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The dollar is lower today, adding momentum to yesterday’s decline. Global optimism over small signs of success in slowing the spread of the coronavirus (Spain is in its 6^th consecutive day of declines in new coronavirus cases and Italy is in its 4^th daily decline of new cases) has been enough to entice speculators off the sidelines. Investors are leaving the safety of U.S. dollars for exposure in the full spectrum of risk assets.

The dollar has declined against all of its G10 counterparts, the biggest drops coming against the currencies with exposure to China trade and oil prices.

MXN: +2.63% - the peso has strengthened by 6.74% compared to yesterday’s high, now tracking 23.6500

NOK: +2.60% - trading at its highest level since mid-March

AUD: +1.94% - trading just below 0.6200 resistance, a level last tested a week ago

SEK: +1.71%

NZD: +1.26% - support at 0.5850, resistance at 0.6050

GBP: +1.18% - support at 1.2200, resistance 1.2475

EUR: +1.12%

DKK: +1.12%

CAD: +0.97% - testing support at 1.3975 last traded March 27^th

CHF: +0.83%

JPY: +0.22%

FX volatilities are at the lowest level in a week. AUDUSD is leading the way with a vol decline of 1.86 week-to-date. USDJPY, GBPUSD, and USDRUB also have vol declines of over 1 point.

Global equities are higher, building on yesterday’s gains. Asia’s major equity indices closed up an average of 2.00% and European equities are higher by over 3.00%. Oil prices are higher by 1.42% and the energy sector higher across all products.

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The U.S. dollar index is about unchanged today in narrow ranges, currently trading at 100.68 compared to Friday’s 100.78 close. However, the dollar is lower when paired against the non-dollar-index currencies, with most weakness concentrated in the risk and commodity currencies. FX volumes are lighter than normal ahead of the upcoming Easter holiday weekend.

The AUD has gained 1.58% and has encountered resistance at 0.6100. Recent ranges have identified support at 0.5975 and significant resistance at 0.6175.

The NOK has gained 1.21% and the NZD has gained 1.14%.

The GBP, EUR, CHF, and DKK are about unchanged compared to Friday.

The dollar’s primary gain is against the JPY at +0.45%.

Equities in the U.S. are higher today, following up on gains in the Asian and European trading sessions. Declines in the rate of new coronavirus cases and a lower fatality rate are driving market optimism today.

This week’s economic calendar has some key releases including tomorrow’s MBA Mortgage Applications, and PPI and Initial Jobless Claims on Thursday. The employment data will be the key focus for the week as new claims are estimated at 5 million. The two previous jobless claims reports were about double the estimates. On CNBC today former Fed Chair Janet Yellen estimated that the U.S. Jobless rate is up to 12%-13% and rising. The unemployment rate for March was released last Friday at 4.4%, up from February’s 3.5%. The unemployment rate is a lagging indicator so sharp upward adjustments are likely on the horizon.

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Nonfarm Payroll figures released today for March were reported at -701K vs. the -100K estimate. The major decline was seen in the leisure and hospitality sector with a decline of 459K, and significant declines in health care and social assistance, professional and business services, retail trade, and construction. The unemployment rate increased to 4.4%, an increase of 0.9%, the largest monthly increase since January 1975. And the Labor Force Participation Rate decreased by 0.7% to 62.7%.

The dollar is back in favor as the safety asset-of-choice with overnight gains against the full list of major currency pairings. The widest dollar gains are vs. the ZAR at +1.76%, MXN +1.57%, GBP +0.93%, AUD +0.78%, NZD +0.76%.

USD/MXN: support 23.2500, resistance at 25.3000.

USD/CAD: support 1.3950, resistance 1.4300 and higher at 1.4500.

AUD/USD: support 0.5725 and higher at 0.5975, resistance at 0.6175.

USD/JPY: support at 107.30, resistance at 109.60.

U.S equities are only marginally lower in early trading, not reflecting the disappointing result in today’s jobs data as one might expect. And the equity volatility index (VIX) has dropped below 50 to 48.41, the lowest level since the March 10 close at 47.30.

