OFX Currency Review

Markets will never stop to surprise us, that is why most people say markets are unpredictable, which is true until certain point. And believe me, nobody really knows where the equity market, the Euro, or the US dollar will move next (Not even the Fed, RBA or BoC); as usual, too many pieces moving at the same time.

A few hours ago, the Federal Reserve slashed interest rates by half a percentage point in the first such emergency move since the 2008 financial crisis amid mounting concern that the coronavirus outbreak will slow or stall record U.S. economic expansion. Fed Chairman Jerome Powell said: “My colleagues and I took this action to help the U.S. economy keep strong in the face of new risks to the economic outlook,” Powell also told a hastily convened press conference in Washington on Tuesday, “The spread of the coronavirus has brought new challenges and risks.” But, IMHO It is not looking good for Jay Powell, Powell succumbed to presidential pressure, it is like calling a plumber to fix your car. Just see the equity market, the Yen and the Euro’s reaction today.

A few days ago, G7 finance ministers and the central bank governors said that they are committed to using, “all appropriate policy tools," to support economic growth, which basically means holding the equity market high and holding “positive” savings in your RRSP or IRA. The RBA in Australia cut rates from 0.75% to 0.50% last night. The BoC in Canada will likely do the same tomorrow at 10:00 am EST.  Just to give you an idea of the seriousness of the situation, the "world interest rate probability" at my Bloomberg station shows a likely cut of 100 basis points by October 28th in Canada. As a simple rule, the lower the short-term interest rate in a country, the weaker the currency (mostly expectations). But G7 central banks are in a race to slash interest rates around the world, which is why currencies are going nuts. For instance, the Euro stronger because it already has negative interest rates, and it is a funding currency (it wants to be a safe haven, just like the Yen :S ). Technical analysis levels shows overbought levels in Euro crosses though; I prefer to hold the Japanese Yen as a haven based on the technical charts and despite receiving negative yields to hold Yens.

Some observations that you can include in your pitch to your clients (as of last Friday, Feb 28th ) :

1. AUD/USD closed at 0.6516 last Friday, which was the lowest level since March 2009 (an eleven-year low).

2. NZD/USD closed at 0.6246 last Friday, a five-and-a half-year low (the lowest level since August 2015).

3. USD/CHF closed at 0.9649 last Friday, but it traded at an intraday low of 0.9610, which was a two-year and five-month low (the lowest level since September 2018).

4. USD/CAD closed at 1.3407 last Friday, which was around the nine-month high reached in June 2019. On Friday, it also reached an intraday high of 1.3465, which was the highest level since June 3, 2019.

5. USD/MXN closed at 19.6437 last Friday. It reached an intraday high of 19.894, which was the highest level since September 4th, 2019, a six-month high.

6. USD/JPY closed at 107.89 last Friday, but it traded at an intraday low of 107.51, which was a four and a half-month low (the lowest level since October 10th, 2019).

7. GBP/USD closed at 1.2823 last Friday, but it traded at an intraday low of 1.2726, which was a four and a half-month low (the lowest level since October 16th, 2019).

8. Regarding the Euro versus the USD, it had its strongest advance since 2017 over the last week, but it did not reach any important high or low.

However, remember that the price will always move faster than our ability to make decisions following fundamental analysis and news; so the last FX changes from last Friday, Feb 28th until the time of this writing, are the following; and it shows the most important moves versus the US dollar (Note that the BBG USD index represents the US dollar versus a basket of currencies):