Forex news from the European morning session - 18 March 2020
Headlines:
- China president Xi: Global virus outbreak poses new threat to Chinese economy
- The Fed must reduce the long-term damage from the virus - Yellen, Bernanke op-ed
- Funding market stress still evident as banks take up huge dollar amounts in auctions today
- Japan to ban visitors from Italy and Spain from 19 March onwards
- Germany to allow banks to tap capital buffer amid fallout from virus outbreak
- BMW to shut down plants in Europe, South Africa
- ECB's Holzmann: Monetary toolbox is 'well equipped'
- ECB's de Guindos: Effects from coronavirus could last for weeks or months
- ECB says that it stands ready to adjust all of its instruments as appropriate
- France plans to hand out €1,500 to small independent workers
- ECB's Holzmann: Monetary policy has reached its limits
- BOJ's Kuroda: Will ease policy further without hesitation if economy worsens
- Heads up: RBA monetary policy announcement scheduled for tomorrow
- RBNZ's Orr: Kiwi dollar is on the good side of stimulatory
Markets:
- JPY leads, GBP, AUD lag on the day
- European equities lower; E-minis limit-down
- US 10-year yields up 2 bps to 1.10%
- Gold down 1.5% to $1,505
- WTI down 6% to $25.30
- Bitcoin down 6% to $5,135
It is groundhog day - well, sort of - as dollar funding pressures crop up and underpin the greenback while risk continues to sour as investors opt to sell everything once again.
The dollar was on the back foot to start European trading but it didn't take long before it surged ahead with solid gains across the board, sending cable down from 1.2100 to its lowest levels since the post-Brexit referendum in 2016 - hitting a low of 1.1872.
Meanwhile, AUD/USD continued its run lower under 0.6000 to 0.5911 while EUR/USD eased to a low of 1.0956 from 1.1030. There was some relief as the ECB and SNB auctions saw a big take-up in dollar demand but still, the greenback remains underpinned.
Despite pledges from governments to tackle the economic fallout and promises of massive-scale stimulus packages, equities sank back lower with US futures even hitting limit-down before European traders had a chance to sip their morning coffee.
European equities plunged lower since the open and that is helping to keep the likes of the yen and franc bid in the session today as well.
There was no shelter in the market as bonds also experienced yet another rout as Italian yields shot up dramatically while Treasury yields also jumped higher on the session, before easing back lower amid reports and rumours that the Bank of Italy is intervening.
Gold is also beaten down on the day while oil is continuing to wave the white flag as it falls towards the $25 level now.
There are no easy answers for the move in bonds as it could be investors reacting to the massive deficit pledges or perhaps this is all still part of the liquidation trade i.e. sell everything. Or maybe it is the bond market expecting things to get better.
But whatever the case is, funding strains are still evident and the cash and dollar remain very much in favour. The fear is that if central banks can't address this issue, a credit crunch may be coming next and the market will not like the prospect of that.
