The roller coaster that is the US equity markets continued yesterday as the DOW rebounded over 1100 points yesterday after Monday’s 2,000-point loss. According to DOW Futures, the US equity market will open 500-600 points lower later today. While volatility is expected to remain, it should be noted looking at the technical side, a correction from the 29,568 top could see the DOW fall to 22,214. The DOW closed yesterday at 25,018. As the DOW improved yesterday, the USD was stronger as well against the EUR, JPY, GBP, and CAD. Even though the equity markets are expected to move lower, the USD has maintained its strength through the European trading day. US Treasury yields moved lower as the 10-year note is trading at 0.6441%, while the 30-year bond was trading at 1.1171%.
EUR/USD continues to trade lower, despite the reversal in US equities. The single currency has fallen to overnight lows as traders express concern over the spread of the Coronavirus in Europe. The number of cases in Italy has gone above 10,000, as the country is virtually closed. Spain has followed the Italian lead and closed some schools. Austria has closed its border with Italy and anyone attempting to enter the country will be put in quarantine protocol. European equity markets are all positive this morning, reacting to the Bank of England rate cut. The EUR/USD still has some room to move lower, but traders will now wait until the US markets open to determine the next move.
The Bank of England surprised the markets this morning cutting rates 50 bps, to 0.25%. This unscheduled move was made in hopes of spurring the economy and to combat the Coronavirus. After initially falling to overnight lows, the GBP has rebounded a bit but still is lower against the USD. The GBP is expected to move higher despite the rate cut, as comments earlier from the Bank of England stated they are ready to act against the virus. The new Chancellor of the Exchequer, Rishi Sunak will present the UK budget this morning. The budget is expected to include a significant increase in spending. Look for the GBP to continue its post rate cut rally.
After falling to session lows, the USD/JPY is trading near overnight highs. After President Trump failed to appear at a scheduled press conference, the Asian equity markets all ended lower and there was early pressure on the USD/JPY. As with the other currencies, the JPY has not yet reacted to an expected fall in US equity markets. Technically, the move higher could continue, but traders are expected to take advantage of the higher USD/JPY rate to sell once more. There is concern that President Trump could have problems with Congress as far as implementing measures to combat the Coronavirus.
Despite oil prices moving higher yesterday the USD/CAD continues to trade higher. There are some analysts expecting an additional rate cut from the Bank of Canada, with that expectation being another 50 bps. Analysts are waiting for the FOMC meeting next week to see what the Fed does, but if they lower rates as expected, the BOC will almost certainly follow. Brent crude prices rose to $38.66 a barrel while U.S. West Texas crude moved higher to $35.48 a barrel. Expect the USD/CAD to test those overnight highs again during the trading day.
While Coronavirus cases continue to move higher throughout the world, the number of new cases in China is falling. The total number of cases in China now sits at 80,778, as the number of deaths moves to 3,158, China released CPI figures for February, which came in at 5.2%, falling from the January number of 5.4%.