Coronavirus angst returns. OPEC recommends 1.5M bpd cut. Poloz to speak this afternoon.

SUMMARY

ANALYSIS

USDCAD

Yesterday’s Biden rally in risk sentiment has fizzled out in overnight trade as coronavirus angst has returned.  California’s declaration of a state of emergency, the fact that the US has only done 500 tests to date, and Australia’s beefing up of its inbound travel restrictions appeared to the catalysts.  The S&P futures are down 1.8% at this hour, US 10s have fallen 12bp to 0.94%, and the implied Fed funds rate for the March 18^th FOMC meeting has fallen to 0.788% (which means the markets are pricing in a 84% chance that the Fed cuts another 50bp in 2 weeks!).  USDCAD is benefiting from the broad risk-off tone and it’s now trading back near yesterday’s session highs in the 1.3420s.

OPEC has proposed a deepening of existing oil production cuts by 1.5M bpd (much larger than expected), but this has yet to be discussed with Russia, who OPEC is recommending will share 0.5M bpd of the total.  The April crude oil market is understandably not excited about these headlines and remains below this week’s stubborn chart resistance in the low 48s…another mild USDCAD positive at this hour.  Russia joins the conversation tomorrow.

All eyes will be on Bank of Canada governor Stephen Poloz at 1pmET this afternoon to explain the reasoning behind yesterday’s 50bp interest rate cut.  The text of his speech will be released at 12:45pmET.  The OIS markets are currently pricing in a 65% chance that the Canadian central bank will cut rates by another 25bp at its next policy meeting on April 15.  US Factory Orders for January come out at 10amET this morning, with traders expecting -0.1% MoM vs +1.8% for December.

USDCAD DAILY

USDCAD HOURLY

APR CRUDE OIL DAILY

EURUSD

The deterioration in risk sentiment and the renewed downside pressure on US interest rates is seeing EURUSD trade right back to its recent highs in the 1.1160-80s this morning.  This level continues to act as resistance for the market however as traders now await a 1blnEUR option expiry at 1.1175-80 and the US Factory Orders data, both at 10amET.  April gold futures have now completely recouped their losses from last Friday, thanks to the continued fall in US yields.

EURUSD DAILY

EURUSD HOURLY

APRIL GOLD DAILY

GBPUSD

Sterling broke above 1.2830s trend-line resistance in NY trade yesterday and it has now shot up to its next major ceiling in the 1.2900-1.2920 area.  The catalyst appears to have been comments from incoming Bank of England governor, Andrew Bailey.  When asked about whether the BOE should cut interest rates before the next scheduled decision on March 26, Bailey said:

"The Monetary Policy Committee hasn't in its history tended to do that but there is nothing that in the constitution of the Monetary Policy Committee to stop that happening.  I think what we need frankly is more evidence than we have at the moment, as to exactly how this is feeding through. We have got a building picture of evidence. The Bank of England is ... working extremely hard on it. I have been engaged on it this week, and I think then we can reach our judgment." 

The implied overnight target rate for March 26 is now trading at 0.4009%, which is 7bp higher than yesterday’s levels.  Michel Barnier’s negative sounding comments, about there being “serious” differences with Britain after the first round of trade deal talks, appear to be part of what’s capping GBPUSD heading into NY trade.  More here from Reuters.

GBPUSD DAILY

GBPUSD HOURLY

EURGBP DAILY

AUDUSD

The Australian dollar closed NY trade right at trend-line resistance in the 0.6620s yesterday.  This wasn’t a bullish enough close in our opinion to warrant further upside follow-through into Asian trade last night, and so AUDUSD meandered around for the most part.  The conoravirus-driven, risk-off tone has been palpable today though ever since the start of European trade, and we’re now seeing AUDUSD pullback below the 0.66 handle.  We see chart support today in the 0.6580s, then the 0.6540s. 

China-specific coronavirus headlines have been out of the limelight over the last week as the focus very much remains on pandemic risks for the western world.  USDCNH has largely been following the collapse in US interest rates, but the market seems like it wants to form a short term base today in the 6.93-6.94 area.

AUDUSD DAILY

AUDUSD HOURLY

USDCNH DAILY

USDJPY

Dollar/yen is not getting any help today as an escalation in coronavirus fears pulls the US 10yr yield right back towards yesterday lows.  Trend-line chart support in the 106.90s has just given way, leaving the market in a rather precarious spot.  The S&P futures are now trading down 1.9% on the session.

USDJPY DAILY

USDJPY HOURLY

US 10YR BOND 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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