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Collinson FX: April 6, 2020 - Trump attempts to quell oil war

by Collinson FX 4 Apr 03:07 PDT 4 April 2020
Crew talk before racing - Waitangi - Mahurangi Regatta - January 2020 - Mahurangi Cruising Club © Richard Gladwell /

Collinson FX: April 6, 2020 - Trump attempts to quell oil war

Markets experienced another volatile week, losing some ground in equities, while Oil prices attempted a recovery. The global lockdown of economies, due to the spread of the coronavirus, has crashed demand for oil and Saudi Arabia and Russia have seized the opportunity. They have decided to increase production, to tank the price, in an attempted coup on higher priced oil producers. President Trump has begun negotiations to end the price war, in an effort to save US energy companies and a key US industry.

The coronavirus spread continues as Europe approaching the ‘apex’ and the US follows a couple of weeks behind. Preparations are being made for mass deaths across both continents and Australia and New Zealand will follow their timeline. This is the eye of the storm and markets now look for the light at the end of the tunnel. Markets are looking for certainty, in terms of the control and containment of the virus, so economies can begin to return to some form of normalcy.

The safe haven of the US Dollar remains valid, with the EUR falling to 1.0800, while the GBP dropped to 1.2270. Commodity currencies regained some lost ground, earlier in the week, but resumed the downward slide to close out the week. The AUD attempt to hold 0.6000, while the NZD crashed below 0.5900, seemingly vulnerable to market conditions.

This coming week will depend heavily on containment of the virus and the impact on global economies.

Collinson FX: April 3, 2020 - Oil price leap triggers equity recovery

Oil prices surged 25%, after President Trump announced a deal would be made between Saudi Arabia and Russia. President Trump announced that a deal was imminent and that the two nations had agreed to cut production by 10 to 15 million barrels! Oil prices surged and energy companies staged a massive recovery on equity markets. This was despite an enormous spike in weekly jobless claims. The number was so huge, that it exceeded most of the ‘worst expectations’, coming in at 6,650,000!

The key number was overwhelmed by the Oil news and other economic data was also ignored, as equity markets surged. The Oil spike boosted the oil dependent currencies of Norway and Canada. US Durable Goods Orders and Factory Orders were in line with expectations, allowing markets to recover some more lost ground. The USD continued to gain ground though, with the EUR falling to 1.0850, while the GBP dipped below 1.2400.

Commodity currencies were caught between a rock and a hard place. The rising reserve restrained the rebound in these currencies, with the AUD trading 0.6050, while the NZD regained 0.5900. Market conditions remain volatile and big moves are likely. The close of the week will be focused on the Employment data and Non Farm Payrolls.

Collinson FX: April 2, 2020 - Tough two weeks ahead - Trump

US equity markets gapped lower, again overnight, after President Trump warned Americans of a tough two weeks coming, in terms of the 'coronavirus' spread and victims. He warned that models pointed to at least 100,000 deaths coming in the next two to three weeks. This is a staggering number and puts the scale of the crises into perspective. The good news was that the infection rate is beginning to slow in Europe and may be peaking in the US. US economic data is still not fully reflecting the impact of the pandemic, with the ADP Private Sector job losses only registering 27,000 losses, while the ISM Manufacturing number was stronger than expected.

The US Dollar did rebound, with the EUR falling to 1.0930, while the GBP drifted to 1.2350. Commodity currencies are surrendering their recent gains, as the reality of the economic crises becomes more clear. The AUD slipped to 0.6070, while the NZD crashed below 0.5900, in overnight trade. The EU has announced a $100 Billion emergency loan fund for stricken members, while the Fed's FIMO Repo Facility supported treasuries, under extreme selling conditions.

Markets will be watching the infection and death rates in Europe and the USA, to give an indication of how long the economic shut down will continue. Central Banks stand ready to support markets further and National Governments are planning further support/stimulus packages. It is now down to the lock-down policies to monitor the effectiveness on the war on the virus.

Collinson FX: March 31, 2020 - Market rally continues

Markets continued to rally after staging a huge rebound in the previous week. This was entirely due to the massive and unprecedented fiscal and monetary support packages being introduced across the global economies. The US has lead the way with the $ 2 PLUS Trillion aid package and the allocation of a further $500 Billion to the Fed. The Fed's funding will be leverages by a ratio of 10:1, so provides a further $5 Trillion Dollars in monetary (QE) stimulus. This has been emulated across Europe and Australia and NZ, to varying degrees.

The response has triggered a rebound rally on equity markets and a move away from the safe haven of the US Dollar. The Yen has rallied back to 107.90, while the GBP spike up to 1.2400. Commodity currencies have also been major beneficiaries of the of the softer reserve, with the AUD trading back to 0.6160, while the NZD regained 0.6000. These currencies remain extremely vulnerable to another leg down in the equity markets, which would trigger further moves back to the US Dollar.

Global GDP will be savaged and thus demand for commodities, lead by Oil. The Oil market is in a state of complete disorder as the major producing nations force the price lower in a war aimed at higher cost producers. The key to the markets is the virus and control and containment. If the infection and death rate flatten out and begin to fall, in weeks rather than months, then we can expect a sharp rebound in markets and economies. Any extended global crises could deliver an extended recession.

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