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Currency Market Analysis

May 21, 2020 | Currency Market Analysis

Global Themes

The US released an important set of data this morning, beginning with Weekly Jobless Claims for the week of May 9th. They showed 2.44 Million Americans filed, meeting expectations. The Philly Fed regional activity index rose from -56 in April to -40 in May, improvement, but still very depressed. And Existing Home Sales dropped 17.8% in April, as expected. In early trade, the Dow is up 85-points, trading near its highest level since March.

EUR

The Euro has reached its highest level since May 1st, as weak dollar momentum continues. These are levels, however, that have seen the Euro top out in the past couple months so it will be interesting to see if it can continue to move higher. The preliminary Purchasing Manager’s Index for May was released this morning, and it did show improvement at 30.5 versus the April reading at 13.6, but this is still a deeply contractionary level. Forward-looking markets, however, will see the direction as improvement, and perhaps conclude that the worst maybe behind us. 

GBP

For the first time ever, UK debt trades below zero. This creates issues for the UK government to fund its debt if the Central Bank is paying a positive yield for deposits, but the government is offering a negative one. This would also put pressure on the Bank of England to go negative with its official policy, something they have so far been reluctant to do. Preliminary Purchasing Manager’s Index was also released for the UK today and it also showed improvement at 28.9 versus April’s 13.8, but it too remains in recessionary territory. 

CAD

Traders tried but failed to take out the post-Covid highs for the Canadian dollar Tuesday and Wednesday. Today, the loonie is slightly weaker but still very positive for the week on the back of higher equity and commodity prices, particularly oil. Oil prices have risen 17% so far this week. Canada reports Retail Sales for March on Friday at 8:30ET.


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