• DXY consolidates gains after an exceptional spike up.
  • The level to beat for bulls is the 103.00 figure. 
  • Fed launches the largest stimulus program in history in response to the coronavirus crisis.
 

DXY weekly chart

 
DXY (US dollar index) is trading near its highest since January 2017 as USD is benefitting from above-average buying interest. Interestingly, the 2020 stock crash is one of the steepest and fastest declines the market ever experienced. Therefore, the Federal Reserve of the United States announced today that there would be no limit to how much it will support the economy through Quantitative Easing (QE). Essentially, yes, this is more USD printing which should, in theory, devalue the US dollar, but by doing QE unlimited, the Fed is attracting investors which buy USD-denominated assets. This is the largest stimulus package the Fed ever issued in times of crisis, which is surely a sign that this financial crisis, if maybe not the worst, will probably not be a stroll in the park.
 

DXY daily chart

 
DXY is consolidating after an unusually strong spike to the upside as the market is trading well-above the main SMAs.
 

DXY four-hour chart

 
The bull trend remains intact as DXY is trading above its main SMAs. Pullback down are likely to remain shallow as DXY remains in high demand. Bulls are likely looking for a break above the 103.00 resistance which could introduce scope to the 104.00 and 105.00 figures in the coming sessions or weeks. The market is expected to find support near the 102.00, 101.50 and 100 levels on the way down. 
 

Additional key levels

 

  • USD dollar slowing up, gold benefitting as the dust starts to settle, if only momentarily. 
  • All eyes turn to Congress and stimulus package. 

The price of precious metals has drawn in a great deal of attention during the COVID-19 outbreak and subsequent rout in financial and commodity markets. The global economy is on the brink and investors have been squeezed out of long term positions across various asset classes, forcing them into a flight for cash which has supported the US dollar and seen longs trimmed in gold. 

What we have seen is counter-intuitive to the normal safe haven playbook, but given the circumstances, and casting minds back to the GFC in 2008/09, we saw the same price action and direction of money flow. We could, therefore, expect to see a rise in gold prices when the dust settles following the dash for cash.

We have started to see a reaction on gold to the Federal Reserve’s measures as they move to unlimited QE which was announced this morning. These will include authorization for corporate bond purchases and a new financing facility, helping to send gold prices higher as bulls start to resurface and the dollar slows down.  

All down to Congress now

At this juncture, the Fed is at the limit, so we are also waiting on US Congressional leaders to come up with a third stimulus package that could reach $2 trillion and include relief for major industries such as airlines, small businesses that have seen revenues dwindle or disappear, and workers facing layoffs and loss of health coverage. Last night, Congress failed in a procedural vote that went 47-47, which needs 60 votes to fast-track – there are 5 republican senators that are self-isolating and are currently unable to vote but another procedural vote is scheduled for Friday. 

Gold levels

 

 

 

UK PM Boris Johnson is addressing the nation around COVID-19 and has said, “To put it simply, the NHS will be unable to handle it, meaning more people are more likely to die.”

Key comments

  • It’s vital to slow the spread of disease to protect NHS ability.
  • From this evening, I must give the British people a simple instruction, you must stay at home. 
  • Many lives will be lost.
  • We are strengthing our NHS.
  • We are buying millions of testing kits to turn the tide of this invisible killer. 
  • More to come…

Here is what you need to know on Tuesday, March 24th:

The number of coronavirus cases worldwide has increased to  372,500, while the death toll is up to 16,381. In the US, the number of cases jumped to 41,700. Italy reported fewer cases and fewer deaths for a second consecutive day, although the numbers are still huge.  Fear and uncertainty remain high, as the market could only speculate about the economic effects of the current crisis.

The US Federal Reserve announced its largest-ever easing package ahead of the US opening. The central bank said it would buy unlimited Treasuries and mortgage-backed securities in order to support the financial market. The central bank also established loan facilities, two to support credit to large employers, and another so-called TALF, the Term Asset-Backed Securities Loan Facility, to support the flow of credit to consumers and businesses.

Wall Street bounced off early lows, but the three major indexes closed in the red, as despite Fed’s massive stimulus the US Senate failed to pass a stimulus package. Congress will likely continue to discuss it next Friday.

US Treasury yields edged lower, with the yield on the benchmark 10-year note falling to 0.69% to finally settle at 0.78%.

The EUR/USD pair faltered at around 1.0830, finished the day with modest gains above 1.0700. GBP/USD settled around 1.1500 as UK PM Johnson maintains his soft approach on fighting the pandemic.

Japan will release the Jibun Bank Manufacturing PMI while Australia will publish the Commonwealth Bank’s indexes on manufacturing and services. All of them are preliminary estimates for March and may be early indicators of the results of European and US indexes to be out later in the day.

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  • US Dollar Index clings to small gains above 102.
  • Fed looks to reassure markets by announcing open-ended QE.
  • Commonwealth Bank’s Manufacturing PMI is expected to fall to 50.

After slumping to 0.5720 area during the European trading hours, the AUD/USD pair gained traction and advanced to a daily high of 0.5842 boosted by the strong selling pressure surrounding the greenback. However, the dismal market mood made it difficult for the pair to preserve its bullish momentum. As of writing, the pair was trading at 0.5792, down 0.1% on a daily basis.

USD valuation drives pair’s action

In the early American session, the US Dollar Index (DXY) dropped below the 102 handle after the Federal Reserve announced that it launched an open-ended quantitative easing program to confront disruptions to the economic activity.

Commenting on this development, “the Fed is doing its best to kill the USD, but we are not convinced that it will work (yet),” Norde analysts said. “Once economies open up post the Corona-crisis, the USD will get hammered, but that is still not something to discuss for the next weeks.”

