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Market Wrap – April 2020

   

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How is that for a month!   As the coronavirus pandemic continues, many more hundreds of thousands of people are infected.  Only a month ago we were talking in terms of hundreds of thousands of people infected with COVID-19, which has now ballooned out to over three million and more than 225,000 dead.  Economies have been brought to a grinding halt as governments around the world have taken unprecedented steps to lockdown their cities etc to help prevent the spread of the coronavirus. 

Financial markets have been rattled and the price of oil has plummeted as demand as all but dried up.  The extreme volatility we have seen in markets has subsided a little but remains above average.  Most major central banks have taken emergency action to cut rates (some repeatedly) and increase stimulus measures.

As the OECD’s secretary general Angel Gurria said in a TV interview last month, the economic fallout from the coronavirus pandemic will be felt far beyond the immediate impact of the virus.  “What you have is an economic effect now that, very clearly, is going to be prolonged beyond the period of the pandemic,” Angel Gurria said.  “We’ll hopefully get rid of the pandemic in the next two or three months and then the question is how many unemployed (will there be), how many small and medium-sized enterprises will be in a very, very severe situation if not disappeared by that time,” he added.  “Life, and economic activity, is not going to be normalized any time soon,” he said. “We’re going to have the impact of this crisis for a long time to come.”  They are indeed incredible times.

EURUSD

During the month of April, the EURUSD has been content to consolidate a little and trade between support at 1.075 and resistance at 1.10.  The EURUSD has enjoyed some support from the 1.0750 level on several occasions now and it is propping up the currency pair well.  The last few weeks of the month have seen the EURUSD slow down a little, as it has been on a rollercoaster ride, surging back higher from a three year low near 1.06 up above the key 1.11 level in the second half of March, before easing back below 1.10 again.    Like many currencies, the volatility of the EURUSD has trebled throughout March however it has eased off in the last few weeks returning to some normality.

EURUSDDaily (6)

To respond to the ongoing Coronavirus Pandemic, the European Central Bank (ECB) have launched a massive stimulus program purchasing debt throughout the year.  “The ECB is ready to do everything in its mandate to counter market turmoil that disrupts monetary policy transmission, otherwise monetary policy cannot function,” ECB board member Isabel Schnabel said previously in an interview.  Several weeks ago, ECB President Christine Lagarde said, “the coronavirus outbreak is a fast-developing situation, which creates risks for the economic outlook and the functioning of financial markets” in a statement.  She added that the ECB is “monitoring” the situation and that it stands ready “to take appropriate and targeted measures.”  She has recently added that the outbreak “has been a major shock to the growth prospects of the global and euro area economies.” 

GBPUSD

Like the EURUSD, the GBPUSD has settled down a lot during April consolidating in a narrow range between support at 1.23 and resistance at 1.25.  A week or so ago, the GBPUSD eased from a one month high above 1.26 and rested on support at the key 1.23 level, before rallying back up to 1.25 to finish out the month.  The 1.23 level has established itself as a key level propping the GBPUSD up on a few occasions.  This consolidation was much needed as the GBPUSD had been moving wildly back and forth in the few weeks before.  In March, the GBPUSD dropped dramatically from above the key 1.30 level down to its lowest levels in 35 years below 1.15.  

GBPUSDDaily (6)

The Bank of England (BOE) has warned that Britain is facing its worst economic slump in possibly centuries.  BOE Policymaker and economist Gertjan Vlieghe, who sits on the central bank's interest rate setting committee, issued the ominous warning as survey data showed business activity in the United Kingdom shrank this month on the back of lockdown measures taken to combat the COVID-19 spread.  "Based on the early indicators, and based on the experience in other countries that were hit (by the virus) somewhat earlier than the UK, it seems that we are experiencing an economic contraction that is faster and deeper than anything we have seen in the past century, or possibly several centuries," said Mr Vlieghe.  He added: “The economy’s potential is severely disrupted at the moment but, once the pandemic is over, and other things equal, in principle it should return approximately to the pre-virus trajectory.”  One of the pieces of data that aligned with this prediction was the IHS Markit/CIPS Flash UK Composite Purchasing Managers’ Index (PMI) which fell to a new record low of 12.9 from 36.0 in March, which wasn’t even close to analysts’ predictions.

AUDUSD

Unlike the EURUSD and GBPUSD, the AUDUSD has moved reasonably well in April pushing up to a seven-week high above 0.65 to finish out the month.  In the last two weeks or so the AUDUSD has slowed down a little and consolidated right around 0.63, which has seen the volatility ease back to some normality.  It had moved well to rally off support at the 0.60 level and move to a one month high above 0.64, before easing recently and then rallying higher to above 0.65.  In the last month it has done well to recover and move back above 0.60 after it dramatically dropped sharply from around 0.66 down to an 18 year low near 0.55 in the space of two weeks.  As expected, the 0.60 level has been providing some much needed support allowing the AUDUSD to consolidate a bit and potentially attempt to return to previous higher levels.  The AUDUSD has now spent the last two months below the key 0.6750 level and is likely to meet resistance at this level if it is able to miraculously regain the lost ground soon.  

