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Market drivers on April 15

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15.04.2020

Let’s see what’s moving market today amid the coronavirus pandemic. Some countries are recovering such as China, but most of them are still under pressure.
Donald Trump sanctions WHO for poor performance

US President Donald Trump has stopped financing the World Health Organization. The main reason for that is the WHO hadn’t restricted travels from China in time, that undermined the US. Also, Donald Trump voiced his discontent that the WHO became very China-centric. However, House Democrats said that Donald Trump violated the law as he had no legal authority to halt payments to the WHO.
US dollar may weaken

On the one hand, the Fed’s monetary easing and credit backstops help to mitigate the coronavirus negative impact on the economy. On the other hand, these measures put a heavy pressure on the US dollar. Later today we will see the report of retail sales that will show the economic damage of lockdowns. This report should somehow influence on the US dollar. Also, tomorrow on April 16 unemployment claims will be released. Some economists think that the jobless rate will reach 20%.
Good news for Pound sterling

There is a positive scenario for the British pound as the negative impact of Brexit has been eliminated by the coronavirus. According to Standard Bank, EUR/GBP will fall to 0.8 soon. The pound price couldn’t touch this level since 2016. As the deadline for a trade deal is postponed, the risk for the currency is pushing back too.
Oil price plummeted again

If you remember, OPEC+ after long negotiations had finally decided to cut the oil production. However, it didn’t help to push the oil price up. What we see today is the WTI oil price fell below $20 per barrel. That’s happened because the oil demand had dropped enormously. The International Energy Agency said that the worst is yet to come.

 

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USD: fighting through

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16.04.2020

Positive dynamic

There is definitely a positive dynamic in the labor market based on the figures announced by the labor authorities in the US this Thursday.

5.2mln people filing for unemployment benefits is certainly better than 6.6mln and 6.8mln as it was it the previous two weeks respectively. However, the figure was still slightly above the expected 5.1mln.

Reaction

How did the USD react? Relatively indifferently across the board, although a certain weakness is visible with USD/JPY as in the chart below.

Generally, the USD has stopped its advanced against other currencies leading the main currency pairs into a temporary consolidation to digest the incoming data. In the larger scheme, it is unlikely, however, that the investors will move away from demanding more US dollars to hedge against the virus damage.


For the USD/JPY specifically, it trades currenly at 107.46 testing the support of 100-MA at 107.38. In fact, the currency pair performance is now contained between the latter and teh resistance of 200-MA at 107.68. Crossing either of these will serve as a confirmation of further direction for this currency pair.

 

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US: reopening economy

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17.04.2020

Unplugging

On Thursday, US President announced that he is going to gradually steer the country out of the “full armor” state. He shared a three-stage plan which suggests that 29 states are now qualified to lift most of the quarantine measures within a month’s time.

“A national shutdown is not a sustainable long-term solution”.
Two questions

The authorities of the US are trying to minimize the time during which the country stays economically frozen because each day under quarantine costs a lot and contributes to the accumulating risk of recession. That is understandable.

The question is whether the states are ready for that: in some of them, the infections are still rising. Plus there is still a big problem to actually measure these infections because the testing methodology and equipment are not yet fully adequate.

Another question is: how effective this plan may be if the federal government practically shifts the responsibility to set the guidelines and monitor the lifting of the virus restrictions to the state authorities. There is generally very little detail and even less federal support presented in the several-page document Donald Trump referred to.
Reaction

Although similar doubts were expressed by observers and the prevailing reaction among them was unconvinced, the market took this news as a relatively positive sign. The US dollar eased a bit, gold eased a lot, stocks climbed.

 

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WTI dropped below zero: what does it mean?

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20.04.2020

Big news shake financial markets more and more often. This time oil is once again the biggest news maker.
What happened with oil?

West Texas oil futures expiring on Tuesday turned negative for the first time in history. Negative prices mean that sellers were actually paying buyers to take the stuff off their hands. Such a situation occured because the US economy is on the lockdown and, as a result, there’s so much unused oil that America is running out of places to store it.
How it works?

Crude oil futures is a futures contract, in which a seller agrees to transfer a specified amount of barrels of oil to a buyer at a specified price on a specific date.

Some market players, such as refinery companies, use futures to ensure that they will have a favorable price fixed for the future. Most traders, however, trade oil futures without waiting until the expiry date. They don't want the actual oil, they just buy and sell oil futures to make money on the price swings. However, if they don’t get out of the position before the due date, they will have oil actually delivered to them.

