The new week begins with markets digesting Friday’s record unemployment numbers from the US. The historic losses were initially shrugged off by traders and designated as ‘not as bad as expected’. Monday would also see lockdown restrictions eased in France, Spain and the UK. On Sunday UK PM Boris Johnson announced a roadmap to easing restrictions with people being urged to return to work where they can’t work from home. However restaurants, pubs, cinemas and hair salons remain shut for the foreseeable future. And the impending 14 day quarantine period for all arriving air travelers (ex-Ireland and France) has caused a major stir.

So how would markets react? Initially there was a rally in all things risky with equity futures happy to build on Friday’s gains. At one point DJ futures would be up over 200 points. However that would all change once Europe got under way, with futures pointing to a 200 point loss by the time the US day began. On the FX front GBP would be the most notable mover, initially dropping from 1.2430 to 1.2290. AUD would also drop, sliding from 0.6560 to 0.6466. USDJPY would head the other way as USD strength would  spread across the market, rallying from 106.50 to 107.35. As the day progressed equities would bounce back. Both the S&P and Nasdaq would close up on the day and the DJ down just 109 points. This in turn would see an extension of USDJPY’s rally up to 107.76 and also drag AUDUSD back to 0.6490. GBP, which had earlier been under mounting pressure sub 1.2300 would squeeze back to 1.2340 by day’s end. EURUSD would spend much of the day drifting either side of 1.0820 in directionless trade. For those crypto enthusiasts among you, BTC dropped from 9,900 at Friday’s close to a low near 8,150 before recovering to 8,700 by day’s end. The much publicized ‘halving’ is just around the corner, so traders are nervously positioning ahead of the event. As I mentioned in Friday’s commentary one to watch over the next 48 hours. All in all not the most conclusive of days. The world continues to focus on the easing of lockdown conditions while watching for any spike in cases. It’s a balancing act between keeping the virus under control and not allowing economies to be permanently damaged.

EURUSD has not been the most exciting of currency pairs since the initial explosion of volatility at the beginning of the ‘corona-crisis’.  Since then we have seen ranges slowly decrease and as per the attached chart, we now have a strong wedge formation on our hands. The middle of last week saw another attempt to the downside get repelled, which just added to the strength of the formation. While there is still some room in either direction, most notably to the topside, it does feel like we will get a sharp break one way of the other in the coming days. While the intraday price action may not be overly interesting, watch out for a surprise break.

David Hannigan
Author

A graduate of the Cass Business School, Dave's career began with Credit Suisse as an Equity Options Trader on the London Stock Exchange, before moving into the world of FX with Chemical Bank and Citibank. 1994 saw him join National Australia Bank, first as a Senior Dealer, then Senior Vice President and Chief Dealer.

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