Tiomarkets Daily Commentary 22 April 2020
The daily themes are becoming all too familiar. And with that comes a routine I find myself following each day. Wake up, check the update for my county on Long Island to see the number of new cases in my town. See how many more have died, if the number of people in ICUs has decreased etc. Then do the same for my hometown in the UK. Next, check the Oil price – are futures negative? How about stocks? Then time for to look for some positives. Which country is opening up some shops or schools? Maybe some signs of a sporting event in the near future, even if it is played behind closed doors. The news conferences. UK, New York city, New York state and finally President Trump. A daily routine I could never have envisaged 6 weeks ago. The new ‘normal’.
Today would see some positive signs in the financial markets. Firstly oil prices stabilized. While the move higher was a welcome one, the reduced volatility was of greater significance. While greatly reduced demand and storage capabilities continue to be a concern, the hope is a gradual re-opening of the global economy will reduce volatility and downward pressure. Equities would take their lead from Oil and see strong rallies in both Europe and the US. The DJ would close higher by 2% at 23,475. Gold would also benefit on the day rallying to 1,717 from a low near 1,680. For FX it was a mixed picture. In general the USD would benefit from the moves in equities and oil with EURUSD falling as low as 1.0803 from a high of 1.0885. GBPUSD would follow a similar path trading under 1.2280 before recovering to 1.2320 by day’s end. AUDUSD and USDCAD would buck the trend, with both ‘commodity’ currencies gaining on the day, ending at 0.6320 and 1.4185 respectively. The question now is can oil remain relatively stable and will equities continue to claw back some of the losses from the past 6-7 weeks? Right now FX is largely directionless, and equities are up one day and down the next. While we all hang on to positive signs, you do rather wonder when the magnitude of the economic meltdown will be truly reflected in equity prices. The recovery, to whatever degree, is being heavily priced in. But what if, what if the recovery takes way longer than we hope for? Time will tell.
USDJPY and JPY crosses would often be the ‘poster-child’ for reflecting ‘risk on’ and ‘risk off’ trades. But USDJPY has been remarkably stable in recent days and as you can see from the hourly chart has been building a base just under 107.00. Now we have a wedge formation on our hands which normally implies a sharp breakout to one side or another. As always, plenty of ways to play it but worth keeping an eye on over the next few sessions.