AUDUSDDaily (6)

Earlier in the month, the Reserve Bank of Australia (RBA) held its normal scheduled monetary policy meeting and didn’t move rates after having cut interest rates to a record low of 0.25% in an emergency move a few weeks earlier.  From that emergency meeting, the central bank will buy Australian government bonds and provide a three-year funding facility to provide cheap loans for Australian banks, as part of its first ever quantitative easing program.  "The size of the fall in economic activity would depend on the extent of the social distancing requirements, and potential lockdowns, put in place to contain the virus," minutes from that meeting say.  In the media release to its latest meeting, the central bank wrote, “There is considerable uncertainty about the near-term outlook for the Australian economy. Much will depend on the success of the efforts to contain the virus and how long the social distancing measures need to remain in place. A large economic contraction is, however, expected to be recorded in the June quarter and the unemployment rate is expected to increase to its highest level for many years.”  

US30

The US30 index has moved reasonably well during April moving to a seven-week high close to the key 25000 level.  In the last few weeks, it has been well supported by 22500.  The 24000 level has provided some resistance to the index in the last two weeks however this has now been broken through.  The 25000 level has loomed for several weeks now and is likely to offer some resistance to the index.  After having previously met resistance at 22500 which pushed the index lower on several occasions, the index has done well to move through this level and has provided some support.  Several weeks ago, it surged higher from down near 18000 back up above 20000 which only added to its recent surge in volatility.  Like many other things in financial markets, the volatility is starting to ease of late and return towards some normalcy.  

US30Daily (3)

In comments that contradict almost every other forecast regarding the speed at which countries can rebound from the devastating impact of the coronavirus, United States Treasury Secretary Steven Mnuchin believes the U.S. economy will quickly "bounce back" over the summer from COVID-19.  His comments came during an interview with Fox News suggesting that the country’s small businesses will begin to open in the next month or two and the U.S. economy will quickly rebound in July, August and September.  "This is not the financial crisis," Mnuchin told Fox News' Chris Wallace. "This is a scenario where we've closed the economy. And we are going to open the economy."   "We're very sympathetic to the people that are out of work, but there is enhanced unemployment. There's the PPP. There's direct deposits," Mnuchin said. "As businesses begin to open you're going to see (the) demand side of the economy rebound."  

Gold

After an initial surge higher to start the month, gold has traded within a narrow range for the remainder of the month consolidating a little after some wild moves back and forth.  Gold has enjoyed some support from the $1675 level after having eased a little from a seven year high near $1750.  It has used that support to return above $1700 and settle above there.  It has generally moved well in the last month or so surging higher from three-month lows around $1450 up to near $1750.  Earlier in March, gold fell sharply from seven year highs above $1700 and its volatility has increased four times during that time, and it was not alone with many markets experiencing high volatility, although this is starting to ease in the last few weeks as it has settled back above $1700.  

XAUUSDDaily (6)

Gold continues to be well supported on the expectation that more monetary and fiscal stimulus measures will be forthcoming to combat the significant economic damage from the coronavirus.  The head of the International Monetary Fund (IMF), Kristalina Georgieva recently told reporters, "It is a crisis like no other," reiterating the IMF’s assessment that the global economy is in its worst downturn since the Great Depression of the 1930s.  Ms Georgieva spoke at a news conference as the IMF and the World Bank, began its spring meetings.  She had previously said the coronavirus outbreak is resulting in an economic crisis “like no other”, which is “way worse” than the 2008 global financial crisis.  “Never in the history of the IMF have we witnessed the world economy come to a standstill,” she said at a recent news conference.  Georgieva said that this was “humanity’s darkest hour, a big threat to the whole world and it requires from us to stand tall, be united and protect the most vulnerable of our citizens,” at the World Health Organization’s headquarters in Geneva.  

UK Oil

UK Oil has continued to suffer during the month of April as it has fallen to a multi-year low below $20 as it struggles to get any support.  Gold had been well supported by $25 however it fell sharply two weeks ago through the support level at $25 and attempted to rally higher before easing again and now looking like trading even lower.  Only a few weeks ago it was trading in a narrow range roughly between $30 and $35 after rallying off the solid support at $25.  Generally, in the last month UK Oil had done well to consolidate above $25 after such significant falls in March, which saw it move from above $50 down to support at $25, however it has now dropped lower again.  During this time it found no support and included a significant gap down from $45 to $35 in early March, and despite its efforts to rally back in the day or so after the gap down, it then fell lower to around $25.  

UKOilDaily (3)

Due to the ongoing coronavirus pandemic, demand for oil has just almost disappeared, including a lack of air travel as businesses slowdown and people are simply not travelling by air, and combined with oversupply and a lack of storage, the oil price will stay low.  Many countries have instituted lockdowns and implemented travel bans to stem the spread of the virus.  In a staggering turn of events, oil futures contracts have been trading in negative territory which would require the holder of the oil paying someone to take it away, such is the lack of demand for oil currently.  As many analysts have observed, this is an unprecedented drop in demand for oil and no one has seen anything like this in the markets, and as a result, storage facilities around the world are quickly approaching capacity.  

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