 on the softer USD/OPEC oil cuts double whammy and helped by some more AUDJPY demand. USDCAD found support into 1.3930 after the Fed/OPEC fall from the pivotal 1.4080 area again that I've been warning about but rallies understandably limited since.
The long week-end will see many headlines which may or may not get fully priced in with liquidity/participation levels very thin so caution is advised. It could well be that we do not see the real fallout/impact until normal service is resumed on Tuesday.
Let's continue to be careful out there in all things as ever. Staying safe must be our main priority still. Get some rest over the week-end too.
Interbank rates: 08.45 BST