Virus scare keeping dollar and markets down

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Virus scare keeping dollar and markets down

FEBRUARY 25, 2020

The U.S. Dollar is trading mostly in familiar ranges among most majors with the Japanese Yen continuing to experience gains as global markets feel crushed over coronavirus fears.

Overview

Indeed, stock indices were all deep in red territory as the spread of the disease hit most continents, but more dramatically in Italy, where the weekend turned into a disaster from one reported case to now over 215 with several deaths.

The physical reality of this threat is consuming more than financial analysis and it is clear that 2020’s performance overall is already negatively impacted in a major way with companies such as United Airlines foregoing all revenue forecasts.  It is difficult to get much guidance FX-wise as we digest some of the panics.

We shall see if the Fed looks at this as a time where cutting rates is needed. There is now a 50.0% chance that the Fed will cut interest rates by June. Easing measures are already flooding the financial system, but more may be needed in order to propel a comeback during the second half of this year.

What to Watch Today…

  • Consumer Confidence 10 AM

Complete Economic Calendar can be found here.

EUR

The Euro held on to its advance from yesterday and the European stock markets continue to sink. There was hope at the opening of the trading session that European shares would return, but this was short-lived even as news is coming out of a potential vaccine and way to prevent spread. In terms of data, German Gross Domestic Product growth is indeed deteriorating or non-existent as confirmed by the 0.0% pace in Q4.

Manufacturing, as well as Business Confidence, are up in France, a good sign following labor strikes and protests, but Spain’s Industrial Production has contracted now for three consecutive months. Add that to the pile of concerns over trade in multiple fronts and you get a blurry vision of where things are headed for the bloc and continent. The potential for losses if Italy’s situation develops in other countries of the region is big and worrisome in an already ailing economy.

MXN

The Peso has fluctuated wildly affected by the big hits to commodities and the possibility of contagion in the country. Much like other petro-currencies, the Peso will also be hurt long-term by the likelihood of dwindling demand for oil in the next quarters as predicted by the International Energy Agency.

Battery-powered vehicles, a push towards clean and efficient energy systems, as well as the use of natural gas to power vehicles in Latin America are eating into the market for petroleum. We shall see if MXN is on its way to short-term re-strengthening after its value increased by 1.1% overnight.

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