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Weekly Jobless Claims for the week ending March 28 were reported today at 6,648,000. This is an increase of 3,341,000 from the previous week and is the highest level of seasonally adjusted claims in history.

California led the decline with 878K new claims, followed by Pennsylvania with 405K, New York with 366K, Michigan with 311,086, Texas with 275K, Ohio with 272K, Florida with 227K, and New Jersey with 205K. The spike in new claims are due to the coronavirus outbreak, and primarily impacting transportation, accommodation and food services, and retail trade.

The dollar is mixed today with a spike in volatility following the release of the Jobs data. The dollar has gained 0.94% vs. the EUR, +0.71% vs. the CHF, and +0.58% vs. the JPY.

The dollar’s declines are against the commodity currencies: -0.68% against the MXN, -0.40% vs. the CAD, and -0.93% vs. the RUB. Energy markets reacted strongly to a Tweet from President Trump stating that the Saudis and Russia had agreed to a cut in oil production. Crude oil prices are currently higher by 23% after being +40% earlier. The Saudis have since responded that an agreement had not been reached, but that they had called for an OPEC+ meeting ‘seeking a fair agreement’.

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The dollar is stronger today as market sentiment shifts again to safe risk assets after last week’s stimulus-fueled relief rally.

MXN is leading the decline vs. the dollar at -4.82% on reduced risk appetite for exposure to emerging markets (MXN is the primary proxy for emerging market exposure), and on weaker oil prices which have declined another 8% today. The peso had strengthened over the last four days trading from a high of 25.3500 to Friday’s close at 23.2600, gain of 8.24%.

The CAD is also showing its susceptibility to lower oil. Like the MXN the CAD had strengthened over the previous four sessions but has given back about half of those gains today, currently weaker by 1.36%. USD/CAD support is seen at 1.3650 and resistance at 1.4340.

Weaker oil is also driving the Scandinavian currencies lower against the dollar: SEK -2.06%, NOK -1.36%, and DKK -0.94%.

AUD/USD has had a quiet day, trading in narrow ranges and about unchanged from Friday’s close. Resistance is seen at 0.6305.

Crude oil prices appeared to have bottomed out after hovering near $27.50/bbl for over a week. Friday’s close below $25/bbl signaled more weakness ahead, trading at $20.03 currently.

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The Senate finally passed the much anticipated $2T stimulus bill late yesterday. Markets had been expecting passage of the bill as early as Tuesday morning after Senator Schumer indicated negotiations (between Republicans and Democrats) were ‘on the two-yard line’. Global markets moved higher in the meantime, with the DOW Jones Industrial Index posting a 14.03% gain Tues-Weds. The bill now moves to the House for approval and then to President Trump’s desk.

Passage of the stimulus bill has encouraged interest in risk assets and a move away from the safety of the dollar. The U.S. Dollar Index has declined 0.89% today and is down 2.87% since the 102.95 close on March 19^th.

The dollar has sustained losses against the full list of major currencies over the last week, most notably vs. the NOK at -7.31%. Other key gains against the dollar are AUD +5.00%, GBP +4.59%, SEK +3.76%, NZD +3.41%, CAD +3.04%, and MXN +1.08%.

AUD/USD: resistance at 0.6075, support at 0.5850.

USD/MXN: resistance at 25.4000, support at 22.9000.

USD/CAD: resistance at 1.4525, support at 1.4000.

USD/JPY: resistance at 111.75, support at 108.15, and lower at 106.05.

Weekly Jobless Claims were released today at a record 3,283,000, nearly double the Bloomberg estimate of +1,700,000. The previous week was +281,000.

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Markets are higher today and the headlines are generally touting it as a ‘relief rally’. Of the 17 trading days in March (for the S&P500 Index), ten have been declines and seven gains. The daily gains have averaged 5.16% and each gain has been answered with a loss the next day with an average decline of 5.43%. The S&P500 is currently +7.45% for the day, a nice gain for sure, but not a sign of a market bottom yet.

