Tiomarkets Daily Commentary 7 April 2020

Monday saw quite the spectacular rally in global equities, led by US stocks. The DJ closed up more than 7% as the market reacted favorably to the apparent slowdown in new virus cases both in Europe as well as New York. This would be tempered by the news that British Prime Minister Boris Johnson would not only be admitted to hospital, but would later be moved to an ICU as he struggled to fight off his own Covid-19 infection. And today China would announce no deaths for the first time since the crisis began. Would equity markets continue to rally, or would we see a retracement from yesterday highs?

Equity futures would point to a continuation of the climb higher in global stock markets. Before the US day began, DJ futures would point to a higher open by some 3%. The USD would continue to struggle as EURUSD broke back above 1.0900 and GBPUSD over 1.2350. USDCAD would fall to 1.3965 and AUDUSD, after the RBA left rates unchanged, would move above 0.6200. XAU having touched 1674 at one point, would move back to 1650 prior to the Wall Street open. Wall Street opens and equities hang on to their gains, with the DJ up almost 900 points at one stage. However it became clear the market would struggle to hold such lofty levels and by early afternoon 2 things had equities dropping sharply. First Oil drops just under 8% and then the CDC coronavirus numbers for the US catch traders by surprise. In the end the extension of yesterday’s rally was all about yesterday’s news. Today it’s a bleaker picture and traders got caught out. By the time Wall Street closes, a 900-point gain for the DJ has turned into a 26-point loss. The S&P and Nasdaq both close marginally lower. For FX the turn around in equities had mixed results. Overall the USD would reverse some of its overnight losses. EURUSD would slip back below 1.0900. AUD would drop back to 0.6170. However USDJPY would struggle to get back over 109.00 closing nearer 108.80 and USDCAD, even with Oil taking a tumble still ended the day sub 1.4000. Gold would trade either side of 1,650 but could find no direction. Make no mistake, FX is a sideshow to equities at the moment.

Trying to find a meaningful chart in the current environment remains challenging. Today I have turned focus to AUDUSD after its healthy overnight rally following the RBA statement and interest rates there remaining unchanged. As you can see AUD has bounced hard off its recent 0.5510 low, but today represents a second failed attempt above 0.6200. As the trend line converges with the resistance above 0.6200, it would be reasonable to expect a sharp move in either direction. Now some might argue that every move is a sharp move at the moment and I probably wouldn’t disagree! But it is worth keeping an eye on this formation over the next couple of sessions.