Daily Market Pulse

USD lower ahead of PMI release


The USD looks to end the week under pressure as it is trading lower against the EUR, GBP, and JPY while trading higher against the CAD. After finishing up with one of the best monthly performance in decades, DOW Futures are pointing lower this morning, with an anticipated opening down 450 points. Concerns over quarterly earnings from large tech companies are the reason for the negative tone as Apple and Amazon saw their earnings disappoint. The dollar is lower ahead of the release of ISM Manufacturing Purchasers Managers Index later this morning. The number is expected to fall from 49.1 last month to 36.9 this month. A number below 50 indicates an economy in contraction, while a number above 50 indicates expansion. Analysts will look very closely at this number as it is an indicator of next week's Non-Farm payroll report. The Fed increased its Main Street lending program, as weekly jobless claims last week now have seen a total of 30 million Americans seeking unemployment since mid-March. This weighed on the USD as well. US Treasury yields also moved lower reacting to the unemployment figures as the 10-year note was trading at 0.6007% while the 30-year bond was at 1.2446%. Unless the ISM number surprises and comes in much higher than expected, look for the USD to remain under pressure. 


EUR/USD is higher this morning as traders are focusing on US economic releases and ignoring concerns over the Eurozone economy. Technically, the EUR moved through a couple of strong resistance levels, setting off “stop-loss” position buy orders and liquidating short positions. The European Central Bank left its Quantitative Easing programs unchanged but did ease lending conditions to member banks. In her comments following the ECB meeting, Christine Lagarde, president of the ECB, warned of a severe downturn after the release of poor GDP figures. Europe is attempting to return to business, but many leaders are concerned about a second wave of infections. While cases and deaths have been falling, especially in Italy and Spain, leaders are erring on the side of caution regarding a quicker opening pace.


Similar to the EUR, GBP/USD is reacting this morning as technical resistance levels have also been broken in this currency pair, setting off “stop-loss” buying. Analysts are buying the pound after the dovish Fed report and poor US GDP number. Despite increasing prospects for an extended lockdown in the UK and ongoing concerns over Brexit negotiations, the pound has shown surprising strength. Traders remain concerned over the further deterioration in the global economy and poor US economic numbers. UK Prime Minister Johnson declared that the peak of the coronavirus outbreak has passed and continues to promise to lay out a plan for exiting the lockdown. This plan is expected to be released next week. 


USD/JPY is trading towards the lower end of its overnight range. Japan Manufacturing PMI came in at 41.9 in April, down from March’s 44.8, and this was an eleven-year low. The report said falling demand led to a further cutback in production. Manufacturing employment fell at its strongest rate since mid-2009. BOJ minutes, released from their March meeting, indicated that members agreed there is uncertainty about how strongly the economy will recover after the coronavirus pandemic. One member said the downturn could be “serious and prolonged”, while other members agreed that the economy will be “somewhat weak for the time being”. Once again, negative domestic concerns are being put aside and the USD/JPY is close to breaking some major technical support levels.


USD/CAD is trading higher this morning, as the Canadian economy was trading softer due to virus shutdowns. According to Bank of Canada governor Poloz, “asset purchases have so far roughly tripled the size of our balance sheet, which began the episode at C$120 billion”. There is concern that future economic numbers will show the full effect of the coronavirus, however, this has not been the case up to date. Analysts now expect a significant downturn in the Canadian economy in the second quarter of 2020. GDP is expected to fall close to 14% in the second quarter. 35,000 Jobless claims were reported in February, which will be accelerated due to the virus. 


According to President Trump, there is possible evidence that the Coronavirus originated in a lab in Wuhan and that China failed to contain it. According to reports, White House officials are considering plans to demand financial compensation from China. This will certainly be an ongoing story over the next few weeks. On the economic front, China PMI came in at 50.8, very close to the expected 51.0 number, as the breakdown revealed output and new orders fell from the previous month. Analysts said they were impressed with output, but also cautioned that these moves may be a bit unstable.


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