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The dollar is mixed in overnight trading. The Mexican peso has added 0.35% to its monthly advance against the dollar and is the best performing currency vs. the dollar during May with a gain of 10.44%.

Today’s performance vs. the USD:

SEK up 0.43%

MXN up 0.35%

NZD up 0.21%

DKK up 0.11%

SGD up 0.15%

NOK up 0.07%

GBP up 0.05%

AUD unchanged

JPY down 0.08%

CHF down 0.11%

CAD down 0.12%

ZAR down 0.15%

KRW down 0.42%

BRL down 0.94%

The best performing currencies since the coronavirus-fueled peak of dollar strength in mid-March:

NOK up 18.84%

AUD up 14.57%

MXN up 9.92%

NZD up 8.74%

SEK up 8.53% 

Today’s Economic Releases

·        Weekly Initial Jobless Claims through May 23^rd were reported today at 2,123,000, higher than the 2,100,000 estimate.

·        Quarterly GDP (annualized) was reported down 5.0% vs. a -4.8% estimate.

·        Durable Goods Orders for April were reported down 17.2%, better than the -19.0% estimate.

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Markets are flush with renewed optimism today, sending the dollar lower against the major & developing currencies and pressuring the U.S. Dollar Index, which is currently down by 0.73%.

The Mexican peso is again a standout performer, up by 1.52% against the dollar today. The peso is in its 7^th consecutive day of gains vs. the dollar and has advanced in 9/10 of the last trading periods. The peso’s gains have been orderly, breaking through several clear levels of support at 23.5000, 23.2500, and 22.9000. Next up for the USD/MXN is a likely test of support at 22.0000 and a possible move down to 21.5000. On a side note, it’s good to have markets adhering to technical levels again after the unparalleled volatility seen at the height of the coronavirus crisis.

Today’s gains vs. the dollar:

MXN and NZD up 1.52%

ZAR up 1.47%

AUD up 1.44%

NOK up 1.34%

GBP up 1.25%

CAD up 1.12%

BRL up 1.10%

Today’s appetite for risk is seen across most markets… currencies, equities, energy, treasuries. The slow trickle of businesses reopening is gaining momentum as lockdown restrictions are pared back and the latest c-virus vaccine hope makes the rounds. There are no hard numbers yet to quantify reopenings, but just talk of the NBA season resuming play is surely enough to spur some amount of optimism :).

Equities are higher today as the major equity indices continue their steady advance back to pre-coronavirus levels. The Dow Industrial Index and S&P500 have retraced 61% of their crisis declines, and the Nasdaq has nearly regained 100% of its recent crisis decline and is closing in on an all-time high.

The recovery in equities is due in no small part to the Fed’s program of bond buying. The Fed’s recent round of government and corporate bond purchases are inflating bond prices (lowering yields) and driving billions of risk-hungry dollars into equities. But equity markets are not the economy and the recovery won't be complete until the tens of millions recently unemployed are back to work.

New Home Sales data released today surprised at +0.6% vs. the -23.4% estimate.

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The dollar is higher today on yesterday’s announcement that China plans to bypass Hong Kong’s own legislature and enact new ‘national security’ legislation in Hong Kong. The new law, created to subdue unrest caused by pro-democracy protests as seen late last year, has been condemned by U.S. officials. Fresh friction between the U.S. and China has the potential to reignite the simmering trade war between the two countries and is weighing on risk sentiment today.

The U.S. Dollar Index is up 0.45% at 99.813. The widest declines vs. the dollar: BRL down 0.87%, NOK down 0.80%, and AUD down 0.75%.

The AUD/USD briefly traded above resistance at 0.6575 but met resistance above 0.6600, a congestion zone from early March. Support is seen at 0.6475 and lower at 0.6400.

USD/MXN: the peso is making a move, following through on its break below 23.9700 trendline support on May 8^th. The pair traded to a low of 22.7444 yesterday. The peso is the best performer vs. the dollar during May with a gain of 6.95%.

USD/CAD: the Canadian dollar continues range bound with support at 1.3850 and resistance at 1.4200.

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Weekly Jobless Claims for the week ending May 16^th were reported at 2,438,000, in line with the 2,400,000 estimate. The insured unemployment rate was 17.2 as of May 9^th. The largest increases in initial claims were in Florida, Georgia, Washington, New York, and South Dakota. The largest decreases were in California, Texas, Oklahoma, North Carolina, and Missouri.

The dollar weakened immediately following the Jobless Claims report, touching fresh multi-week lows, but has since recovered. The Mexican peso continues its advance against the dollar on improving risk sentiment. USD/MXN traded as low as 22.7900 earlier in the day’s session and is currently up 1.69% against the dollar. The dollar has lost ground against the BRL and ZAR, other currencies tied to risk sentiment.

The G10 currencies are slightly down vs the USD: EUR down 0.08%, DKK down 0.09%, CAD down 0.10%, NOK down 0.20%, JPY down 0.22%, AUD down 0.23%, NZD and GBP down 0.29%, and CHF down 0.39%.

The Philadelphia Fed Business Outlook survey was released today at -43.1, below the -40.0 estimate.

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The dollar is weaker today in a replay of yesterday. Increasing appetite for risk assets is building momentum, enticing flows away from the safety of the dollar.

The Mexican peso is up 1.45% today and is the best performing currency over the past week with a gain of 4.40%. One-month USD/MXN implied volatility is trending lower, currently 20.202 compared to the mid-March crisis level of 40.145. Support is seen at 23.2500 and lower at 22.9000.

AUD/USD is trading just above resistance at 0.6575, its highest level since mid-March, a remarkable 19.42% recovery from the 0.5506 March 19 low. AUD/USD 1-month implied volatility is currently at 11.585, off the 28.92 mid-March high.

