Daily FX Market Roundup 03.04.20
By Kathy Lien, Managing Director Of FX Strategy For BK Asset Management
These days, 800-, 900-point moves in the stock market have become the norm. On Tuesday, the Dow Jones Industrial Average dropped 800 points and today it recuperated all of those losses. The volatility in the market is a reflection of sentiment flipping between hope and fear. More specifically, the hope that the virus can be contained quickly and the fear that it won’t.
On Wednesday investors were encouraged that U.S. lawmakers reached a $8.3 billion emergency coronavirus bill that would fast track research and development for treatments and a vaccine. Investors also drove stocks higher on the back of Joe Biden’s victory on Super Tuesday. He’s more market friendly than Bernie Sanders and less likely to raise taxes. The ISM non-manufacturing index reported robust growth in February and lastly, central banks responded aggressively with the Bank of Canada following the Federal Reserve’s half-point cut with its own 50bp easing today.
Unfortunately stimulus can’t solve a health crisis and until the number of cases peaks or a virus/treatment is discovered, the path of least resistance for stocks is still lower. The lack of a similar recovery in currencies is a sign that FX traders are skeptical about the optimism. USD/JPY ended the day up marginally as EUR/USD halted a 4-day rally. According to the Beige Book, two districts reported that growth had come to a standstill, which is the first sign of a negative coronavirus impact. The U.S. just loosened its parameters for coronavirus testing so the number of cases should increase rapidly over the next few weeks. Within the next day or two, the number of global virus cases is expected to hit 100,000 – a headline grabbing number for sure. Schools are being closed in countries around the world (Italy being the latest) and we haven’t seen the full impact on corporate earnings.
More central banks are expected to follow in the Federal Reserve's and Bank of Canada’s footsteps. It is clear that policymakers agreed to start with individual responses before resorting to coordinated action. All eyes are on the European Central Bank, which is scheduled to meet later this month. The prospect of ECB easing turned the euro around today and will have most likely carved out a peak in EUR/USD at 1.12. The next focus will be U.S. and Canadian employment reports on Friday. If the data is terrible, expectations for a follow-up move from the central banks will increase rapidly.