If the first day of April is a taste of what's to come, it will be a very rocky second quarter. After falling more than 24% between January and March, the Dow Jones Industrial Average plunged opened down more than -700 points. Currencies have been taking their lead from equities, so it was no surprise to see euro, the Canadian, Australian and New Zealand dollars fall another 1% against the greenback. The strongest currencies continue to be the US dollar and Japanese Yen – which absorbed all of the gains in the first quarter.

However the supremacy of the greenback will come into question in the weeks ahead. Investors have been buying dollars on the premise that the rest of the world will be stuck in recessionary conditions longer than the US because there can't be a global recovery without a US recovery. While that may be true, we've seen data turn south for many countries weeks ago. In the US, we're only beginning to see the COVID-19 impact on national data and in some cases, the numbers are still dated. Take this morning's ADP report for example, economists were looking for private payrolls to fall by -150K but to everyone's surprise, only -27K jobs were shed. The only explanation is that the data ran to March 12th and states like New York did not close schools until Monday March 16th and issue a stay at home order until March 20th. It may feel like eternity for many families but economic activity in US ground to a halt no more than 2 weeks ago. The manufacturing ISM number was also better than expected, falling to only 49.1 from 50.1 versus a forecast of 44.5. FX traders understand this delay which explains why USD/JPY shrugged off this good number.

As we look ahead to Friday's non-farm payrolls report, the data also runs to March 12th which explains why economists only see a -100K drop. Could it be worse? Yes and if its strong investors will take it with a grain of salt like they did ADP this morning. In many ways tomorrow's jobless claims report will be more telling and more market moving. The current forecast is 3.5 million which sounds about right but the underlying numbers are probably much worse. According to NY State Labor Department, between March 23rd and March 28th, the agency received more than 8.2 million calls compared to just 50,000 in a typical week. Of course many of those calls are redundant but with just one state receiving that many requests, we can only imagine how many claims are being requested and filed nationally. Thursday could be a bruising day for the dollar.

Another reason why investors sold stocks and USD/JPY was because of the grim news out of the White House. Social distancing rules will be extended to April 30th, which delays the return to normal business activity. President Trump also warned of 100,000 to 240,000 deaths as the White House denied that a Phase 4 stimulus package is in the works. Instead, the government wants to focus on executing the $2 trillion plan passed last week.

With the exception of the Japanese Yen, all of the major currencies are lower against the greenback. We've been looking for EUR/USD to decline for some time and it finally dropped below 1.10. Despite an unexpectedly strong increase in German retail sales, Eurozone PMIs were revised lower. UK PMI was also revised lower. Although manufacturing activity increased in March according to Australia's PMI report, the RBA minutes were very dovish. According to the central bank a very material contraction is expected in Australia with significant job losses over the months ahead. The Australian dollar sold off aggressively in response but know for now, RBA members had "no appetite for negative interest rates."

We continue to look for more risk aversion the rest of the week which will be bearish for USD/JPY. With the focus on US data this week, a disappointing jobless claims or non-farm payrolls report could also send the dollar reeling against other currencies.

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