Friday would be all about US Retail Sales data for April. Like all US data at the moment, in fact all data regardless of geographic derivation, we know it will be bad. The question is, how bad? This would be set against a mixed backdrop. Friday would be the day that Slovakia declared itself the first European country to be Covid-19 free. NZ continued to relax some of their restrictions, moving down to their own level 2 from a high of level 4. Lines for re-opening barber’s shops began to form at midnight. Pubs in Australia opened back up with the first pints being poured for over 2 months. Countries like Cambodia and Vietnam continue to show what can be achieved when the right measures are taken early with neither having reported any Covid-19 deaths. Football in Germany would be a day away after a 2-month hiatus. Meanwhile in the US retail giant JC Penney would be on the verge of filing for bankruptcy.
So what did the Retail Sales numbers bring? A headline number of -16.4% was considerably worse than a market expectation of -12%. And this after a night of negative rhetoric from President Trump towards China. And 2 days after Fed Chairman Powell warned of significant downside concerns for the economy. You would imagine that the downside for equities would be vulnerable and ‘risk-off’ trades in FX would be a favorite. And to begin with that’s what you got. The DJ would initially drop 300 points and JPY crosses would begin to move lower. XAU would be the major beneficiary, rallying to 1,751. So far it all makes sense. Then comes the turnaround in equities led by the bank sector. Hard to say why, but who am I to argue. The net result of this for FX was for the USD to rally. USDJPY would bounce from 106.85 to close at 107.15. GBP, AUD, NZD and CAD would all close a spread or 2 off their lows against the USD. The one exception would be EURUSD which continues to attract demand under 1.0800, closing at 1.0820. XAU would rally from 1,730 to 1,751 before closing at 1,743. And equities would rally to close with gains for all 3 major US indices. The DJ would end the day at 23,685 up 60 points, although still lower by 2% for the week. Lots of economic negatives on the week but only 2 % lost. The mystery of US equity market strength continues.
Time to revisit a chart I’ve published a couple of times - EURUSD. As you may remember I have pointed out the ongoing wedge formation for the most traded of all FX pairs. This week would see a further ‘strengthening’ of this formation. As you can see, Thursday saw a very brief and minor breach of the bottom line only for an immediate bounce back higher. Even with the broad market USD rally seen Friday, EURUSD would bounce from a 1.0789 low. As the 2 lines slowly converge, you get the feeling we are due a sharp move one way or another. Keep watching!