Today’s gains vs. the USD: NZD up 1.05%, SEK up 0.72%, AUD up 0.70%, CHF up 0.63%, NOK up 0.54%, EUR & DKK up 0.49% and CAD up 0.47%.

Initial Jobless Claims data is scheduled for release tomorrow with an estimated 2.4mio new claims.

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Yesterday’s dollar weakness has continued into today. The US Dollar Index is down by 0.21% after yesterday’s 0.73% decline. Today’s best performing currency vs. the U.S. dollar is the New Zealand Dollar, up by 0.73%, followed closely by the Mexican peso with a gain of 0.72%. Other gains vs. the dollar: NOK and ZAR up 0.61%, SEK up 0.52%, DKK up 0.30%, EUR up 0.29%, GBP up 0.27%, AUD up 0.20%, and CAD up 0.12%. The worst performer is the JPY which is down 0.49%.

The New Zealand Dollar has gained on negative Australian Dollar sentiment. Australia’s call for a probe into the source of the coronavirus could ultimately lead to trade tensions with China, pressuring the AUD and keeping recent advances in check.

USD/CAD: strengthening CAD now approaching support at 1.3850; resistance at 1.4100.

USD/MXN: the peso is approaching support at 23.2500; resistance at 24.2500.

Monthly Housing Starts data for the U.S. were reported down 30.2% vs. the 26.0% estimate. Building Permits were reported down 20.8%, better than the -25.9% estimate.

Fed Chairman Powell and Treasury Secretary Mnuchin testify today before the U.S. Senate Banking Committee

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Promising results from an experimental coronavirus vaccine, the reopening of key U.S. industries including automakers Ford, GM, & Fiat Chrysler, and Fed Chairman Powell’s comments over the weekend have combined to lift market sentiment today.

In a weekend interview with CBS, a few of Chairman Powell’s key statements:

·         “There's a lot more we (the Fed) can do. We've done what we can as we go. But I will say that we're not out of ammunition by a long shot. No, there's really no limit to what we can do with these lending programs that we have. So there's a lot more we can do to support the economy, and we're committed to doing everything we can as long as we need to.”

·         “I would never bet against the American economy or the American people. We have a great economy. We have highly industrious people. We have the most dynamic economy in the world. And we're the home of so much of the great technology in the world.”

·         “The U.S. economy will recover. We'll get back to the place we were in February; we'll get to an even better place than that. I'm highly confident of that. And it won't take that long to get there. It will take some time to get there. So I think we're going to need to help each other through this. And we will.”

Signs of a returning global economy have led to increased interest in risk assets and away from the safety of the U.S. dollar. Performance of major currencies vs. the dollar today:

·         BRL up 2.06%

·         MXN up 1.76%

·         NZD up 1.48%

·         NOK up 1.47%

·         AUD up 1.31%

·         ZAR up 1.19%

·         SEK up 1%

·         CAD up 0.74%

·         GBP up 0.68%

·         EUR up 0.42%

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Weekly Initial Jobless Claims through May 9^th reported today showed a total of 2.98mio new claims vs. a 2.5mio estimate. This is the 8^th consecutive reading in the millions but the lowest result since the week of March 21^st at 3.307mio.

The dollar took a sharp turn higher following Fed Chairman Powell’s sobering comments on the economy yesterday... ‘The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II.’ The U.S. dollar Index has gained 0.87% since the Fed Chairman’s address, going from 99.689 to 100.556 currently as markets once again seek safety.

Today’s results vs. the USD: ZAR down 1.04%, BRL down 0.96%, NOK down 0.77%, SEK down 0.47%, AUD down 0.46%, GBP and MXN down 0.28%, NZD down 0.23%, EUR and DKK down 0.18%.

Global equities are lower as markets transition to a ‘risk off’ stance. The Nikkei Index closed down 1.74% and Hang Seng closed down 1.45%. The Euro Stoxx 50 is lower by 2.80%, FTSE down 3.30%, and DAX down 2.67%. The U.S. equity markets have just opened with the DOW & S&P500 lower by more than 1%.

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The dollar is lower today, following through on yesterday’s weakness. Today’s gains vs. the dollar: MXN up 1.35%, NOK up 1.21%, AUD up 0.68%, GBP up 0.51%, SEK up 0.50%, CAD up 0.36%, DKK up 0.27%, JPY up 0.25%, EUR up 0.25%, and a handful of other sub-0.25% gains. * The NZD is the lone decliner vs. the dollar, down 0.51% after New Zealand’s’ central bank kept rates unchanged at 0.25% in its policy decision overnight and announced a doubling of quantitative easing, from NZD$30bio to NZD$60bio.

USDCHF is down for a second straight day and is trading near the 100-day moving average line. Currently speculation abounds in the market that the fed will push interest rates into negative territory in the US as Trump calls for more easing.

USDNOK has declined for a second straight day with the Norwegian Krone gaining nearly 3% against the dollar over the last two days. 9.9500 is near term support and a break below that will signal a test of 9.7456.

The Swedish Krona has also had two positive days against the greenback and is currently just off yesterday’s lows of 9.7094. Dollar selling has been the theme the last couple days as markets speculate of negative rates in the near term in the US.

Producer Price data released today show a sharp decline in the prices for goods and materials used in the manufacturing sector. Producer prices for monthly final demand declined 1.30% in April vs. a 0.50% decline estimate. YoY producer prices declined 1.20% vs. a 0.40% estimate.

Fed Chairman Powell delivered a prepared address this morning, striking a somber note about the state of the economy: “While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks.”

Initial Jobless claims data due out tomorrow are expected to show an additional 2.5mio new jobless claims.