There are oil futures for every month for years ahead. Trading terminates 3 business day prior to the 25th calendar day of the month prior to the contract month. In April 2020, such day is Tuesday, April 21. Physical delivery for these contracts should take place in May, but as the storage capacities are near the limit, the demand has plunged. Storage is especially scarce in Cushing, Oklahoma, where WTI May-dated futures contracts require futures buyers to take delivery of the oil. Hence, market players just wanted to get rid of these futures. There was a wave of selling and the price of WTI-20K dropped below 0.
What does it mean for other contracts?

Although, the futures market has experienced an impressive move, there's no way this is an apocalypse. We can see that other contracts haven’t collapsed at all. For instance, WTI June prices (WTI-20M) are above $20 a barrel.

Prices for Brent futures fell, but the decline wasn’t dramatic at all and accounted for about 5% on Monday. Unlike WTI, Brent crude can be delivered offshore to a variety of locations, so if there’s a lack of storage in one place, oil will be just moved elsewhere.

All in all, the story will likely keep oil under pressure for a time being. Notice that with FBS you can take advantage of various oil futures, both buying and selling these contracts in the form of CFD.

 

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Latest news you need to know

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21.04.2020
Oil went below zero

The oil price dipped below zero the first time in its history and then rebounded back to its recent level at $21.45. That’s happened because for some oil producers it’s cheaper to pay buyers to take their oil than to stop production or rent a storage. Reasons are the demand damaged by the coronavirus and the unlimited supply created by Russia and Saudi Arabia. Even OPEC+ agreements on cutting the oil production by nearly 10% couldn’t save the industry. Click here to read more.
Dollar strengthened on North Korea news

According to Bloomberg, the health of North Korea’s Kim Jong Un is deteriorating after the cardiovascular surgery last week. The US dollar gained, Asian and South Korean stocks weakened after these news. South Korean and Chinese sources doubt about his weak health. They reported that he is recovering.
Good news for British pound

The UK Claimant Count Change was released today. The numbers are encouraging! Only 12,100 people lost jobs when 170,000 were anticipated. It might help the British pound to stabilize for some time, but the US dollar anyway has a stronger position on the market now.
Earnings reports are coming up

This time it’s more intriguing than ever before. As investors want to see how companies cope with the coronavirus impact. Today we will get earning reports from Netflix at 23:00 MT and Coca-Cola at 14.30 MT. Be ready to react quickly!

 

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EUR and weak data from Germany

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22.04.2020

Germany will release Ifo Business Climate Index on Friday at 11:00 MT time.

Instruments to trade: EUR/USD, EUR/GBP, EUR/JPY, EUR/AUD

You don’t have to be a fortune teller to say that German business will be hit hard by the coronavirus-related lockdown. In March, the index fell to 87.7 points from 96 in February, its biggest drop since 1991. This was the preliminary estimate: the final number turned out to be even grimmer: 86.1.It’s time to remember that Germany is the key economy of the euro area. When it falters, a shadow falls on the entire region and hence on the EUR. Such pairs as EUR/GBP and EUR/JPY will be especially sensitive to the news right after the release. As for the EUR/USD, it will move actively later that day when durable goods orders come out in America. The economy which shows less negative results will see its currency go up.

If German Ifo Business climate index is greater than the forecast, the EUR will rise. If the indicator disappoints, the EUR will fall.

Check the economic calendar

 

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Gold shines as bright as $3,000

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15:48 23.04.2020

At the beginning of the American trading session on April 24, gold unveiled its hidden powers and was trading quite close to the $1,740 level – its highest peak of April 14.

Many analysts continue to see the yellow metal ultra-bullish, thanks to COVID-19 and the world economy falling into recession. One of the most optimistic forecasts belongs to the Bank of America. The famous financial company recently raised its 18-month target from $2,000 to $3,000. That is more than 50% of the current price level! How crazy is that?

Among the major reasons for this kind of scenario analysts of the Bank mention increased fiscal stimulus and doubling balance sheets of the major central banks. According to their point of view, fiat currencies will not be as attractive as gold.

For this year, the Bank of America sees the price of a yellow metal hovering around $1,695. In 2021, the target level is expected at $2,063.

