US equity markets fell another 1.75% yesterday after Tuesday’s 2% fall as worries about a second wave of the coronavirus persist and Fed Chair Powell offered a pragmatic assessment of the economic consequences and continued his scepticism towards a negative interest rate policy. Today this has followed through with Asian and European stock markets weaker; the Nikkei225 (JPY225) closed down 1.74% earlier at 19,914. In Europe stock markets are also selling off, with the GER30 (DAX) down -1.7% and the FTSE 100 (UK100) down -2.1%. Bond markets meanwhile have extended yesterday’s gains, although both Bunds and Gilts are underperforming versus Treasuries, as Eurozone spreads narrow again with Greek bonds outperforming this morning, likely also thanks to the ECB’s bond buying program, which is likely to be extended as central banks remain on high alert and focused on the devastating impact of lockdown measures on economies. 10-year yields are down -0.4 bp in Germany and the UK, while Treasury yields have dropped -3.4 bp to 0.619%.
In the FX markets the USD and YEN are in demand with pressure on GBP, EUR and AUD with EURUSD edging out a two-day low at 1.0788, driven by dollar firmness amid a bout of risk-off positioning in global markets. The pair is trading to the south of the halfway mark of the volatile range that was seen during the height of the global market panic in March, which was marked by 1.0637 on the downside and 1.1494 on the upside. Expectations are for EURUSD to lack sustained directional bias for now, though the somewhat frayed politics of the eurozone tips the balance toward downside risk. There is little divergence in central bank policy currently, with both the ECB and the Fed pursuing aggressive easing policies, and both Europe and the US facing significant economic headwinds from virus-containing lockdown measures. Europe and the US are now in the early stages of economic reopening strategies, which is being accompanied by concerns that this might spark a second wave of coronavirus infections.
The biggest mover, so far today, remains the risk sensitive AUDJPY, currently down some 0.36% and recovering from a 0.50% decline earlier. The pair remain rangebound on the Daily time-frame from mid April between the 61.8 Fibonacci level and psychological 70.00 and the 50.0 Fibonacci level at 68.00. The 50-day moving average resides at 68.80, the RSI is neutral at 51 and MACD is also neutral although the signal line remains over the 0 line from April 24. The MFI oscillator is declining out of the overbought zone from May 1.
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