Tiomarkets Daily Commentary 1 May 2020

A new day and a new month is upon us. April really saw the Covid-19 pandemic explode around the world with alarming increases in both infection and death rates globally. As countries put measures in place to control the spread of the coronavirus, we saw the very stark economic affects with over 30 million people in the US alone filing for unemployment benefits. Despite the best efforts of governments and monetary authorities alike, the very real side affects of this pandemic are staring us in the face. From a social and health perspective we have seen a ‘flattening of the curve’ in many European countries and signs are that the US and Canada are also past their peak. Countries like NZ and Australia have been particularly successful in containing the spread. And now we see the first signs of economies opening back up, although the side affects are guesswork at this point.

The first day of May is traditionally a holiday in many parts of the world. This would lead to thinner market conditions and an early end to action in the FX markets. Equity markets in the US were however open and not short of some volatility. Earnings from Amazon and Apple late Thursday had plenty for the market to focus on and it would be a move lower in the tech heavy Nasdaq that would set the sentiment on the day. The Nasdaq would end lower by 3.2%, the DJ by 2.5% as investors looked to take profit on April’s gains. Not helping matters was a tweet from Tesla founder Elon Musk who stated the company’s share price was ‘too high’. That turned out to be a great way to erase $14 billion from the company’s value in 30 minutes. Probably not the last we have heard about that! For FX it was a largely directionless day. The main US data release was the ISM Manufacturing PMI for April, which did come in better than expected but still far below the critical 50 level. AUD, NZD and CAD would all suffer on the day as traditional ‘risk off’ trades came into play. EURUSD had one brief move over 1.1000 but would finish at 1.0980. With equities on the back foot, USDJPY would move off its intraday highs around 107.40 to end at 106.90. And GBP would end the day near the lows after another rejection above 1.2600, ending at 1.2495. XAU would benefit from the moves in equity markets to close at 1,700, a full $30 off the day’s lows. Even oil managed to find some stability with the US June contract closing at 19.78 a barrel. Early May will see many governments both national and local announce exit plans from the current lock down status. It will be very interesting to see how the markets react and if there are any signs from those countries that have already relaxed measures of any increases in infections and deaths. Its going to be a big month ahead.

Time to look at the currency of my home nation – GBP. As you can see from the hourly chart stretching back to mid-March, GBPUSD has now had 3 attempts to break 1.2640 and failed. A triple top I hear you shout. And it most certainly is. Strong resistance lies at this level, so keep an eye on it this week, especially as PM Boris Johnson could announce a provisional exit strategy for the UK. A break could potentially see a sharp move higher, but for now respect that line of resistance.