The dollar is lower today against the major currencies in conjunction with the market’s greater appetite for risk. The NOK is leading the way higher at +4.02% (adding to yesterday’s 1.07% gain) as the energy sector rebounds, with crude oil +0.98% and gasoline +25.62%, recouping some of the 73% decline in gasoline futures during the March 6-March23 period.

Other gains are SEK +2.07%, GBP +2.05%, AUD +1.61%, and NZD +1.29%

AUD/USD: the Aussie dollar is higher for the third consecutive day after touching a 17-year low of 0.5510 on March 19^th. Near term support is now at 0.5500 and resistance at 0.6000.

USD/MXN: currently the peso is marginally stronger vs. the dollar compared to yesterday’s close, but still trading above 25.0000. The dollar marked a new all-time high vs. the peso at 25.4718 in early trading today.

Market strength today is tied to the Fed’s direct actions to facilitate liquidity, and to a lesser extent on the politicized relief package being negotiated in Congress. An agreement has been promised today, and hopefully will be a significant boost to individuals impacted most by the economic impact of the coronavirus.

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The current environment of market volatility began on March 9^th, only two weeks ago from today. If it seems like much longer than that, you are probably not alone. The breadth and depth of the financial meltdown is matched only by the speed with which it has developed.

Below is a list of the currency pairs (vs. the USD) which have experienced the widest volatility swings and the volatility (implied 3-month ATM) increase since March 9^th.

 Spot prices vs. the USD have fluctuated in tandem with the increase in volatility over the same period: NOK -25.35%, MXN -23.84%, AUD -12.51%, GBP -11.01%, EUR -5.51%, JPY -5.19%, CAD -8.00%, CHF -4.61%.

In trading today, the Mexican peso has declined 2.27% against the dollar to trade above 25.0000 for the first time.

The dollar has also gained against the CAD +0.88%, and GBP +0.31%, is unchanged vs. the JPY, and declined vs the NOK -1.95%, SEK -1.52%, and DKK -1.12%.

Markets are keying on signals from congressional leaders and the Fed on bailout and stimulus measures to offset the economic impact of millions of Americans under stay-at-home orders.

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Where’s the haven? As all asset classes continue to sell off one begins to wonder where the cash is going. The U.S. dollar has surfaced as the haven of choice with the dollar index gaining 7.15% since the March 9 low of 94.895, currently trading at 101.678.

Today’s majors vs. the USD: NOK -4.53%, MXN -2.68%, JPY -1.61%, EUR -1.58%, DKK -1.48%, SEK -1.47%, NZD -1.45%, CHF -1.28%, AUD -0.99%, CAD -0.59%, and GBP -0.41%.

Forex shifts MTD reveal the breakdown of global currencies in favor of the USD: MXN -20.28%, NOK -19.37%, AUD -12.53%, NZD -9.62%, GBP -9.20%, SEK -8.82%, CAD -8.69%, EUR -3.58%, DKK -3.58%. And the traditional safe-haven CHF -2.24% and JPY -1.39%. With a volatility environment like this the traditional methods of risk evaluation and model pricing simply break down. The percentage moves seen during March would normally represent estimated volatility for an entire year.

Equity markets are showing similar declines MTD with the DOW -21.69%, S&P500 -18.82%, NASDAQ -18.41%, and the full list of major global indices with similar losses. Commodities show similar results with crude oil -63.84% YTD, copper -23.15%, gold -2.57%, and silver -32.85%.

Quantitative trading models are generally not developed (trained) to function in such a volatile trading environment. Quantitative traders have an obsession with mean-reversion strategies, i.e. the assumption that markets typically trade back to the ‘average’. Well, not this time folks. The best, the brightest, who up until this month have grown accustomed to low volatility and equity markets that do nothing but rise, are now facing oblivion. It is a case study in Gambler’s Ruin. The question now is whether the markets have completely capitulated. We have seen enormous declines but has everyone bailed out of their positions yet? We should know soon.