Forex news from the European morning session - 25 March 2020
Headlines:
- EU leaders said to endorse ESM credit line proposal
- US MBA mortgage applications w.e. 20 March -29.4% vs -8.4% prior
- S&P 500 futures pare all of its earlier gains
- European equities start to see gains erode on the session
- Japan mulls cash handouts to households in latest stimulus package - report
- Germany March final Ifo business climate index 86.1 vs 87.7 prelim
- UK parliament expected to be suspended after midnight today
- Mitch McConnell: At last, we have a deal
- US stimulus agreement has approximately $50 billion for airlines - sources
- White House, Democrats reach bipartisan agreement on virus stimulus plan
- PBOC in talks to cut bank deposit rate to savers - report
- RBA purchases A$900 million of state government notes
Markets:
- GBP leads, USD lags on the day
- European equities mostly lower; E-minis down 1.1%
- US 10-year yields down 2 bps to 0.83%
- Gold down 1.1% to $1,615
- WTI down 1.4% to $23.67
- Bitcoin down 3.3% to $6,525
The US Congress reached a bipartisan agreement on a stimulus plan - more than $2 trillion - to battle against the economic fallout from the coronavirus outbreak.
Senate Republicans and Democrats agreed to a deal, with the text set to come later in the US morning before a vote on the Senate floor likely to take place later in the day.
That saw risk trades rally on the news initially and into the European open but the exuberance began to fade mid-way through the European morning session.
US futures were down by ~2% prior to the deal before seeing a bit of a whipsaw and then surging to post over 2% gains to start the session. But that all quickly crumbled as equities gave up gains over the past two hours with futures falling by over 1%.
European stocks were not spared as the DAX erased over 3% gains to fall by over 2% briefly, while the Stoxx 600 index also saw gains of nearly 5% earlier all go down the drain.
Despite that, the movement in the currencies space was rather mild in reaction to the shift in the risk mood. AUD/USD climbed above 0.6000 to a high of 0.6074 after the US stimulus deal but has only eased to 0.6010-20 levels currently.
Meanwhile, cable is still holding on to gains in a move from 1.1830 to 1.1973 before settling closer to the 1.1900 handle ahead of North American trading.
USD/JPY touched a high of 111.57 before backing off towards 111.10-20 as the risk mood sours but EUR/USD is little fazed and traded around 1.0800-40 for the most part.
It is all about the risk mood as we look towards the session ahead with the market not really sure what to make do of the Congress deal after a historic rally already yesterday.
The thing to note about record rallies like yesterday is that they tend to happen during depressed circumstances - like in 2008 and 1987 - and that they never really marked the bottom of the market decline.
Sure, there is scope for risk to bounce and retrace over the next few days, but now that we have seen a Congressional deal, the focus will quickly turn to "is this enough to deal with the ongoing and intensifying economic fallout globally?".
I think we all know the answer to that as the global lockdown continues to extend.