 

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Friday’s news digest

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24.04.2020

Let’s see what drives the market on April 24.
US coronavirus aid package

There are good and bad news from the US. The bad one is that 4,427,000 Americans lost jobs. In total nearly 26 million people were fired because of the coronavirus. The good one is the 484-billion-dollar aid package was sent to those, who are struggling the most, small businesses and hospitals. It was the fourth relief package during the coronavirus crisis, their total sum passed 3 trillion dollars.
Oil climbed a little after dramatic fall

The WTI oil price rebounded to its previous level near $16 per barrel after its historic drop below zero. However, it will be a long way up to the pre-crisis price with the present massive glut and no visible rise in the demand side.
Stocks drop

European stocks slumped as the region’s leaders couldn’t come to the same opinion about how to mitigate the coronavirus impact in the long-term. Also, we have seen a slowdown in a global stock rally. It’s happened because the sentiment on the market is really negative these days. One of the reasons was that Gilead Sciences Inc.’s antiviral drug failed it first randomized clinical trial. As a result, all the hopes and dreams for the recovery disappeared.
UK retail sales drop

The monthly UK retail sales dropped dramatically by 5.1%. It was the largest fall over 30 years since records began. Most analysts anticipate the indicator to decline further in April by 20-30%. GBP is under the huge pressure now.
German Ifo Business Climate Index slump

The Ifo Business Climate indicator for Germany declined to 74.3 below expectations of 80. It is the historic low. The coronavirus spares no one, it stroke even the most sustainable and reliable German economy. EUR shouldn’t fall significantly but the short contraction could be.

 

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Things to watch this week

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27.04.2020

These days we’ve got a quite busy market and a really interesting environment. Events below will add more market volatility!
FOMC statement, press conference and US GDP

April 29 is a day of the USA. The Fed will have an important policy meeting at 9:00 MT. Nobody expects any major announcements. Investors wait for it mostly because of the guidance on future policy measures that will determine how fast the economy will recover from the crisis.

The US GDP is a significant indicator that will show the whole picture of the coronavirus impact as the economic activity fell down enormously in March and jobless claims reached unseen highs. It will be released on April 29 at 15:30 MT.
Important data from Eurozone

On April 30 at 14:45 MT time the ECB will release main refinancing rate and make a monetary policy statement. Also Euro area GDP will be released this day at 12:00 MT time. Some analysts expect it to fall by 4.5% for the first quarter, while it will be much worse for the second.
OPEC+ deal will start in May

The OPEC+ deal was to cut the oil production by 9.7 thousand barrels per day in May and June. However, it didn’t help to stabilize the oil market. While Donald Trump openly supports the US shale oil market, Saudi Arabia and Russia will continue their price war as they produce cheaper oil and can sustain its low price. We will see the oil price falling down further.
Earnings season of the largest companies

We are waiting for earning reports from Google, Microsoft, Facebook, Apple, Amazon, Intel and Tesla. This data will reveal their performance amid the coronavirus crisis. It will shake the stock market! Stay tuned!

 

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How far can US GDP fall?

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09:53 28.04.2020

American advance GDP will be released on April 29 at 15:30 MT. It will definitely move USD as it will show the broadest picture of the US economic health amid the COVID-19.

Instruments to trade: EUR/USD, USD/JPY, USD/CHF, AUD/USD, USD/CNH, USD/CAD

It’s obvious that the present US lockdown will lead to a decline of the GDP. What is more intriguing for investors is how bad the indicator will be. Among other economic indicators GDP is the most significant one as it reveals almost every area of the US economy. The largest part of it, nearly 70%, is money that Americans spend domestically. Consumer spending collapsed, that’s why the future GDP fall will be so huge.

How would you rate the coronavirus recession among other US downturns on the Richter scale, which measures the severity of earthquakes? Didier Sornette, who heads the Financial Crisis Observatory, assessed it at a magnitude of 9, when the crisis of 2008 – 8.5. The St. Louis Federal Reserve anticipates the real GDP to drop by 15%. The Atlanta Federal Reserve gave a much better forecast of a 0.3% decline. According to Goldman, GDP will contract by 10%.

If GDP is greater than its forecast, the US dollar will surge, otherwise – drop.

Be cautious! This is a general rule. These days, the US dollar plays a role of a safe-haven currency. That’s why USD won’t fall so deep as the US GDP.