Thursday March 19, 2020

Global equity and commodity markets continue to weaken as global recession fears related to the coronavirus cause investors to flock to the US$ safe-haven. US$ extended its gains seeing the US$ index rises 2% vs major currencies and setting the US$ up for its largest “winning streak” since 1992. Global central banks continue to step up their liquidity actions, but it still doesn’t seem to be enough. Norwegian Central Bank suggested it may step in to support the NOK, the currency has fallen almost 30% since January. Other trade/commodity currencies remain under substantial pressure,  AUD has fallen almost 12% vs US$ in March to 2002 lows. Coronavirus headlines will continue to dominate direction. Intraday US Initial Jobless claims and Philly Feb Manufacturing survey will be watched closely.

Oil prices hit almost 20 year lows on Wednesday on falling demand and over supply issues. Oil rebounded 10% in the early morning, but analyst caution further weakness possible in oil prices below $20 a barrel. C$ fell 2% yesterday and the TSX fell 7.6% its lowest level since 2012. Ottawa announced C$27 billion in fiscal stimulus, BoC has cut rates by 1/2% and has left the door open for further action. Yesterday’s US$ high was 1.4667, a breach of 1.4689 (Jan2016) opens the door 1.4950 (Mar2003) beyond that 1.6188 (Jan02) historic high. Given the current conditions of increasing Coronavirus restrictions and lower oil demand, the potential to test 1.4950 remains probable.

In comparison to other major currencies the Euro has remained relatively resilient down just 2% month to date and 3% year to date vs US$. ECB president announced Euro 750 bin bond buying scheme, also commenting that “There are no limits to our commitment to the Euro”. European virus cases surpasses China at +86k, with related deaths in just Italy & Spain exceeding Chinas at +3600 in total. Social and travel restrictions continue to tighten across the continent increasing stress on the EU economy. A breach of 1.0725 could see further weakness towards 1.0339 (Jan2017), beyond that a breach of 1.0000 towards 2002 levels. Intraday coronavirus developments and US data releases will provide direction.

GBP selloff accelerated yesterday after the announcement of school closures, breaching the post-Brexit lows and hitting fresh lows not seen since 1985 (1.0790 Feb85 Close) vs US$. UK governments GBP 330 bin in stimulus failed to support the GBP as investors continue to flock to US$ for its safe-haven status. The UK hunkers down and attempts to flatten out the virus curve, GBP remains vulnerable to coronavirus headlines and currency volatility.