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The dollar rally continues in full force today, clearly seen in the U.S. Dollar Index which has traded as high as 99.910, just below psychological and technical resistance at 100.00. The dollar has gained 2.55% during February in a string of nearly uninterrupted daily advances. The global shift to safe-haven assets continues as the coronavirus is now spreading outside of China’s borders, stoking fears of a global economic slowdown.

Along with the dollar, U.S. Treasuries are higher (pushing yields to near-record lows) and gold is trading at $1,621.90, a 7-year high.

The dollar’s primary gains today are against the MXN (+1.03%), JPY (+0.65%), AUD (+0.61%), and NZD (+0.60%). Other gains are against the GBP (+0.33%) and CAD (+0.08%).

Positive economic data released today for the U.S. included the Philadelphia Fed Business Outlook at 36.7 compared to the 11.0 estimate. Also, the Conference Board Leading Index reported at +0.8% vs. the +0.4% estimate.

The USD/JPY has surged over 200+ pips in just two days caused by a data driven rally.  USD bulls are heavily favored for the short term 1 week forecast, but seeing a pull back after 1 month.  Despite prevalent fears of the coronavirus outbreak, the Yen is the worst performing G10 currency over the past five days.  This is a massive turnaround for a currency was viewed as a favorable haven.  Fears of a Japanese recession due to a virus outbreak along with belief that the USD can offer investors both liquidity and yield, have been major contributing factors to the yen’s fall.  The Thai baht tumbled to an eight month low as Asian currencies in general taking hits.  The Singapore dollar has fallen nearly 0.5% since markets opened today. 

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Fallout from the continued spread of the coronavirus, and the downstream economic impact to industry reliant on Chinese manufacturing is steering the markets toward safe-haven assets today. Apple announced a cut to its revenue outlook, warning that reduced manufacturing capacity (tied to virus-related staffing shortages) and the closure of its 42 Chinese retail outlets, would begin to impact sales of smartphones globally.

The U.S. dollar index is trading at a multi-week high; gold is trading above $1,600, nearing the multi-year high at $1,610.90; and U.S. Treasury yields are lower with 30-year debt trading at its lowest level since last September.

U.S. Empire Manufacturing data was released today at 12.9, significantly outperforming the 5.0 estimate. The positive data added to the dollar’s upward momentum.

Canada: Manufacturing Sales data for December was released today at a disappointing -0.7% compared to the survey estimate which was for a 0.7% gain. Missing the estimate is one thing, but getting the direction wrong caught the market ‘off-sides’, leaving traders no choice but to sell the Canadian dollar. The U.S. dollar has advanced as much as 0.33% vs. the CAD in trading today. Resistance at 1.3275 prevented further CAD weakness.

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Very quiet overnight ranges in the G10 currencies, notably with the CAD gaining 0.20% vs. the U.S. dollar and the GBP declining 0.20%.

The EUR is briefly out of the spotlight with today’s gain of 0.17%, putting an end to a 9-day skid where the EUR/USD declined a total 2.28%. Support is now at 1.0800 and lower at 1.0705, and resistance at 1.0925.

As expected, Mexico’s central bank (Banco de Mexico) cut its key interest rate yesterday by 25bps to 7%, the 5^th consecutive cut. In its decision the bank cited slowing economic growth (now projected at +1% compared to +1.7% only 6 months ago). Mexico has the highest inflation-adjusted interest of the G20 nations and the central bank estimates that 2.6% to be the ‘neutral’ policy rate. Another 50bps of cuts are expected by year-end. * Despite the rate cut the peso still managed to post its 4^th consecutive daily gain vs. the U.S. dollar. The peso continues to strengthen on increasing interest in emerging market exposure and the attractive yield on peso-denominated debt.

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The dollar is mixed overnight against the G10 currencies with the primary move seen in the GBPUSD at +0.49%. The pound strengthened after Prime Minister Johnson appointed a new finance minister (Rishi Sunak) who is seen as a supporter of increased fiscal stimulus. The previous Chancellor of the Exchequer, Sajid Javid, resigned after a disagreement with PM Johnson over Cabinet staffing.

