Daily Market Pulse

USD higher after Powell comments


The USD is higher this morning against the EUR, GBP, and CAD but much weaker against the JPY as traders move away from risk following Fed Chairman Jerome Powell’s comments regarding the economy. The Chairman’s comments caused the DOW to fall over 500 points during trade yesterday. Powell said, “While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks.” He also added that the economy should see a substantial recovery once the coronavirus is under control. In regards to negative interest rates, Powell said, “I know there are fans of the policy, but for now it’s not something that we’re considering. We think we have a good toolkit and that’s the one that we will be using.” There are some major financial institutions such as J.P. Morgan and Goldman Sachs who are stating that a second wave of the virus could see the Fed rethink their negative interest rate policy. Additionally, President Trump has long campaigned for negative rates as a way for the US to be competitive with Japan and Europe. The equity market was hoping for a better comment on rates as DOW Futures are little changed pointing towards a quiet opening later today. That could change as US weekly jobless claims will be announced an hour ahead of the DOW opening. Weekly claims are expected to be around 2.5 million, lower than last week, but still a staggering number. US Treasury yields began to ease after Powell’s comments and the 10-year is now trading at 0.6202%, while the 30-year bond is trading at 1.3157%. Any substantial difference could affect the equity market. USD should remain strong through the trading session.


EUR/USD is lower as traders leave risk trades testing overnight support levels and trading near overnight lows. Technical momentum on the daily and hourly charts are pointing lower and sellers are emerging. Italy has added a new stimulus bill worth EUR 55 billion. Traders are accepting the growing Italian debt as they expect the ECB to continue backing the move. Spain issued a survey stating that only around 5% of their population has antibodies against the virus and according to the study, another wave of the virus cannot be ruled out for the fall. Also, the German court ruling continues to weigh on the single currency as fears over the ECB’s powers remain.


GBP/USD has fallen to a five-week low after Bank of England governor Bailey said there was a possibility of more QE on the horizon. Technical momentum remains on the downside for cable, but RSI numbers are just above 30, indicating oversold conditions exist. Relative Strength Index (RSI) above 70 usually indicates an overbought condition and below 30 usually indicates an oversold condition. At the moment, GBP is trading below the 50, 100, and 200-day moving averages. As the USD rises with “rejection” of negative interest rates, the pound tumbles because of the comments made by the BOE regarding expanding bond-buying to help finance the government’s spending during these times of crisis. As the lockdown in the UK continues, workers on furlough are proving to be more costly to the government than originally thought. Lastly, the concern over a no-trade deal Brexit is also weighing on the pound.


The USD/JPY trading lower this morning, benefiting from traders return to safe-haven territory. The risk remains firmly on the downside for the currency pair as there has been a move close to major support levels during overnight trading. A break here would see adding selling and a much steeper decline. On the economic front, Japan’s April Machine Tool Orders fell to -48.3%, while the March number was revised slightly upward to 40.7%. While the Fed Chairman’s comments about negative rates boosted the USD against the EUR and GBP, it added to safe-haven buying in the JPY. PM Abe has announced that the state of emergency will be lifted in 39 prefectures (a district under the control of the government), as soon as next week, but will remain in place for 8 prefectures, including Tokyo. As the market is still not oversold in the USD/JPY, expect the currency pair to continue moving lower.


USD/CAD is trading higher this morning but off its overnight highs. USD bias after the Powell speech saw the quick jump and forced the loonie lower. However, that move has abated as oil prices moved higher amid US stockpiles were lower. Brent crude futures were up $0.06 at $29.25 per barrel, while U.S. West Texas Intermediate crude futures were up $0.18 at $25.47 per barrel. U.S. crude inventories fell by 745,000 barrels last week, the first decline since January after analysts had expected a 4.1 million barrel increase. Later today Bank of Canada Governor Stephen Poloz will speak, which should provide some trading opportunities during the North American trading day. 


According to an article published in the official People’s Daily on Thursday, China’s Finance Minister Liu Kun said there is a need for more fiscal policy as pressure increases on the economy. He said, “a more active fiscal policy is a practical need to hedge the downward pressure of the economy”, and further tax cuts would help companies as well as expanding jobs would be a top priority. During the first quarter of 2020, fiscal revenue did show negative growth, and it is expected that fiscal revenues for the entire year (2020) will be lower than last year. Analysts are expected the Chinese government to announce a new stimulus package before the annual National People’s Congress (NPC) session that begins on May 22. There was little reaction to most of these comments as traders remain fixated on rising US-China trade tensions, as well as fears of a second viral outbreak.


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