However, with the US Senate Republicans’ coronavirus bill failing to get enough votes to clear the first procedural hurdle, the risk-aversion took control of the market action and allowed the USD to start erasing its losses. At the moment, the DXY is up 0.55% on the day at 102.50.

On Tuesday, the Commonwealth Bank’s Manufacturing, Composite and Business PMI figures from Australia will be looked upon for fresh impetus. Markets expect the Manufacturing PMI reading to fall to 50 in March’s preliminary reading.

Later in the day, the Markit Manufacturing PMI and the ISM Manufacturing PMI will be featured in the US economic docket.

Technical levels to watch for

 

  • EUR/JPY stays in ranges in the 117.50/120.00 zone.
  • Resistance is seen at the 120.00 figure. 
 

EUR/JPY daily chart

EUR/JPY is trading below its main daily SMAs suggesting a bearish momentum in the medium term while the market is trying to rebound from the 2020 lows without much conviction.

EUR/JPY four-hour chart

 
The market remains trapped in the March’s range although bulls are trying to breakout while nearing the 120.00 figure. However, there should be follow-through buying and break above the above-mentioned level to have the confirmation that a trend is actually in place. Until then EUR/JPY is probably bound to remain choppy in the 117.50/120.00 zone.  
 
 
Resistance: 120.00, 120.90, 12140
Support: 119.00, 118.35, 117.50
 

Additional key levels

 

  • EUR/GBP taking up a bid in a continuation of bullish correction.
  • EUR/GBP has added around 4.5% since last week despite COVID-19 spread in Europe. 
  • UK current account deficit is the largest in the G10 FX, a problem for GBP.

EUR/GBP is trading with a 0.9155 and 0.9387 range, currently oscillating in the higher end around 0.9321 as the euro firms, taking advantage of a slightly less prominent US dollar as the Federal Reserve floods the markets will USD in open-ended QE. 

The US dollar, which has been the FX and money market’s go-to asset since the explosion of global COVID-19 pandemic cases over the past couple of weeks, has finally slowed down in its pace, giving back some ground to the euro and pound. The Fed’s latest action is explained here and how it impacts USD.

EUR/GBP bulls have fared better of late though, rallying from 0.8995 and scoring up around 4.5% on the bid to the aforementioned high as investors fear the worst for the UK economy given the government’s indecisive action plan to stave off a full-blown Italian style COVID-19 crisis.

Also, the UK current account deficit is the largest in the G10 FX space and has been a long-standing negative for GBP. Consequently, GBP/USD reached the lowest level since 1985 while the dollar funding squeeze turned the screw. 

All eyes on government stimulus solutions 

Markets will continue to monitor COVID19 developments and progress on rescue packages in Europan and the UK, but at this stage of the game, the Bank of England has some wiggle room left not much, and it really will be all down to the governments. 

EUR/GBP levels

 

  • EUR/USD somewhat stable in light of unlimited QE from the Fed.
  • EUR/USD could face an upside correction should euro-zone nations, specifically Germany, step-up to the plate with sufficient stimulus.

EUR/USD is currently reading at 1.0767 between a range of 1.0635 and 1/0828 in highly fluid circumstances pertaining to the spread of COVID-19 and the desperation from governments and central banks to nip this virus in the bud and stave off an outright global depression.

The Federal Reserve is now throwing everything at financial markets and has just unleashed what is essentially unlimited QE. A panicked Federal Reserve has just announced unlimited QE after already getting through the initial $700bn it had announced just eight days ago. In a statement, the Fed announced the following:

“The Federal Reserve will continue to purchase Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions.”

Fed forced into a tight spot, now down to Congress

What this means is there is nothing more that the central bank can do and it is going to be now up to the US Congress to agree on a stimulus package, picking up the baton from where the Fed is now stuck and make a solution for those most in need, those who have lived month to month, week to week, day by day and are now without a job. 

  • Fed: Doing its best to kill the USD – Nordea

For FX, this means that while the US dollar is harbouring investor’s preferred cash deposits, for the sake of liquidity, deflationary pressures are a spanner in the works for the dollar bulls. However, the situation if fluid and markets will only when the dollar demand will stop, when it does.

As for the euro, we are waiting to hear from the Germans as to what stimulus packages are going to be on offer – presumably, the European Central Bank would be relieved that it can avoid further drastic measures and potentially support the euro in its relentless downfall vs the greenback. At least, there is some good news that despite COVID19 cases continue to grow in some countries, Europe has shown a slight improvement as lockdowns have broadened. 

EUR/USD levels

 

  • USD/CAD is trading to levels last seen in January 2016. 
  • The level to beat for bulls is the 1.4674 resistance.
 

USD/CAD monthly chart

 
USD/CAD trading near levels not seen since January 2016 as the spot trades near the 1.4500 figure. The oil debacle is driving the Canadian dollar down and USD/CAD up. Moreover, broad-based USD demand is keeping the currency pair near 4-year highs.
 

USD/CAD four-hour chart

 
USD/CAD is forming the largest spike in the last five years as bulls keep the buying pressure unabated. A break above the 1.4674 resistance can lead to further gains towards the 1.4800 and 1.5000 levels. However, in the medium term, it would be worthwhile to keep an eye on oil prices as 1.4674 could be strong resistance. Support is seen near the 1.4462, 1.4300 and 1.4200 price levels. 
 
 
Resistance: 1.4674, 1.4800, 1.500
Support: 1.4462, 1.4300, 1.4200
 
 

Additional key levels