Can the Euro Hold a Rally? USD On Its Backfoot

EUR – Can the rally hold?

Last week the ECB announced €600 billion in new stimulus to help combat the downturn from the coronavirus. The bond-buying bonanza seems to have no end in sight. Germany is also helping in the effort when it announced on Wednesday, a day before the ECB, a €130 billion in new fiscal stimulus. EUR/USD furthered its run on Thursday, one it had been stringing together since the week before. Friday’s turn down wasn’t so much about the big jobs beat in the U.S. but a currency that looked tired from an extended run. It’s time to see if the euro can be for real here, as every rally since the early 2018 top has fizzled and led to another leg lower. Q3 GDP estimate is due out, with a forecasted YoY contraction of 3.2% and 3.3% QoQ.

GBP – Trading around the 200-day

Last week economic data was relatively in-line with expectations, with nothing off by an amount that was too egregious. Brexit negotiation headlines continue to be a big unknown, but plenty of opinions on how it will turn out. Eyes on the reopening process remain and whether the risk of a second wave will increase as the summer progresses towards the fall. Looking ahead to the data calendar it is a relatively light week. Cable (GBP/USD) is currently trying to reclaim the 200-day as it climbs further towards 1.3000, but the trend is generally unclear.

USD – Range finally broke with conviction

The dollar (via the DXY index) finally broke out of the brutal two-month trading range, putting sellers in the driver’s seat for the time-being. The Greenback got rinsed for eight consecutive days before bouncing on Friday. NFPs were something spectacular to see, with analyst estimates calling for a loss of 8 million jobs in May, but the headline figure came in a plus 2.5 million. It is being cited that the reasoning is that the Payment Protection Program (PPP) given to businesses to keep employees has prevented people from going on unemployment. Still a breath-taking 40 million people filed for unemployment for the first time in the wake of the coronavirus fallout. When it comes to data though, overall, pretty much everyone is clueless. On Wednesday we have Powell and company, rates are expected to remain unchanged, so focus will be on what kind of guidance the Fed Chair will provide.

CAD – Pummelling might see some reprieve

The Canadian dollar has erased the entire move higher from when the Saudi’s kneecapped the price of oil heading into the week of March 9. The gap from March 6 was filled while WTI is very near filling the equivalent gap. Even though oil has rebounded sharply it has come as a bit of surprise that the market hasn’t shown greater concern over the long-term impacts of oil on the economy. But when you think about it, that has been a theme in many other realms too – ie. US stocks confounding the bears by marching back towards record highs amidst the global economic fallout.

AUD – Going big on strong sentiment

Not as baffling as US stocks geeked up on Fed stimulus, but Aussie rallying as high as it has does have plenty scratching their heads. We discussed the 0.6700 level as the first to watch and 0.7000 as the next one up. We are there now, keep an eye on whether this barrier can get crossed. AUD/USD may be on the verge of reversing a multi-year trend amidst the economy’s first recession in nearly three decades. Interesting times.

JPY – Weak while everyone else strong

The Japanese yen made some moves last week, not so much against the generally weak dollar (which it rallied strongly against yesterday), but against all the other currencies that have been rallying vs USD. EUR/JPY went from 114 last month to a high last week over 124, a big move indeed. In-line with the sharp rebound in stocks, AUD/JPY has rallied from under 60 in March to the upper 70s. This puts the cross at levels created well before the virus struck. We may see a breather here. Turning to the economic calendar there are few items on the document in Japan but nothing that sticks out too much.