The US reported a leap to 3.283 million jobless claims in the wake of the coronavirus crisis. There are three reasons why it is positive for the dollar, according to FXStreet’s analyst Yohay Elam.

Key quotes

“Unemployment is engulfing the US as weekly jobless claims jumped to 3.283 million, an increase of 1,053%. The initial market reaction has been muted, as traders were bracing for a horrible outcome.”

“The Fed is done for now: Contrary to what Jerome Powell, Chairman of the Federal Reserve said, the central bank has little ammunition left.”

“Government stimulus may be insufficient: It seems that despite all the bipartisan efforts, politicians are not up to speed with reality. Failure to speed up efforts may further exacerbate the situation.” 

“More impatience from the president: Donald Trump already expressed his desire to see lockdowns end by Easter. Such figures may trigger further impatience, in turn hindering efforts to fight the disease.”

  • Prices of the WTI stay consolidative below the $24.00 mark.
  • The EIA reported a 1.6M barrel build during last week.
  • Crude oil stays under pressure despite US, Fed stimulus packages.

Prices of the West Texas Intermediate are prolonging the weekly consolidation, navigating the sub-$24.00 region at the time of writing.

WTI looks to supply, demand for direction

The barrel of WTI is adding to Wednesday’s losses in the sub-$24.00 region, as traders keep ignoring the recently announced stimulus measures by the Federal Reserve and the US government.

Instead, the focus of attention in the oil market stays unchanged around the Russia-Saudi Arabia price war (on the supply side) and the predicted significant impact on the oil industry from the coronavirus fallout (on the demand side).

Also collaborating with the sour sentiment around oil, the EIA reported US crude oil inventories went up – albeit less than forecasted – by more than 1.6M barrels during last week and the US oil output ebbed a tad to around 13M barrels.

Moving forward, the next release on the calendar will be Friday’s usual report on the US drilling activity by Baker Hughes.

What to look for around WTI

Crude oil prices remain under heavy pressure in a context of heightened volatility and thin liquidity. As usual in the past weeks, prices of the commodity are hurt by a combination of demand and supply side drivers coming from the ongoing (and future) impact of the coronavirus on the global economy and the unabated Saudi Arabia-Russia price war, aggravated by the palpable possibility that the Kingdom could ramp up production to a record of 12.3Mbpd as soon as in April. A potential relief to this low-prices-scenario could come in the form of a US intervention, which is expected to morph into some sort of agreement between the US, Russia and Saudi Arabia, all aimed to bring in stabilization to the oil market.

WTI significant levels

At the moment the barrel of WTI is retreating 2.39% at $23.41 and a breach of $20.08 (2020 low Mar.18) would expose $17.12 (monthly low November 2001) and finally $10.65 (monthly low December 1998). On the upside, the next resistance aligns at $28.46 (high Mar.20) seconded by $33.70 (21-day SMA) and then $36.28 (high Mar.11).

  • USD/JPY witnessed some aggressive long-unwinding trade on Thursday.
  • Persistent USD selling bias seemed to exert some heavy bearish pressure.
  • Reviving safe-haven demand benefitted the JPY and contributed to the slide.

The USD bearish pressure remained unabated through the early North-American session and dragged the USD/JPY pair below mid-109.00s in the last hour.

The latest optimism over the passage of a massive $2 trillion US stimulus package failed to provide any respite to the US dollar, which remained depressed on the back of the Fed’s aggressive move to buy unlimited Treasuries and mortgage-backed securities.

The selling pressure surrounding the greenback aggravated further after the Fed Chair Jerome Powell, in an interview this Thursday, told NBC Today that the US central bank still has room for more action to combat coronavirus crisis.

This coupled with a record leap in the US initial weekly jobless claims for the week ended March 20 and a fresh leg down in the US Treasury bond yields did little to provide any respite to the USD bulls or stall the pair’s intraday downfall.

On the other hand, the Japanese yen benefitted from reviving safe-haven demand amid the prevailing caution mood in the equity markets, all against the backdrop of mounting fears over an imminent global recession.

Apart from this, possibilities of some short-term trading stops being triggered below the key 110.00 psychological mark could also be one of the factors that might have contributed towards accelerating the slide since the mid-European session.