Mexico’s central bank is expected to cut its official interest rate by 25bps in its policy announcement today, scheduled for release at 2pm ET. The cut to an even 7% would be the fifth consecutive rate change. Economic expansion through Q4 was weaker than expected and domestic demand has been lagging estimates. * USDMXN is higher by 0.15% today. Near-term support is seen at 18.6000 and resistance at 18.8000.

The Canadian dollar is stronger today, its third consecutive daily gain. Resistance at 1.3350 has held once again, the USDCAD’s 4^th attempt at that level since August of last year.

CPI data for the U.S. was released earlier today with monthly consumer prices below expectations at +0.1% vs. the +0.2% estimate. Yearly CPI was reported above expectations at +2.5% (+2.4% estimate).

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The U.S. dollar is modestly lower today following six consecutive daily gains in the dollar index, which rose by 1.6% over that period. The dollar is higher by 2.66% for the year, the most recent surge stemming from the outbreak of China’s cononavirus.

Today’s major move is in the New Zealand dollar, which is up by 1.11% vs. the U.S. dollar after the RBNZ left rates unchanged and signaled no rate cuts for the remainder of the year at its policy decision announcement overnight.

USDMXN remains in a downtrend with weak support surfacing at 18.6000. As markets tend to gravitate towards round numbers, the next logical support comes into play at 18.5000. The peso is the only major currency to post a YTD gain against the dollar, currently up by 1.14%. The U.S./China trade war has led to an increase in manufacturing activity in Mexico, leading to a wider trade imbalance with the U.S. and driving peso strength.

The hot topic out of Asia continues to be coronavirus fears as the number of deaths has moved about 1,000, surpassing SARS which accounted for 800 total deaths.  More than 40,000 have been infected as the Japanese safe haven continues to be range bound and steady at 110.00.  Risk on flows are dominating the markets right now as a strong global equity performance has made it difficult for the haven Yen to maintain its strength versus other majors.  SGD has come off its weakest level of the year after breaching 1.39 momentarily, a level not seen since AUG 2019.  The Sing Dollar has lost roughly 3.5% since mid-January, the coronavirus adding to an already bleak economic outlook in Singapore.  Even with the sharp drop, look for 1.39 level to hold it’s ground, especially with invertors seeing positive results in coronavirus treatments.

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Global markets are higher today, following through on yesterday’s momentum on optimism over reduced fears of the economic impact of China’s coronavirus and news of a possible vaccine out of the U.K. Renewed investor appetite for risk assets is impacting the dollar, lifting the Mexican peso by 0.35% and Aussie dollar by 0.28%. Conversely the CHF is down by 0.48% and JPY is lower by 0.24%.

Mexico: While the move into and out of risk assets is a recurring theme, today’s peso strength has finally carried it through resistance at 18.6400, a key level during the last four weeks. The USD/MXN is trading at a fresh multi-month low now, the lowest level for the dollar against the peso since early October of last year. After redrawing the lines on the chart, the next support is projected at 18.5000 and lower at 18.4000. * Leading Indicators data for December was released today at 0.16 vs. the previous 0.10. Key CPI (consumer inflation) data is set to be released this coming Friday.

Canada: International Merchandise Trade data was reported today at -0.61b, disappointing considering the estimate was -0.37b. The Canadian dollar is weaker today by 0.18% compared to yesterday’s close as the USD/CAD continues to trade up against resistance at 1.3300. * Employment data for Canada is scheduled for release this Friday.

Economic data releases today for the U.S. were MBA Mortgage Applications at +5.0% through January 31^st, ADP Employment Change at +157k (+291k estimate), ISM Non-Manufacturing Index at 55.5 (above the 55.1 estimate), and Trade Balance for January widening to -$48.9b from the previous -$43.1b.

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Asian markets staged a rally today spurred by China’s commitment to limit the economic impact of the corona virus outbreak. After several days of selloffs, the major APAC financial markets posted significant gains with Hong Kong’s Hang Sang Index (HSI) gaining 1.21%, Japan’s Nikkei +0.49%, and Korea’s KOSPI +1.84%. European markets followed with gains in the FTSE of +1.49%, DAX + 1.52%, and CAC +1.42%.

