European FX Update – 20 March 2020

Interventions and the threat of interventions has seen the dollar soften while commodity and many developing world currencies have rebounded strongly following a period of pronounced underperformance. Also in the mix is the plethora of central bank actions to shore up liquidity and loosen monetary policy, along with the massive fiscal rescue packages being assembled by governments across the world, which have given markets opportunity to settle from coronavirus anxiety. Russia and Brazil have intervened in forex markets over the last day, buying their domestic currencies and selling dollars. The Russian ruble crashed by over 34% from early January levels before the Russian central bank stepped in yesterday. The Norwegian central bank also threatened to intervene yesterday following a similar 30%-odd dive the crown. South Africa and Australia have also signalled readiness to intervene to support their currencies. For many countries with borrowings in dollars, the massive depreciation in their domestic currencies, and strength in the dollar, has been increasingly threatening at a time when most emerging market and developed-world economies are either headed to or are already in recession. There is rising odds for coordinated action to blunt dollar strength. Demand of cash dollars has been intense in recent weeks due to the funds need to cover losses and meet fund redemptions.

Among the main currencies today, the narrow trade-weighted dollar index (DXY) has declined by 1.3%, to 101.50. The index peaked at a 38-month high yesterday at 102.99. EURUSD has concomitantly lifted by over 1% to levels above 1.0800. Cable rallied by nearly 3% to levels back above 1.1800, up from yesterday’s 35-year at 1.1451. USDJPY dropped back to the lower 109.00s from levels above 111.0, though the yen still weakened against many other currencies.

Biggest (FX) Mover @ (09:30 GMT) AUDUSD (+3.48%) – Rallied from 0.5680 at open, over 0.5800 & 0.5900. The MA’s aligned higher, RSI (67) positive, MACD histogram & signal line rising and breached 0, Stochastics moving higher but not yet into OB zone. – H1 ATR 0.0063, Daily ATR 0.0205.

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Stuart Cowell

Head Market Analyst

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