It will now be interesting to see if the pair is able to find any support at lower levels or the ongoing slide confirms that a near-term top is already in place, setting the stage for an extension of the corrective slide from one-month highs set on Tuesday.

Technical levels to watch

 

  • US Dollar Index slumps below 100 on Thursday.
  • Initial Jobless Claims rose above 3 million in US.
  • Third estimate of the Q4 US GDP growth remained unchanged at 2.1%. 

The AUD/USD pair dropped to 0.5870 during the Asian session as risk-off, once again, started to dominate the financial markets. The broad-based selling pressure surrounding the greenback, however, allowed the pair to gain traction. As of writing, the pair was up 1.12% on the day at 0.6025.

DXY drops below 100

After erasing 0.8% on Wednesday, the US Dollar Index, which tracks the USD’s value against a basket of six major currencies, extended its slide and was last seen down 1% on the day at 99.93.

The data published by the US Department of Labor on Thursday showed that the Initial Jobless Claims in the week ending March 21 surged to 3,283,000 from 282,000. Despite this reading, US stock index futures turned positive on the day to suggest that investors haven’t read much into the data. Other data from the US revealed that the US Bureau of Economic Analysis’ third estimate of the fourth-quarter GDP growth remained unchanged at 2.1% as expected.

Commenting on the data, “today’s initial claims figure was at the upper end of the wide range of market expectations. In any case, it’s absolutely shocking to see 2% of the US labour force making jobless claims in a single week,” said Josh Nye, a Senior Economist at the Royal Bank of Canada.

Earlier in the day, FOMC Chairman Powell reiterated that the Fed still had policy room for further action to put additional weight on the USD’s shoulders.

Technical levels to watch for

 

The first signs of the economic hit from COVID-19 are beginning to be seen from the ‘official’ data, Jennifer Lee from BMO Economics reports.

Key quotes

“Those applying for UI for the first time (initial claims) surged in the week of March 21st to a record-high 3.283 mln from 282,000 in the week prior.”

“U.S. real GDP was up 2.1% a.r. in Q4 (with a small upward revision to consumer spending and residential structures noted). But that was so last quarter. The current quarter (Q1), and the next quarter (Q2), will bring huge declines.”

  • EUR/GBP trims initial gains and returns to 0.9150.
  • BoE left the monetary conditions unchanged at its meeting.
  • UK Retail Sales came in below estimates in February.

The recovery in the sterling continues to undermine the monthly rally in EUR/GBP, which is now navigating the mid-0.9100s after climbing well above 0.9200 the figure during early trade.

EUR/GBP focused on data, BoE

EUR/GBP keeps looking for a clear direction in the second half of the week following two consecutive daily pullbacks, all amidst the better mood surrounding both the sterling and the single currency on the back of persistent weakness in the dollar.

No news from the BoE earlier in the session, as it left the refi rate and the asset purchase facility unchanged at 0.10% and £645 billion, respectively, matching the broad consensus.

The BoE noted it remains ready to expand the ongoing asset purchases in order to support the economy and to prevent further tightening of financial conditions. Additionally, the central bank sees inflation picking up pace following a significant depreciation of the quid in the longer run.

In the UK docket, UK headline Retail Sales contracted at a monthly 0.3% and 0.5% when comes to Sales excluding the Auto sector, both readings missing forecasts. Closer to home, the German Consumer Climate tracked by GfK dropped to 2.7 for the month of April, coming in short of estimates.

What to look for around GBP

The British Pound keeps correcting higher so far this week, bouncing off levels last seen in times of the Plaza Accord in 1985 vs. the greenback and multi-month lows vs. the euro during last week. The extra stimulus from the Fed and the US government lent oxygen to the sterling and has been sustaining the recovery in past sessions. However, the quid is expected to remain under the microscope in light of the upcoming EU-UK trade negotiations, while shaky UK fundamentals plus the impact of the coronavirus on the domestic and global economy open the door to the palpable possibility that the country could slip into recession in the near future.

EUR/GBP key levels

The cross is losing 0.14% at 0.9136 and a drop below 0.9054 (weekly low Mar.25) would expose 0.8994 (low Mar.20) and then 0.8930 (21-day SMA). On the flip side, the next resistance lines up at 0.9499 (2020 high Mar.19) seconded by 0.9649 (monthly high January 2009) and then 0.9804 (monthly high December 2008).