Currency Pair Overview: Dollar and Japanese Yen Strengthen On Swine Flu Scare

Overall: Usually, it is economic concerns that drive the market into risk aversion mode with traders moving to safer assets until we get the inevitable smattering of better news and the markets’ appetite for risk returns. Today the markets became risk averse on the concern that the swine flu, which continues to spread, will cause the global economy to contract further. The difference this time is that until we get the signal that the possible pandemic is contained the market may err on the side of caution and remain somewhat risk adverse. Today we saw drug company stocks rise and travel, particularly airline stocks, drop on fear that travel to foreign destinations will be affected. Of course there are other factors that affected the currency market on Monday. Traders continue to be wary of the euro ahead of the ECB meeting next week. Speculation continues to mount that the ECB will cut rates from the present 1.25%. An economic report from the U.K. this morning shows that the housing market is not yet out of the woods and equity markets in the U.S. which move back and forth across the breakeven line kept the higher yielding currencies in check. There were no U.S. economic releases on Monday. 

The Euro (Eur/Usd) The euro moved much lower on Monday, shedding more than 200 pips and breaking below the support levels formed by the 20, 50 and 100 day simple moving averages. The pair moved lower as the dollar strengthened in the broad market and as traders and trade desks continue to debate whether the European Central Bank get on the same page ahead of next week’s monetary policy meeting. The German consumer climate remained steady for May after the previous read was revised higher. German import prices fell by 0.4% extending recent declines.

The Pound (Gbp/Usd) cable declined on Monday but traded in a wide range and closed the day well off the lows. The pair dropped almost 150 pips intra-day but the 100 day simple moving average held firm and the pair bounced higher, closing lower by less than 20 pips. The pair has moved higher from the 1.3650 level in mid March and recently crossed the 1.5000 level before retreating to its current level. The U.K. economy continues to struggle and after a couple of economic releases gave a glimmer of hope for the housing industry last week, this morning’s BBA mortgage approvals release indicates the sector may still have a way to go, coming in at 26.1K, lower than the previous month’s read of 28.0K and below the expected 29.2K

The Aussie (Aud/Usd) The 20 day simple moving average was unable to hold as support on Monday and the pair closed the day lower by approximately 100 pips and testing the 0.7100 level again. The dollar strengthened in the broad market as risk aversion made a return, while equity markets, although closing off the lows, ended the day below the opening level hurting the Australian dollar. Gold prices also closed lower on the day. There were no Australian economic releases last night as Monday was a Bank Holiday on Monday.

The Cad (Usd/Cad) The cad moved higher on Monday as the dollar strengthened across the board and U.S. equity markets and crude oil prices fell. The Canadian dollar was hurt as the possible Swine flu pandemic caused speculation that travel will be hurt, especially between the North American countries. The pair gained approximately 90 pips on the day, testing the 1.2200 level at the close.

The Swissy (Usd/Chf) After losing 265 pips last week, the swissy recovered 175 pips in one day on Monday, as the dollar strengthened in the broad after the market traded in risk aversion mode and traders moved to safer assets on speculation the possible swine flu pandemic will further hurt the global economy. The pair moved above the 20, 50 and 100 day simple moving averages, all of which were broken to the downside last week. There were no Swiss economic releases on Monday. The UBS consumption indicator will be released Tuesday morning.

The Yen (Usd/Jpy) Both the dollar and the Japanese yen strengthened in the broad market as traders sought the safety of lower yielding assets on speculation the possible swine flu pandemic will be a further strain on the global economy. The yen, as would be expected, had trouble moving significantly in either direction and closed the day virtually unchanged. The pair closed the day holding below the 97.00 level. Although only a mid-tier economic release, Japanese retail sales will be released during tonight’s Asian session and may provide rare movement during the Asian session.