Dollar Extends Yesterday’s Rally; Risk Lower Again

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Dollar Extends Yesterday’s Rally; Risk Lower Again

OCTOBER 29, 2020

The U.S. dollar looks to build on yesterday’s impressive rally.  The U.S. Dollar Index rose 0.2%, with notable gains versus the Euro and Norwegian krone. 

Overview

U.S. equity futures were slightly higher earlier this morning but have quickly shifted back into the red.  Major indices dove 3.5% yesterday as traders took risk off the board before the election and coronavirus cases surged across the States and the globe.

There is a slew of data out this morning that could cause volatility.  Weekly and continuing jobless claims are expected to show minor improvement over previous weeks but remain at historically terrible levels.  The first look at 3rd quarter GDP is expected to show a record-breaking 30% annualized growth in the quarter.  While the headline will be impressive, it will be taken with a grain of salt considering the growth comes after a record contraction in the second quarter.  Regardless of the specific number this morning, the American economy remains well behind where it was at the end of 2019, before the pandemic.

The data will then take a backseat to earnings season.  Tech giants Alphabet, Facebook, Apple, and Amazon will all release earnings later today which could have a big effect on American equity markets.

What to Watch Today…

  • US GDP, ECB decision, tech earnings

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EUR  

The Euro is down for a fourth straight day, the longest string of losses in a month. The downward pressure comes as European stocks slightly recovered today after a dramatic sell-off yesterday. Both Germany and France announced new lockdown measures to try to slow the spread of the coronavirus. Spain and Italy are also expected to enact new restrictions soon.

The biggest news of the day will be the European Central Bank decision. The bank is expected to hold the current policy in place, but recent developments make a surprise announcement not out of the question. At 9:30 Eastern, ECB chief Christine Lagarde will hold a press conference, and analysts will be focusing on her tone as most, including Tempus, expect the central bank to increase stimulus in December.

The ECB still as bullets in the chamber and we expect them to fire at least one later this year as cases continue to rise and lockdowns slow the economy.

JPY  

The Japanese yen see-sawed between gains and losses overnight and opens this morning mostly unchanged against its American counterpart.  The safe-haven currency has gained steadily over the summer months and into the fall even as global equities surged.  The currency’s strength now appears to be justified as the global risk rally beings to unwind.

The Bank of Japan surprised nobody as they kept their interest rate at record low and bond purchases unchanged.  BoJ Governor Kuroda reaffirmed his willingness to act if needed amid heightened uncertainty over the resurgence of the pandemic.  But he also said that he still doesn’t see a pressing need to extend or change existing virus-response matters.  The comments were taken as slightly less dovish, boosting the yen a touch.

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