APAC and Emerging Market currencies are higher against the dollar with the ZAR +0.97%, KRW +0.61%, MXN +0.61%, AUD +0.61%, and NZD +0.11%.

Canada: the USD/CAD reached key resistance at 1.3300 yesterday, after having traded to a 1.2950 low only a month ago. A weekly close above 1.3300 will bring 1.3350 and 1.3425 into range. Support is seen at 1.3250, 1.3205, and 1.3155. * Canada’s economic calendar is light this week with employment data set for release on Friday.

Mexico: the peso is stronger today on resurgent interest in emerging market risk. Support for the USD/MXN is still in place at 18.6400, resistance at 19.0000, the range in place since early December.

U.S Factory Orders data was released today at +1.8% vs. a +1.2% estimate. Durable Goods was reported at +2.4%, in line with expectations.

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Friday’s GBP strength, driven by euphoria over the UK’s departure from the EU, is all but gone as the reality of the trade terms of the departure now become the focus. Today UK Prime Minister Boris Johnson rejected the EU’s initial draft of the future trade agreement, to be negotiated over the next 11 months, exposing a wide chasm between the two former partners. The GBP/USD is down by 1.36% compared to Friday’s close, the biggest decline vs. the USD among the G10 currencies. Next near-term support is seen at 1.2950. Resistance remains at 1.3250.

Economic data released for the U.S. this morning was primarily above expectations with Manufacturing PMI at 51.9 vs. a 51.7 estimate, ISM Manufacturing at 50.9 vs. 48.5, ISM New Orders at 52.0 vs. 47.7, and ISM Prices at 53.3 compared to a 51.0 estimate. The positive data has led to a fresh round of dollar buying interest, with the U.S Dollar Index up by 0.47% for the day.

The Mexican peso is stronger today as interest in emerging market risk (aside from Asia) makes a comeback. The peso has gained 0.50% vs. the U.S. dollar compared to Friday’s close and looks set to test support again at 18.6500. Today is a holiday in Mexico so there are no settlements.

USD/CAD: the U.S. dollar is higher today vs. the CAD, it’s 4^th consecutive daily gain, and is quickly approaching trendline resistance at 1.3300. The Canadian dollar’s daily correlation to crude oil prices currently stands at 0.973, a near perfect one-to-one relationship… a drop in oil implies a lock-step decline for the CAD.

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The dollar is sharply lower this morning vs. its major partners, the biggest drop coming against the GBP at -0.81%. Momentum favoring the pound continues to build after yesterday’s decision by the Bank of England to hold rates steady. The chance of a rate cut was only 45%, but the combined effect of no cut with positive forward economic guidance immediately revealed the GBP as undervalued. The likelihood of any cut now surfaces at mid-year (from a near-certainty at the May 7 meeting). The U.K. will officially leave the EU today at 11PM London time, which is also creating interest in long GBP positions.

Other dollar declines are against the CHF (-0.58%), JPY (-0.54%), DKK (-0.46%), and EUR (-0.45%). It follows that the U.S. Dollar Index has been sold off today, lower by 0.41% vs. yesterday’s close, and negating the previous 9 days’ worth of gains.

Global assets are flowing to the traditional safe havens (JPY, CHF, U.S. Treasuries, gold) and away from risk… equities (the DJI is -2%, S&P -1.66%, Nasdaq – 1.57%) and emerging markets (USDMXN -0.47%, USDCNH -0.28%). The conoravirus infection rate in China continues to accelerate despite efforts at containment.

Economic data released for the U.S. today showed Personal Spending at 0.2% vs. the 0.3% estimate, and Chicago PMI at 42.9, well below the estimated 48.9. The good news is that Consumer Sentiment remains strong, reported at 99.8 vs. the 99.1 estimate.

Canada reported moderately positive data today, with both monthly GDP and Industrial Prices at 0.1% (0.0% estimates). However, the data failed to translate to Canadian dollar strength with the CAD trading -0.30% vs. its southern neighbor. The USDCAD has now traded through resistance at 1.3080, 1.3150, and 1.3200. The next target is at 1.3300 (November highs and trendline resistance).