None of FX majors able to claim safe haven status

Yesterday, unprecedent actions of the Fed (and other CBs) during the weekend/yesterday morning didn’t change the global trading in any profound way and this also applied to FX trading. Smaller, less liquid currencies mostly remained under heavy pressure. The dollar initially lost modest ground against the yen and the euro after the Fed policy decision. However, after the ‘initial’ repositioning, there was no clear directional trend. Trading in the likes of EUR/USD and USD/JPY remains kind of erratic in nature. None of those major currencies was able to indisputably take up the role of safe haven. USD/JPY closed at 105.83 (107.29 at the open). EUR/USD finished at 1.1183 (open at 1.1067).

Overnight, trading in Asian equity markets remains volatile, but the performance is not too bad, compared to the sell-off on WS yesterday evening. Investors are pondering multiple fiscal actions from governments (admittedly mostly still on a standalone basis) to mitigate the economic impact of the corona crisis. New Zealand is taking bold action (4% of GDP) but for now it doesn’t inspire the kiwi dollar much. The Chinese yuan is holding stable near USD/CNY 7.00. USD/JPY hovers in the mid 106 area, with no clear directional bias, even as the sell-off of risky assets slows. EUR/USD is holding a tight range in the 1.1170 area.

German ZEW confidence and US retail sales usually are potential market movers, but in the current environment they probably won’t bring any meaningful/reliable info on the future market or economic impact of the virus. Credible fiscal measures probably are key to put some floor for the current market sell-off. The FX market is also looking for a new reaction function. Among the major countries, no one currently delivered such a more credible solution. In this context, more technical trading among the majors (EUR/USD, USD/JPY) might be on the cards. If the sell-off of risky assets slows, hard hit smaller currencies with good fundamentals might stage ST technical rebounds. For EUR/USD, we assume more range trading in the 1.1050/1.1250 range. We are a bit more cautious on sustained USD gains.

Yesterday, the risk-off repositioning kept sterling under pressure. The UK apparently also lags other countries in taking decisive measures to contain the virus. It is unclear how much this weighs on sterling but it doesn’t help (risk of prolonged impact & bigger backlash). North of 0.91, EUR/GBP is moving into overbought territory, but for now we see little reason to expect a sustained sterling comeback.

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